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DATE

Wednesday, Nov. 5, 2025 at 9 a.m. ET

CALL PARTICIPANTS

  • Chairman and Chief Executive Officer — James S. Hagedorn
  • Chief Financial Officer — Mark J. Scheiwer
  • Executive Vice President and Chief Operating Officer — Nathan E. Baxter
  • President, Lawns, Gardens, Controls & Outdoor Living — John Sass

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RISKS

  • Mark J. Scheiwer stated, "Q1 will be impacted by that. That shift probably the most. And will be more volume related given our fixed cost structure on on lower sales."
  • Hawthorne Gardening's net sales declined 44% in FY2025 following the exit from third-party distribution and the divestiture of its professional horticulture business.

TAKEAWAYS

  • U.S. Consumer Net Sales -- $311.2 million in the fourth quarter of fiscal year 2025, up 3% year-over-year, excluding nonrecurring 2024 sales, driven by volume gains in lawn products and Roundup.
  • Full Year U.S. Consumer Sales -- $2.99 billion in U.S. Consumer net sales for FY2025, excluding the impact of nonrecurring fiscal 2024 sales, up 1% year-over-year when adjusted for nonrecurring 2024 items, with e-commerce and new products contributing to growth.
  • POS Unit Growth -- 8.5% increase across categories in FY2025, following nearly 9% growth in FY2024, Cumulative POS unit growth over fiscal years 2024 and 2025 reached 17.5%.
  • Gross Margin Rate -- Non-GAAP adjusted gross margin rate of 31.2% in fiscal year 2025, up 490 basis points year-over-year and ahead of the 30% target.
  • Adjusted EBITDA -- $581 million in fiscal year 2025, a $71 million year-over-year increase.
  • Free Cash Flow -- $274 million in fiscal year 2025, exceeding the company’s target by $24 million, with cumulative free cash flow of $1.3 billion over the past three years.
  • Leverage Ratio -- Reduced to 4.1 times net debt to adjusted EBITDA in FY2025, down from 4.86 times in the prior fiscal year.
  • Advertising Expenses -- $152 million in advertising expenses in fiscal year 2025, representing an $11 million increase, plus about $10 million in incremental spend through the Roundup commission line.
  • Hawthorne Segment -- $165.8 million in net sales for Hawthorne in FY2025, marking a 44% decline, and a completed divestiture of its international professional horticulture business.
  • e-Commerce Growth -- POS units up 51% and POS dollars up 23% year-over-year, now making up 10% of total POS.
  • 2026 Guidance -- Low single-digit U.S. Consumer net sales growth expected for FY2026, non-GAAP adjusted gross margin rate of at least 32% in FY2026, adjusted EPS of $4.15 to $4.35 in FY2026, free cash flow of $275 million in FY2026, and leverage ratio expected in the high 3x range in FY2026.
  • Strategic Shift -- Management is moving activation dollars away from low-margin commodities such as mulch to branded products to improve gross margin and drive branded sales growth.
  • Multi-Year Share Buyback Program -- James S. Hagedorn said, "I would say 500 to a billion dollars would be kind of what I am going to be looking for," to be proposed to the Board for fiscal 2026 implementation.
  • AI and Digital Tools Rollout -- A proprietary digital knowledge base and consumer-facing AI applications set to launch in fiscal Q2 2026, with retail partners engaged in these initiatives.

SUMMARY

Management attributed the gross margin improvement in FY2025 to a strategic focus on branded products and the divestiture or de-emphasis of lower-margin businesses. Future growth drivers in FY2026 include expanded e-commerce, new product launches in organics and controls, and increased investments in advertising and innovation. Planned capital allocation includes a proposed share buyback program and continued reduction in debt leverage. Technology investments in AI, digital assets, and supply chain automation are positioned to accelerate cost efficiencies and consumer engagement.

  • James S. Hagedorn stated, the incentive does not even pay target unless branded growth reaches 5% in FY2026, directly tying management compensation to branded sales expansion.
  • Management reported, "SG&A rate for the full year to be similarly around that 17% metric," signaling operating cost discipline amid increased advertising and technology spending.
  • Hawthorne Gardening’s planned combination with a cannabis-dedicated entity aims to maintain a $100 million tax benefit and halt further corporate cash infusions while facilitating eventual divestiture.

INDUSTRY GLOSSARY

  • Activation Dollars: Cooperative marketing funds invested jointly by the company and retailers to promote branded goods at point of sale, not limited to traditional advertising spend.
  • POS (Point of Sale): Units or dollars sold to end consumers, tracked at the retail checkout stage rather than sales into distributors or retailers.
  • SKU Rationalization: Process of reducing the number of distinct products (Stock Keeping Units) offered to streamline operations and improve gross margins.

Full Conference Call Transcript

James S. Hagedorn: Thanks, Brad. Good morning. I will start by reminding everyone of our mission. We are getting back to being the safe harbor high return equity that was our historic profile before we embarked on our financial recovery. That includes eliminating any drama around our business, for investors to have to worry about. When you look at our outstanding fiscal 2025 results, and what we expect for this year, it is clear we are executing upon the mission. We are generating strong sales growth in our U.S. Consumer business, and substantial free cash flow. POS units at retailers are even higher, and we are improving gross margin and profitability while reducing our leverage ratio.

Our financials are stronger and the balance sheet is healthier. Most importantly, we have deepened the moat around our business with our exceptional brands, R&D, supply chain, and sales teams. We are taking more share in the consumer goods category that shows no signs of slowing its growth. Our partnerships with our retailers have never been better, and more retailers are recognizing lawn and garden as a high growth consumer category in this challenging economy. As a result of all this work, we are gaining a greater level of predictability, stability, and financial flexibility. Later this month, we will close in our new credit facility on what we expect will be better terms. A recognition of our progress.

I want to thank Mark and our Treasury team and our banks for their hard work. In addition, we are looking to take more friendly actions for our shareholders that go beyond our dependable and high dividend. This includes a multi-year share buyback program that I will put before our Board of Directors this quarter for implementation in fiscal 2026. That is the only major M&A that I am interested in right now. Buying back our own company. At the start of last year, I laid out our financial imperatives for '25 through '27. They are the foundation for consistent growth in our mid-term strategic plans. They include: U.S.

Consumer net sales growth averaged at least 3% annually, gross margin rates of 35% or higher, EBITDA growth in the mid-single digit range, and a leverage ratio of three to 3.5 times. I like to measure our progress not just by what we achieved in fiscal 2025, but by our multi-year performance against those imperatives. It is worth noting that our U.S. Consumer net sales the past two years increased by a combined 7%. In line with that annual average. Overall, fiscal '25 moved us closer to all of those targets. We delivered on every aspect of our guidance, and the list of positives is long.

Gross margin was up nearly 500 basis points, exceeding our projections, allowing us to invest even more behind our brands and deliver EBITDA of $581 million which was solidly within our guidance. Free cash flow exceeded expectations, too. Helping us drive leverage down to just over four times and reaching $1.3 billion of free cash flow over the last three years. Our guidance for fiscal '26 calls for more improvement. We expect to maintain low single digit sales growth for U.S. Consumer, and deliver gross margin approaching 33%. Leverage is expected to get safely into the 3s.

My goal today is to demonstrate that The Scotts Miracle-Gro Company is a best in class consumer goods company that deserves to be valued accordingly. Mark will cover our fiscal 2025 performance in more detail, and the guidance that will take us further down this path. I will address the building blocks for fiscal '26. Central to our plan this year are sales growth through organic volume increases, and modest pricing along with very positive gross margin improvements through continued cost savings and a strategic shift in mix. Let me explain the mix shift.

We will put greater resources behind our consumer activation programs for our branded products while de-emphasizing similar investments we have traditionally made in commodity products such as mulch. By stepping away from lower priced, low margin commodities, and focusing on our higher priced, high margin brands, we intend to drive a significant improvement in the quality of consumer sales at the retail level. You may wonder why we invested in activation around mulch and other The primary reason was to partner with our retailers use these products as an early season traffic driver. And it works. For them. But these commodities are barely profitable for us.

They require a commitment to activation dollars, they pull down our gross margin, and max out our capacity forcing us to contract with third parties to fill retailer commodity orders. Our retail partners are accepting of this shift, and are committed to ramping up joint activation programs to drive our branded product. They know the importance of our brands, and they see this as a bigger margin play for them too. There is unmatched power in our retailer programs, combined with what we do from a broader advertising and marketing perspective.

These activation investments approach $1 billion annually, On top of this, retailers put a lot of their own money into these activities to drive our products in their store online and at shelf. These programs set us apart from competitors and would be a huge investment for any consumer goods company. Our ability to invest with our retailers behind our brands literally drives the entire lawn and garden category. To ensure our associates are focused on our brand strategy this year, we will present to our Board's Comp and Org Committee an incentive plan built on the metrics of branded sales growth, gross margin, and achievement of our strategic initiatives.

This differs from incentive plans these past few years, which have been largely based on EBITDA and leverage metrics. The positive fiscal 2025 results that we are sharing with you today demonstrate how our incentives drive behavior. Another building block for fiscal 2026 is our e-commerce expansion. Online is where brands are created out of nowhere, and it is where people learn about products and they shop. We have made huge gains in this channel in fiscal 2025. We are doing exciting work to play in this space in a much bigger way. The growth opportunity is huge.

If we can capture market share in e-com, that we have in conventional retail, it is well over half a billion dollar opportunity. A lot of the e-comm gains last year resulted from our driving our brands through retail or digital channels. In fiscal '25, we achieved over a 50% increase in e-commerce POS units. Our largest retailer, e-comm sales doubled. And across retailer sites, share has grown. Nate has a dedicated team to expanding this channel. They are armed with more activation dollars, and are developing new e-comm strategies that include loyalty programs, subscription services, and more. We will expand not only what we are doing with retailers, but through our own platforms as well.

Innovation plays into this space too. We are augmenting our portfolio with products that are tailored to e-com in terms of packaging and what they offer such as the launch this year of Liquid Turf Builder and Liquid Miracle-Gro feeding products. Our supply chain is well positioned for online fulfillment. From a broader product innovation perspective, we are putting greater emphasis in organics and natural solutions. For consumers who want a less chemical approach to lawn and garden care, we are there for them. Much of this will be led by gardens, we are driving record consumer engagement and leading the entire garden category with Miracle-Gro. In fact, our organics portfolio is our fastest growing product line ever.

The team is doing a fantastic job, and I have challenged them to double their growth rate. And they have a tremendous tailwind. Our total branded gardens business has grown over 10% in units in each of the past two years. We have been gaining over one to two points of market share in each of those years, too. We have new things coming this year that will our ability to drive the entire category and bring in emerging consumers. Includes expansion of Miracle-Gro Organic, new packaging, and a bigger focus on year-round indoor gardening. Martha Stewart will again champion Miracle-Gro and the health and practical benefits of gardening.

In controls, we have exciting things planned to take our Ortho brand to a whole new level. Ortho has often taken a backseat to our other brands, including Roundup and Tomcat, but that is changing. The team is introducing over 10 new ortho products that will strengthen and expand our position in the category, valued at $5 billion. We are introducing ant, mosquito, tick, weed preventer, and light trap SKUs. We are also evolving the marketing approach, tapping into social platforms to reach a whole new demographic. Controls is underpenetrated in .com, and Ortho is well suited for it. Launch would be critical to our brand strategy. It has always been attractive because of its highly favorable margin profile.

We are taking a very sophisticated approach building off the great work in fiscal '25 where we reversed a long-term unit decline to deliver a combined 5.6% POS unit lift in branded fertilizer grass seed, and spreaders. We are changing how we market, advertise, and promote fertilizers. We have moved away from consumer activations on single bag combination solutions like Triple Action in favor of activities that emphasized multiple feedings. And what has happened? In the Midwest, our most important legacy market and where the weather was reasonable, POS unit gains exceeded 13% last year. Across all regions, Halt's POS was up 20%, 9%, This is awesome. And it demonstrates that we are on the right track.

At the end of the day, consumers just want a great lawn. And the simplest and easy way is through regular feedings for a healthier lawn. In fiscal 2026, we will launch a new turf builder line focused on feeding your lawn four times a year. It features brand new formulations that bring significant results within days. And if consumers encounter weeds, they can spot treat with our control products. We will still carry combo solutions for consumers who prefer this approach, but we expect the new line to drive even more multi-bag purchases. The partnership between the launch team and supply chain has led to significant improvements to reduce our production costs.

This will enable us to create lower price points for consumers, setting the stage for higher sales while preserving margins. We all know the price of our fertilizer bags was getting high, And with the new Turf Builder line, a consumer with an average-sized lawn could feed it all season for about $100. Let's talk about the overall lawn and garden category. It is gigantic. It is growing. It is recession resistant. And we have the most powerful brands across the entire category. We are not concerned about private label. Its share is less than 10% and according to our industry leading sources of data intelligence, it continues to decline. People are not trading down from our branded products.

This is in stark contrast to what is happening with many other CPG companies. They are not only dealing with private label share gains, they are challenged by uneasy consumer sentiment on and off tariffs, and macroeconomic noise. We are not in that place. We are relatively unaffected by tariffs given our domestic sourcing. The demographics of our consumer are in our favor. They are homeowners who are not at the lower end of the market. And they are showing up. That is evident in our point of sale. Units increased 8.5% in fiscal 2025, on top of last year's gains of nearly 9%. A 17.5% POS unit increase over two years far out distances our peer group.

It is an outstanding number for any consumer company. Let's address our cost structure. We are being very deliberate but measured. To balance out cost savings for margin improvement with necessary investments that fuel growth. We have done an outstanding job in our commitment to pull costs out. We are also undertaking a SKU rationalization to streamline the portfolio for incremental savings and supply chain efficiencies. Nate is looking to substantially invest even more this year in technology, robotics, AI, innovation, and marketing. All of which I have approved. I have spent most of my time on our consumer business, so I will pivot to Hawthorne Gardening which was cash flow positive and contributed positive EBITDA for the full year.

This improvement will aid our ultimate plan to divest Hawthorne and focus on our lawn and garden powerhouse. We are fully committed to being a pure lawn and garden company and moving Hawthorne to a place where they can be successful on their own and in their own category. If they deliver, it could create an opportunity for The Scotts Miracle-Gro Company shareholders to participate in Hawthorne's value creation down the road. Progress is being made here, Earlier in fiscal 2025, we divested the Hawthorne Collective, vehicle by which we invested in cannabis plant touching operations. In Q4, we sold the International professional horticulture arm of Hawthorne Gardening.

The next and final phase is to combine Hawthorne Gardening with a cannabis dedicated entity to create a unique integrated company like no other. It would be diversified between input supplies, cultivation, and strong brands with a geographic footprint in industry leading consumer markets. We are close and we hope to provide details soon. So we are clear, everything we are doing with Hawthorne reflects our commitment to our Board of Directors who have charged us with finding a solution that preserves and accelerates our tax benefit of about $100 million meets the expectations and requirements of our banks Ensures no more cash goes into Hawthorne. And finally positions Hawthorne for long term independent success.

To sum everything up from my comments this morning, I will emphasize two major points. First and foremost, are executing every day on our mission to make The Scotts Miracle-Gro Company the safe harbor, high return equity it should be. We are accelerating growth, and we are intent on taking more shareholder friendly We have brought stability to our company. Second, we are a best in class consumer goods company No one has the brands innovation, supply chain, and in store merchandising force that we do. We drive our business and the entire lawn and garden category. And we are investing even more heavily in the most powerful franchise in the space.

As I look to fiscal '26, we are very bullish on the year, and we have exciting things happening strategically. To further support our mission. To put it simply, we got this. Here's Mark.

Brad Chelton: Thank you, Jim. And hello everyone. Fiscal 2025 marked another year of momentum.

Mark J. Scheiwer: Highlighted by substantial progress in furthering investments in our brands, innovation and channels. Continuing gross margin improvements, strengthening of our balance sheet, and lowering of our leverage ratio. We met or exceeded all financial metrics in our guidance. Gross margin expansion, EPS, and strong free cash flow surpass projections. At the same time, we made important strategic investments to fuel our continued growth. We are set up well for fiscal 2026 to drive greater shareholder value, and I will talk about that after I review our financials. Starting with the top line. For the quarter, U.S.

Consumer net sales were $311.2 million, an increase of 3% from volume gains when you exclude the nonrecurring AeroGarden and bulk raw material sales from fiscal '24. The volume gains were driven by strong consumer demand for our lawn products and Roundup. For the year, U.S. Consumer sales increased 1%, to $2.99 billion when excluding the impact of nonrecurring fiscal '24 sales. Annual sales gains were driven by consumer demand across our categories. Maintaining of listing gains from fiscal '24, and the expansion of e-commerce. We also saw strong performance of new products such as the expanded Miracle-Gro organic line the O.M.

Scott Sons, natural grass seed, and grass food lines, and the recently launched Ortho Mosquito Kill and Prevent product. The year over year increase in sales was partially offset by anticipated slight reductions in retailer inventories. As many retailers have modified their replenishment activities to align more closely with the POS sales curve. As a result, in fiscal 2026, we expect U.S. Consumer to experience a 1% to 2% shift in sales from the first half of the fiscal year to the second half relative to fiscal 2025. This shift, while not impacting our full year results, reflects our retail partners ordering closer to the spring and summer POS sales curve.

And the impact of this shift will be felt more our first quarter. This shifting trend is an advantage for us in the long term. And given our superior supply chain capabilities, we expect to capitalize on this in the future. Stacked with fiscal '24, our two year U.S. Consumer, cumulative sales growth of 7% demonstrates the power and strength of our brands. And our long term commitment to delivering at least 3% annualized net sales growth. Our POS trends are a testament to the health of our brands, and have helped the power of U.S. Consumers' net sales growth the past two years. Consumer engagement remains high. And for the quarter, our POS dollar growth was 3.6%.

And unit growth was 11%. Over the full year, we drove unit growth of 8.5% across our categories. POS dollar gains of 1.4% The unit and dollar growth difference reflects strong POS for our soils and mulch products, with lower unit dollar values combined with our planned increase in consumer activation activities for our higher margin branded SKUs. As we look to fiscal 2026, I expect POS dollars and units to be more in line with each other as we increase our focus on the power of our branded products, as part of the mix shift strategy that Jim discussed.

The full year POS bright spots for fiscal 2025 included lawns at plus 4.2% in units, led by strong growth in grass seed and spreaders. Gardens delivered plus 10% unit growth, excluding mulch, on the strength of soils, which increased 11.4%. In our overall controls category, which includes Roundup and Ortho, relatively flat after gaining strong momentum to close the year. Which helped offset a slow start to the season. Moving to market share, our retail programs coupled with incremental advertising investments, contributed to increased consumer engagement as our overall category market share in units grew by 1%. We continue to see minimal competitive pressure from private label as recent movements at our major retailers have been insignificant.

Overall, excluding mulch, this represents less than 10% of the total category we operate in. Jim and Nate have talked about how channel expansion is a component of our growth strategy, and to that end, we drove substantial e-commerce gains primarily through our retailer e-commerce sites. For the year, e-commerce POS units were up 51%, while e-commerce POS dollars increased 23% driving e-commerce up 170 basis points to represent 10% of our overall POS. As you can see, our US consumer business is delivering on sales goals and has strong momentum as we move into fiscal 2026. Looking at Hawthorne, full year net sales of $165.8 million down 44% in fiscal 2025.

As we focused on profitability improvements, exited third party distribution, and evaluated alternatives for divestiture. In September, as part of our broader strategic divestiture initiative, for the Hawthorne segment, we completed the sale of Hawthorne's professional horticulture business based in The Netherlands. Which generated $35 million of net sales in fiscal 2025. Total company sales for the quarter were $387.4 million for the full year were $3.41 billion when excluding the impact of the Hawthorne segment and the nonrecurring sales within The U.S. Consumer our total company sales increased 3.4% for the quarter and 1% for the full year. Moving on to our total company gross margin, we saw strong improvements.

For the quarter, the GAAP gross margin rate was 6.1%, versus negative 7.1% in prior year. And the non-GAAP adjusted gross margin rate increased to 7.2%, from negative 3.1% in prior year. The quarterly improvement was primarily driven from the non-repeat of one-time inventory write-offs of $29 million recognized in Q4 of last year. Along with favorable product mix lower material, manufacturing, and distribution costs from our transformation cost savings efficiency initiatives. For the year, we ended with GAAP gross margin rate of 30.6%, versus 23.9% in prior year. And with a non-GAAP adjusted gross margin rate of 31.2% compared to 26.3% in prior year. The full year gross margin improvement was consistent with our Q4 drivers.

This strong increase of 490 basis points in our full year non-GAAP rate to 31.2% exceeded our 30% target and advanced our midterm plan to return gross margin rates to the mid-thirty percent range by fiscal '27. As you might recall, at the start of the year, we targeted $150 million in supply chain savings over a three year period. And another $30 million in savings in corporate functions. We have already achieved over $100 million in cost outs in fiscal 2025 and have strong line of sight. To the remaining savings over the next two fiscal years.

It is important to note that we continue to reinvest in a portion of these savings back into growth areas, including advertising, R&D, and technology. Moving down the P&L, SG&A for the quarter increased $19 million to $137 million due to higher short term incentive compensation and increased investments in our brands technology. For the fiscal year, SG&A increased $44 million to $603 million for similar reasons, and closely aligns to our original guidance of 17% of net sales. As for adjusted EBITDA, we continue to drive significant improvements. In Q4, EBITDA was a loss of $81.6 million versus a loss of $97.2 million in the prior year. We typically report a loss in our fourth quarter each year.

The full year fiscal 2025 EBITDA finished at $581 million a $71 million increase over fiscal '24. Below the line, interest expense continued to fall, from lower debt balances and favorable interest rates. Interest expense declined by $30 million from $158.8 million in prior year to $128.8 million. We also significantly reduced leverage ending the year at 4.1 times net debt to adjusted EBITDA. Compared with 4.86 times in fiscal 2024. The result of continued deployment of free cash flow to debt reduction along with strong improvements in adjusted EBITDA. Our free cash flow of $274 million which exceeded our target by $24 million was deployed to pay our quarterly dividend reduce debt.

Resulting in total borrowings at year end declining by $120 million Just this week, we kicked off our credit facility renewal process with our bank partners. And look forward to completing this process later in November. Based on feedback from our bank partners, we are experiencing strong support for our credit facility renewal As a direct result of our recent financial performance, strength of our brands consumer position, and our long term growth plans. As always, we appreciate our bank partner support. Looking at the bottom line, for the quarter, GAAP net loss was $151.8 million or $2.63 per share. Versus $244 million or $4.29 per share in the prior year.

For the fiscal year, GAAP net income was $145.2 million or $2.47 per diluted share, compared with a GAAP net loss of $34.9 million or $0.61 per share in the prior year. Non-GAAP adjusted earnings for the quarter were a loss of $113.1 million or $1.96 per share. Versus a loss of $131.5 million or $2.31 per share in the prior year. For the fiscal year, non-GAAP adjusted earnings were $219.6 million or $3.74 per diluted share. Compared with $132 million or $2.29 per diluted share last year. As a reminder, non-GAAP adjusted earnings exclude impairment, restructuring, and other nonrecurring items.

For the quarter, we recognized $41.8 million in charges, includes the previously mentioned $18 million loss on the sale of Hawthorne's professional horticulture business. Overall, we are very pleased with our fiscal 2025 performance, and expect to make further progress against our financial objectives and plans for fiscal '26. This includes driving net sales growth, additional gross margin improvements, strong free cash flow and reduced debt leverage. This leads me to our financial guidance for fiscal 2026. Jim laid the foundation, and I want to provide our outlook here. We expect to deliver low single digit growth in U.S. Consumer net sales built off the volume growth in our branded product lines and pricing actions.

Non-GAAP adjusted gross margin rate of at least 32% driven by our continued automation and cost savings activities. Non-GAAP adjusted earnings per share of $4.15 to $4.35 per share. Inclusive of lower interest expense as we continue to pay down debt. Mid single digit growth in non-GAAP adjusted EBITDA as we reduce the use of equity in lieu of cash compensation. Free cash flow of $275 million and leverage ratio of high 3x. We are confident in our plans and guidance. We are doing the right things to execute upon all of them. And just as importantly, we hold a powerful position in a very unique consumer space. Thank you, and I will now turn it over to the operator.

Nathan E. Baxter: Thank you, Jim. And hello everyone. Fiscal 2025 marked another year of momentum.

Nathan E. Baxter: Before we get into Q&A, I really just wanted to build a little bit on what Jim and Mark said and share some of my observations. Think the headline here is the strategy and formula that we put in place in fiscal year 2025 is paying off. It is obviously reflected in our results. But when I look at what happened at the retail environment, there was a very, very big indicator of just how important the branded business is for us. For example, retailers that leaned in and really started with brands first, grew tremendously. Grew double digits.

Retailers who I will say, lagged or did not start with that strategy, did not But later in the season when they adjusted and focused on branded growth, there was some recovery there. So for us, this is really a proof point that our focus on branded goods is extremely important. When I look at the SKU rationalization that Jim talked about, this is extremely valuable from a margin standpoint. We have been able to prove that, I think, this year because some of the margin gains are not only on the back of what we did in supply chain. But also mix. As Jim said, we are going to do more of that next year.

Commodities that we play in, while important to our retailers, and we will still play in them, we are making intentional decisions to redirect not only our manufacturing capacity, but also our, investment dollars into those categories. And it is paying off. If we look at what we did in lawns, for example, it was an amazing turnaround. Stemming the bleeding from almost a decade of just declines in units. What Sass and his team did by focusing on frequency it moved the needle. We are looking for tremendous improvement in that over the next couple years. We have got innovation coming in '26. John is going to launch the new turf builder line that Jim talked about.

In '27, we are going to follow with the with the combo bags. I want to be clear. I see this not only as a play to increase frequency, but we see it as a way to engage new consumers. Bringing new innovation like this to the market and doing it in a way at a price point that we can engage folks who had sat on the sidelines I think that is going to be key. We are doing the same thing in gardens. It was another record year. The category grew, and as Jim said, there is a lot of runway.

When I look at the MGO line, that was our fastest launch ever, more than $200 million in business over the last two years. Now we are going to shift our focus to plant food, and more importantly, indoor gardening. Sadie is going to focus on there is broadening the season for gardens, and making us a 365 day a year business. I am actually most excited about what is happening in controls. We are focusing on bug specific applications. As Jim said, we have probably got 10 or so new of innovation coming into the market. It is going to be exciting. We are going to attack indoor.

Going to attack ant, mosquito, tick, and all the challenges that consumers face out there. To build on that, we are going to continue with our channel expansion in '20 This is really what gives me the confidence that we are going to see above average branded growth. Only are we bringing new products to an innovation standpoint, but we are going to expand in channels. Ecommerce is something that both Mark and Jim talked about. We expect to see double digit gains again this year. Our retailer partners, in particular, have leaned in and seen tremendous growth more than a 100% at some accounts.

So in addition to being excited about the innovation, and the channel expansion, on the back end, we are going to continue to invest in robotics, and AI, think the results that were delivered this year are just the beginning. Supply chain has a long road map of opportunities. We are actually going to start to bring consumer facing in with new digital assets like websites and apps that lean into AI. And give the customer a new experience. So when I add all these up, I am really bullish on 26.

And then when I look at the, five to ten year road map, R&D is now focused on naturals, biologicals, organics, as well as new packaging and form factor solutions. I think the combination of this is going to be powerful. What we see in '26 is just going to be a continued build of what we have done in '25. So with that said, I am going to turn it back over to questions now.

Operator: Thank you. To ask a question, please press 11 or telephone and wait for your name to be announced. To withdraw your question, Our first question comes from the line of Jon Robert Andersen with William Blair. Your line is now open.

Jon Robert Andersen: Nate, following on your comments around the focus on the branded business, branded sales, and the mix shift associated with that. Wondering if you could talk a little bit more about how the lawns work that you are doing, the lawn strategy, which you have talked about to some extent, fits into that and how that branded focus and some of the changes you are making in the lawns business can kind of work synergistically? Thanks.

Nathan E. Baxter: Yeah. Thanks, Jon. Let me let me kick it off and I am going to turn over to John Sass. Who runs that business unit. Look, I think the thing that we realized as we looked at that unit decline algorithm over the last decade is that not that consumers were trading down to lower priced products, it is that they were just stepping aside and staying out of the category. So there is a couple of things here that is part of this. You know, we talk about frequency, So I would say John primed the pump in '25 on frequency. You know, while we did not bring any new innovation to market, we talked about our products differently.

We leaned in on two for ones, trying to build that, sort of consumer habit. That was a big part of the trade dollars that we last year. And I think those were well spent, and we will continue to spend dollars on those this year. It will take a couple of years to get consumers sort of recalibrated to the benefits of feeding monthly. On the household penetration side, that is a little bit more challenging. You are talking about bringing in new consumers. So I think what John is doing with this new straight food, which is a totally new formula, low cost, easy to apply, going to deliver great results in a period of time.

I honestly think we are going to see growth both in frequency from existing consumers who will supplement their

Nathan E. Baxter: But also, we are going to make it simple and low cost for new consumers to come in. I am I am really excited about it. John, I will let you make a few comments on sort of where you are headed with that business.

John Sass: Yeah. Thanks, Nate. I would just sort of add a little bit more color by classifying what we are doing on a long business as an aggressive category reinvention. It has been said a couple times here that, you know, we have been experiencing category unit decline and the only way to really reverse that trend was to reinvent this entire portfolio in this business. And we are doing that with the consumer at the center of everything we are doing. They just alluded to having a great lawn is not that hard. It just requires regular feeding. And so we are doing that with the products that are effective.

They are going to be affordable, and they are going to lead with claims like safety use around kids and pets That is the crux of the issue, and that is what we are going to be doing starting in '26. Changing consumer behavior is a challenge, and that is what we are in we are going to do our entire marketing approach is shifted to do in order to do that. New advertising campaign, our promotional plans are different. And over the next years, as Nate just alluded to, we have an entirely new revamp product lineup that is going to solve those consumer, pain points.

So when you look at the, what we saw from results in 2025, we are super bullish on sort of the start of this reinvention. Still early in the process, but I believe over the next two years, we really excited on what we are going to do with the launch business. Very helpful. John, maybe John, just to add, this is Mark Shiwer. To me, on the finance side, it to me, this translates to higher incremental unit sales higher shipments, higher POS units, And then from a gross margin profile, this also means very strong gross margin improvement mix as we continue this journey. So I think those are all positive things.

Built off the back of what they said. And we continue to put investment dollars at work as we make transformation savings activities and adjust our SG&A to fuel this growth.

Nathan E. Baxter: Yeah. And sorry, Jon, I will add one more thing, which is just broadly not specific to law. But I want to be really clear. When we the guidelines I put in place on anything we are doing from a SKU rationalization standpoint, must be margin accretive and must replace any top line we lose. And those are the golden rules, and the team is doing a really good job on it. And look, this is going to be a couple year process, but I think we are starting to see the fruit of that in terms of our margin profile. Great. Thanks so much.

Operator: Thank you. Our next question comes from the line of Andrew Carter with Stifel. Your line is now open.

Andrew Carter: Thank you very much. Good morning. I wanted to come back to the private label point you made. I know that there was a bifurcation in approaches this year, and, you kind of reiterated the branded solution. In totality, did that focus that unique focus hurt you hurt your numbers, or was it ultimately a trade off that you just it was a zero sum game, and you were kind of indifferent to it. And, really, the biggest challenge to you would be a universe approach of private label. That would have impact you.

James S. Hagedorn: Well, hi, Andrew. How you doing here?

Andrew Carter: Mean, a couple of ways I would sort of approach that Number one, I do not feel like we are under

James S. Hagedorn: private label pressure at all. I have been running this business for a long time, and I have seen it where there has been much more significant pressure I think us I think the last time we talked, we calculated we were up 2%. I think we ended the year about 1% up in share, which given the amount of share we have in our categories, I think is fabulous. The so

Andrew Carter: I think where we got

James S. Hagedorn: pressure and at least where I have heard about it, like, mostly on, like, these calls,

Andrew Carter: with one you know, analyst who wrote about that.

James S. Hagedorn: You know, I think we looked at it and said it is it is remember, we do not make

Andrew Carter: hardly any

James S. Hagedorn: margin on our commodity business. We a lot of what we do for retailers, it is important to the category But the biggest thing was you know, when people told me we were, like, out of capacity on mulching, we are, like, going third party. It was yeah. So on business, we made nothing on. We are

Andrew Carter: like, paying other people to make it for us. Plus, there was a lot of activation dollars going behind it Nate and I just made the decision. Like, we are just we are going to pull away from this. It is and take the biggest thing is take the activation hours

James S. Hagedorn: and put the activation hours against the branded business. We

Andrew Carter: we know that works, and we are not talking insignificant money here.

James S. Hagedorn: So I think refocusing that

Andrew Carter: money on away from commodities

James S. Hagedorn: And by the way, the

Andrew Carter: you know, I have been involved in a lot of these discussions with

James S. Hagedorn: our largest retailers. There is a very, very significant commitment to our program

Andrew Carter: next year. Less private label,

James S. Hagedorn: you know, pressures than we had before. And so, you know,

Andrew Carter: we are not that interested in the commodity. There are other people who are happy working with no margin. That is good for me.

James S. Hagedorn: We are willing to play. We are not willing to play to lose money.

Andrew Carter: And the activation dollars are going to go where we make money. And what we are seeing is a really good reaction to that shift change for us.

Nathan E. Baxter: Yeah. Maybe let me just comment on the state of our relationship with the retailer. I mean, it is as strong as I have seen it in the few years I have been here. I, again, just referencing sort of what we saw in '25, those that lead led in led with branded products. Won big, and I think everybody recognizes that. So we are almost done with our program negotiations. We are totally aligned with our retailers. We are focusing on branded products. Look, we will still serve some of the commodity and label. It is not like we are going to zero.

When I look at the empty calories associated with those and when we jointly, the retailers and us, look at the margin opportunity on the branded product, it is sort of a no brainer. And we have built all of our programs in '26 really around that these So I am feeling very good about that. And I think it is it is on us to show the consumer that we have got efficacy and value. And I think our products speak for themselves. And just to put a punctuation point on the lawns business, I think with the new products coming out in 2027, it is going to just throw Accelerant on that fire.

Andrew Carter: Thanks for that. I guess to speak to activation, I wanted to back up on a number you gave a while ago, $200 million advertising support. And there is some puts and takes in that number. Know that is not an apples to apples and needs some update. But what are your expectations for total commitment to advertising at this point? Did you achieve it in '25? How much how much

Nathan E. Baxter: Yeah, sure, Andrew. Let me comment. So my longer term target is I think we need to be around 8%. We saw a tremendous ROAS with that this year. So believe in advertising. I would like to get to 8%. We are below 5% across sort of the average of all our categories. So more we can do. A nuance, though. It is not just the raw dollars. One of the big pivots we are making this year is we lean into digital and all that is available from a personalization and targeting standpoint. We are going to spend those existing dollars, much more with much more efficiency.

So, yeah, I think in the midterm, I would like to be north of $200 million. In the long term, I would to be closer to 8% of revenue. We did make incremental investments last year. I intend to make additional incremental investments this year. And again, we are really revamping. We are we are shifting away from sort of the linear streaming. We will still be there for the biggest sports events. But we are really starting to get our sea legs when it comes to understanding digital and working both with internal and external partners to figure out how to execute on that. So I think it is exciting times, but advertising works.

And as long as fits with Mark's growth algorithm, we are going to invest as much as we can in that space. And Andrew, just tactically, I think

Mark J. Scheiwer: for the year, we will land around a $152 million of advertising expense you will see in the k. That is about $11 million increase over prior year. And then within our roundup commission line, we also that is that is a business that also does advertising. The full p and l of that business is not in our p and l. We just get a commission off of it. Did have around $10 million of incremental spend in advertising as well. So you are talking a $20 million plus stack increase. Our advertising ratio, I think, will come in about 50 to 60 bps higher than prior year as a percentage of sales on a two year basis.

Over the past two years. 've grown at a 100 basis points. Our margin expansion at the gross margin line helps fuel, that growth. And as I look to next year, we talked about transformation activities and cuts and in both the second and third quarter. A lot of those activities and cuts that we that we did, some of those hard decisions in various areas of our SG&A. Will help reallocate and put towards advertising. So I very much expect to see our advertising continue to increase, at a level commiserate with what you saw this fiscal year in our results. You know, I just I

James S. Hagedorn: look. I hear this conversation, and you are not going to find a bigger supporter for

Mark J. Scheiwer: increased

James S. Hagedorn: sort of ad spend and, you know, it is one of our core convictions. You know, advertised because it works. That said, this the words we are using activation you know, I think because of the uniqueness of lawn and garden and the relatively few retailers the amount of money that we can put behind our business that And remember, retailers are putting more of their own money into it. It is I listen. Maybe there is another retail category that gets the kind of support that we put behind it. But I think it is very challenging to say, you know, what is advertising? You know? What is activation?

And I think looking back the old ways where it was like, rebates or, you know, in incentives. It is not like that anymore. This is very much joint marketing between us and our retailers. That is so powerful that, you know, it is it is I would not want to be somebody else but us.

Andrew Carter: Thanks. I will pass it on.

Operator: Thank you. Our next question comes from the line of Joe Altobello with Raymond James. Your line is now open.

Joe Altobello: Thanks. Hey guys, good morning. Just want to go back to the outlook for sales

Mark J. Scheiwer: for this year. And I guess,

Joe Altobello: even further back than that, when we were together in mid 2024, given the at the Investor Day, talked about, you know, 3% US consumer sales growth. We are obviously very low single digits this year, it sounds like low single digits next year. So I guess my question is how do we get back to 3%? Because if I do the math, that would imply '27 would be up

Joe Altobello: you know, call it mid single. So is that is that the, you know, the mix shift toward branded? Is there a very a very robust innovation pipeline in '27, but do we get comfortable with that ramp in '27, I guess, what I am asking?

James S. Hagedorn: Dude, I back I back up to this year. You know, I do not really want to share our incentive targets you know, on this call.

Mark J. Scheiwer: But

James S. Hagedorn: put it this way, the incentive does not even pay target if branded growth does not hit 5%.

Mark J. Scheiwer: Okay? And you are speaking about '26.

James S. Hagedorn: Yeah. I am talking about the fiscal year we are in. So, you know, I think I sort of hate these discussions about, like, low single digits. Because what we are seeing you know, in the field is a lot better than that. I think we have got Hawthorne mixed in there. You know, I think it makes us look like a low growth company. I think we have some mix issues of commodity, which appears to sort of slow the rate down of dollar growth. I think if the unit growth that really matters.

Joe Altobello: But

James S. Hagedorn: branded growth next year has to exceed 5%. And if you look at branded growth the last two years, it is not a scary number for people. Because we are we are already doing it. We are going to start talking and breaking out for you guys branded growth so you can track it alongside of us. But yeah. No. I would be embarrassed. To say it is low single digits I think the future is really good for us because I think it is a lot of really good stuff happening here.

Joe Altobello: But I think you will see it next year.

Nathan E. Baxter: Yeah. For sure. I mean, Joe, look, my algorithm is pretty simple. I expect a few percent from innovation. One to 2% from pricing, and a few percent from, you know, volume growth through channel

Nathan E. Baxter: expansion.

Nathan E. Baxter: And potentially small tuck in M&A if we find the right deal. So look, think you are right to ask the question, but when we lay out 26 and we look at the retailer plans that we have and we look at the growth especially in e-com, and the Hispanic channels, I am pretty 27, we will really have the flywheel turning, to your point, there is actually a fair amount of innovation coming in '26. And we are going to do what we did last year with our mosquito kill and prevent product, which is we are not going to necessarily wait if something is available.

It is a little bit out of cycle with a brick and mortar retailer. We are going to launch it online with them and with others. So, my intention is that we are putting new innovation out into the market as soon as it is ready versus waiting. And then I would say on the channel expansion side, we have dedicated teams to e-com, nontraditional channels, and as I said, Hispanic, and large format. So whether it is large yard or small prose, we have got irons in the fire that should drive that channel expansion, and I feel pretty we will get that couple of percent out of that

Joe Altobello: Super. Thank you, guys.

Operator: Thank you. Our next question comes from the line of Jonathan Matuszewski with Jefferies. Your line is now open.

Jonathan Matuszewski: Great. Good morning and thanks for taking my questions. My first one was on AI. Nate, you mentioned it a couple of times. There has been a lot of press about you guys seeking to digitize

Jonathan Matuszewski: your library of lawn and garden knowledge.

Jonathan Matuszewski: So maybe just update us on how you are bringing your retail partners into the conversation.

Jonathan Matuszewski: Conversation here? And do you see a scenario where maybe their e-commerce

Jonathan Matuszewski: website search bars or the

Jonathan Matuszewski: held devices their associates use, increasingly lean on SMG's data to recommend your SKUs over competitors when the consumer is seeking expertise? Thanks.

Nathan E. Baxter: Yeah. Hey, Jonathan. Great question. Thank you. So, yeah, we have been on a multi-year journey here and I think, yeah, a lot of the press really focuses on sort of the back end, and obviously is driven a lot of our efficiencies. 2026 is going to be the year when we are ready to engage with the consumer. Look, view is this and it is aligned with retailers. We have talked to almost all of them because I do think there is an opportunity to get our technology in their hands. So we will have our own proprietary libraries and large language models. We are looking for ways to give them access. The ecom is the easiest.

And our view is that as we maintain our digital assets, which will include not only all new PDPs that are modernized more clear but will include, you know, if you remember the old ortho problem solver book, we are going to digitize all of that. And not only will it be available to consumers on our websites and apps, but we will make sure that our retail partners have access to those as well. As for in store, our associates already have access that in store. I am not sure we can actually get that aligned with their handheld systems, but it is a topic of discussion.

And we have always been open with our retailers, not only on giving them that, but also we talked, I guess, probably a year ago, less about AI and more about how we have leveraged machine learning. To have better predictability for retail inventories. That is data we share constantly with our retailers. So, it is a good push and a good We intend to do it, but we need to control that data because it is our data. And that is the challenge and we expect to see that launch to the consumer, in Q2 of this year. Our fiscal Q2.

Jonathan Matuszewski: Okay. Thanks. And then just a quick follow-up. You know, Mark, with

Jonathan Matuszewski: with the commentary about retailers ordering closer to the POS curve and the revenue shift between the halves,

Jonathan Matuszewski: Just curious if there is any thoughts on the impact to

Jonathan Matuszewski: gross margin cadence this year relative to last year, add the effect of any Hawthorne divestiture? And I guess similarly on SG&A, sounds like there is more of a regular pulsing of advertising going forward, versus in the past. So just curious how that impacts the cadence for maybe SG&A dollars this year versus last? Thanks. Sure. So I will I will I will this is Mark Shire. Jonathan. On the on the sales shift, it is going to be predominantly as I as you heard in my prayer prepared remarks, Q1 is probably where it is going to get impacted the most.

I call out one to 2% I would say we have good line of sight you know, to the next few months here. So as I look at that one to 2% shift first half, second half probably going to be amplified in Q1. Still expect gross margin to improve in all of the in the subsequent quarters, obviously, Q1 will be impacted by that. That shift probably the most. And will be more volume related given our fixed cost structure on lower sales. As I think of SG&A, the pulsing, you are you are on point on that.

The thing I would highlight on SG&A both this year and as we look to next year, is we continue to have flex in our SG&A. So I would expect our SG&A rate for the full year to be similarly around that 17% metric. We have done a lot of transformation activities to reallocate dollars to those growth engine areas like advertising. And then at the end of the day, we have other flex within our SG&A spend from an incentive perspective, both come when you compare it to this year and into next year. So I think if from a modeling, SG&A, I would say we should be pretty close in line to what you saw this year.

Thank you.

Operator: Our next question comes from the line of Peter K. Grom with UBS. Your line is now open.

Peter K. Grom: Great. Thanks. Good morning, everyone. So

Peter K. Grom: maybe a similar question just on

Peter K. Grom: your profit trajectory and maybe just the gross margin guidance of at least 32%. And Jim, I think you mentioned in your prepared remarks approaching 33%. So can you maybe just walk through kind of building blocks? And then I guess I am curious, just considering the outperformance this year relative to your are you embedding similar levels of flexibility this year?

James S. Hagedorn: Well, I will just take the beginning. You know, I was under pressure from Shire on what I put in my script My expectation is higher than that. Okay? And the incentive is based on a higher number than that as well. So, you know, I think we are trying to sort of underpromise here but, I think we have line of sight to kind of call it, 33 or whatever is I said. Yep.

Mark J. Scheiwer: So maybe, Peter, this is Mark Shire. We are just the building blocks of growing at least a 100 basis points and then I can maybe turn it over to Nate as also to kind of talk about some of the projects. But the building blocks include pricing. So we have we have taken pricing with our customer base And I would expect to net out at least at least a point of pricing. We have we have called out in any one year. We typically also get cost savings from a supply

Mark J. Scheiwer: chain

Mark J. Scheiwer: They historically run about 1% of sales. And I would and as we have modeled for this year conservatively, we have put in a point. You have seen what we have done this past year in '25 where we have we initially guided to 30% gross margin rate. We are we are able to over deliver The team's got a lot of outstanding projects they are working on from a supply chain savings perspective and execution. Our CapEx plan that we have laid out both last year and heading into this year are focused on areas that provide us some really great returns. And provide us a strong automation.

So I am hopeful we can outperform that conservative kind of kind of call plan of 1%. Cost savings. And then offsetting that will be some level of commodities and tariff pressure that in around numbers is about 1%. So that is how the guide worked. From a financial metric. Obviously, there is opportunity to over perform there and I will let Nate speak to some of those initiatives.

Nathan E. Baxter: I will just keep it simple, Peter. You know, I think when I when I look at the internal plan that I am building with the team, it is obviously more aggressive And I have got levers between mix supply chain who continues to overproduce, pricing. So I am I am pretty comfortable that, I have got levers and room to operate. And I think to Jim's point, we are we are going to be aggressive in how we attack that. But, you know, early in the season, so, still putting those plans together.

Peter K. Grom: Okay. Awesome. And then I guess, Jim, you touched on putting a multiyear buyback program in front of the board for implementation this year. Any details you can share in terms of the size of the buyback, maybe what the impact might look like this year? And I am assuming the answer to this is no. But the earnings guidance, that does not include any benefit from any potential buyback. Right?

James S. Hagedorn: That is correct. You know, look. I we have a board meeting Friday, We have got an hour dedicated to this. I think I have talked to most of the board members, so I think there is a high degree of support. I know Mark is supportive and we have been working closely with our largest the investment banks of our largest banks to make sure they are comfortable and helpless with sort of the math. I think everybody feels like we can make a significant impact over time.

Mark J. Scheiwer: So

James S. Hagedorn: know, I do not know. If I was throwing a number out, I would just say, you know, what would I be looking for the board over a multiyear so this is not with a definition of how many years But I would say 500 to a billion dollars would be kind of what I am going to be looking for, and I think Mark is not freaking out when I say it.

Mark J. Scheiwer: No. I think, Peter, if you look at our history, we have traditionally had around

Mark J. Scheiwer: a 500 to a to a billion program. Jim alluded to you know, at this point, no definite time period as to what that would be purchased. We would obviously govern that activity based on our leverage as we get below four times and we have got good line of sight as we head into '26 to get below four times. So that is that is really great. So I think the next part will be just the phasing and the execution. And as Jim said, it is it is currently not in our EPS.

James S. Hagedorn: I mean, look, we look at our what we are trading at today and it is, you know, I we put a ton of work into it, and you know, I know Wells and JPMorgan have as well. You know, I think the entire consumer you know,

Mark J. Scheiwer: goods business are trading off their sort of

James S. Hagedorn: normal historic multiples. You know? But it is it is it is a lot for us. Even though we are probably not different than the other companies. But I do think that you look at our historic multiple, we are trading at a pretty relative deep discount at this point. So we feel like it is an opportunity. The one thing we do not want to do is get ahead of it to the point. I am I am talking within twenty six.

Mark J. Scheiwer: But get ahead of it where

James S. Hagedorn: know, we get aggressive upfront, something happens, you know. Because I think if you look at sort of what does affect our multiples, you know, bad news. And so you know, I think where we are is you know, we will get approval

Peter K. Grom: this calendar year.

James S. Hagedorn: We will step into it in '26 I think, just as long as we have this ability to kind of our performance and where we are going to be on a leverage point of view. So I think leverage is probably the guidepost for us, which is definitely below four times. And I think then my view is we will

Peter K. Grom: execute.

Peter K. Grom: Awesome. So much. I will pass it on.

James S. Hagedorn: You got it. Thank you.

Operator: This concludes the question and answer session. You all for your participation on today's call. This does conclude the conference. You may now disconnect.