Key Highlights

● Hawthorne is now reported as a discontinued operation

● Annual sales edged up while fourth-quarter sales fell

● Retailers slowed purchasing in the fourth quarter

● New fiscal year guidance calls for higher sales and adjusted earnings

The Scotts Miracle-Gro Company (NYSE:SMG), long discussed among cannabis-linked equities because of its Hawthorne hydroponics subsidiary, reported its fiscal full-year and fourth-quarter results from Marysville, Ohio. The numbers describe a company that has already stepped away from that association. Hawthorne now appears only as a discontinued operation, and the release itself concentrates on lawn and garden brands, retailer purchasing and Debt reduction.

That distinction frames how the report reads for followers of the cannabis Supply chain. The release does not use the words cannabis, marijuana or hemp, and the published transcript of the Earnings call does not mention Hawthorne or cannabis at all. The remaining link is historical: the North American Hawthorne operations, which supplied nutrients, lighting and other materials for indoor and hydroponic growing, were divested in April and passed to Vireo Growth, a cannabis operator.

The headline figures were mixed in a way that is typical for a seasonal business. Annual net sales rose slightly from the prior year. Fourth-quarter net sales declined by a low double-digit rate, and the quarter closed with an operating loss, as is common for a company whose consumer Demand is concentrated in spring and early summer. Adjusted Earnings Per Share from continuing operations climbed by a high-teens rate for the year, and management issued guidance pointing higher again.

How the Hawthorne Exit Shows Up in the Accounts

The company classified Hawthorne as held for sale during the first quarter of the fiscal year and moved it into discontinued operations, restating earlier periods so that comparisons exclude it. It is no longer a reportable segment. The practical result is that continuing operations look different from the Business investors knew a year ago, and that total Net Income tells a different story from net income from continuing operations.

Net income from continuing operations rose from the prior year, while total net income fell. The gap came from discontinued operations, which recorded a pre-tax loss on the Hawthorne sale during the fiscal year. The company raised that loss modestly in the fourth quarter after post-closing adjustments. Earlier, the prior-year discontinued result had also included a non-deductible loss tied to the sale of a professional horticulture business in the Netherlands.

The restatement also matters when reading outside commentary. Market data published in late October compared the expected quarter with the prior-year sales figure as originally reported. Market data at that time shows the original figure included a Hawthorne segment. The release instead compares against a restated and lower prior-year number, so the reported fourth-quarter decline is narrower than the steep drop the preview implied.

Details of the transaction came from the buyer's side in April. Market data both reported that Vireo Growth completed the Acquisition of The Hawthorne Gardening Co. LLC, and that Vireo issued subordinate voting shares and a Warrant to Good Dog Holdings LLC. Vireo said the deal brought cash and net Working Capital along with a future supply of inventory, mainly growing media, to be delivered over the following years.

According to those reports, the share issuance left Good Dog Holdings with a mid-teens ownership interest in Vireo, rising to a somewhat larger interest if the warrant were exercised in full. Vireo also nominated Chris Hagedorn, identified as an executive vice president at Scotts Miracle-Gro and executive lead of the Hawthorne business, for election to its board. Hagedorn said that "Hawthorne fits naturally within Vireo's platform." Vireo chief executive John Mazarakis said the deal "creates a procurement platform" intended to improve supply chain management and cost efficiency.

The fiscal results therefore offer little direct read on cannabis demand. No figure in the release isolates hydroponic sales in continuing operations, and the segments that remain are U.S. Consumer and an Other category that is primarily Canada.

The Annual Picture for the Continuing Business

For the full fiscal year, net sales grew by a low single-digit rate. On the earnings call, management attributed the movement to a mix effect: branded products contributed growth, while planned reductions in low-margin mulch and Commodity Volume took some of it back. U.S. Consumer sales rose slightly and its segment profit improved. The smaller Other category also recorded higher sales and a noticeably stronger segment profit from a low base.

Gross Margin expanded on both a reported and an adjusted basis, even though management described pressure from commodity and freight costs. The company credited supply chain savings for part of that progress. Adjusted income from operations rose by a mid single-digit rate, and adjusted EBITDA increased modestly. Selling, general and administrative expenses grew on a reported basis, and corporate costs were higher than in the prior year.

Adjusted earnings per share from continuing operations came in above the upper end of the range the company had reaffirmed in September. Management said lower interest expense, a lower tax rate and Equity earnings from Bonnie Plants helped. Interest expense did fall from the prior year. In the release, management stated that the company met or exceeded its commitments on net sales, gross margin, earnings per share, free Cash Flow and leverage.

Chief executive Nate Baxter (NYSE:BAX) expressed satisfaction in the release with the company's performance and financial discipline during the year, a comment that sat alongside his acknowledgment on the call that the company did not capture its full share of a category that grew during the year. Free cash flow finished slightly ahead of the prior year and in line with the target that management had highlighted in September.

Why the Fourth Quarter Looked Weak

The fourth quarter is the seasonal low point, and this one was softer than the prior-year period. Net sales declined, the gross margin turned slightly negative, and the adjusted net loss from continuing operations widened. U.S. Consumer sales fell by a low double-digit rate, and the Other category fell more steeply. Corporate costs added to the shortfall, and adjusted EBITDA was more negative than in the same quarter a year earlier.

On the call, management tied the sales decline to retailers slowing their purchases after earlier load-in plans. Market data had flagged a similar concern, describing a purchasing slowdown after a slow April and May left retailer inventories higher than a year before. The preview also pointed to the exit from low-margin commodity mulch and soil as part of the decline.

Retailer inventory remains a live issue. Management said its largest retail customers ended the year with inventories up by a low single-digit rate and expects a low single-digit sales headwind in the new fiscal year as a result. Baxter said roughly half of the increase reflected growth in E-commerce and other channels, while the rest reflected slower takeaway in certain channels. Head of sales Josh Meihls said inventories were expected to stay roughly flat rather than be drawn down.

Against analyst forecasts, Market commentary noted a split outcome: the adjusted loss per share was slightly narrower than expected, while Revenue came in slightly below the consensus figure. It also reported that the shares rose sharply in premarket trading after the release. That reaction followed a weak stretch, as market data had noted that the shares declined after the prior report while the S&P 500 gained.

Guidance and the Commodity Offset

The fiscal outlook calls for net sales growth in the low to mid single digits, continued expansion of the adjusted gross margin rate, adjusted earnings per share above the level just reported, and free cash flow near the recent level. The company also expects its Leverage ratio to decline from the prior year. Management attributed the outlook to pricing and innovation, efficiencies in selling and administrative expense, and supply chain savings.

The call added texture to those targets. Chief financial officer Mark Scheiwer said the company was preparing for a significant commodity cost increase, driven by materials and freight, and management described a higher-than-usual share of cost of goods as already locked in for this point in the year. Urea was described as largely secured, and a large part of diesel exposure was described as hedged. Management also set a further supply chain savings goal.

Pricing is a key part of the offset. Management described mid single-digit average list price increases, focused on products where Brand efficacy supports them, with a smaller net contribution after expected volume effects. Core weed control was described as an exception that would not see price increases. Baxter also said the company retained room to use promotions if price gaps widen during the spring season.

Timing is also uneven. Management said the first half is expected to be roughly flat with the prior year, with growth weighted toward the second half, when the consumer season builds. Management added that flat to slightly lower sales could still allow the company to reach its earnings guidance, an indication that the plan leans heavily on margin and cost actions rather than on volume alone. The gross margin expansion was guided toward the low end of the medium-term range.

Brands, Black Kow and the Digital Shift

With Hawthorne gone, the growth narrative rests on consumer brands such as Scotts, Miracle-Gro and Ortho. Management closed the purchase of Black Kow, an organic composted manure brand, at the start of the new fiscal year, following an earlier exclusive distribution agreement. It expects the acquisition to contribute to sales growth in the coming year and to add to margin and earnings per share. Market data had listed the Partnership among the watch items for the new year.

Channel mix is shifting as well. E-commerce point-of-sale growth was strong, and management said the channel had grown as a share of sales, with gardens and controls among the faster categories. Outdoor insect products also posted point-of-sale gains, while lawn point of sale fell, which management attributed to lower promotion and weather. Miracle-Gro Organic was described as growing strongly, a relaunch of Turf Builder is under way, and a new organic line under the Ortho brand is planned.

Marketing is changing in parallel. Baxter described a shift in the media mix toward digital and social channels for seasonal flexibility. Management also described a new professional business unit aimed at consumers who prefer to have lawn and garden work done for them. Selling and administrative costs are planned at a roughly flat share of sales, with spending reallocated toward Marketing and room to reduce costs if sales or margins disappoint.

Debt, Technology and Capital Priorities

The Balance Sheet remains a central part of the story. Net leverage improved from the prior year but remains above the company's stated range, which it aims to reach by fiscal year-end near the close of the decade. Chief financial officer Mark Scheiwer said in the release that the company remains committed to reducing leverage and described a path toward that range. The company repaid its senior notes that were coming due during the year, a step it had first disclosed in September using revolver borrowings and excess free cash flow.

Year-end cash was low relative to total debt, inventories were higher than a year earlier, and total equity remained in a Deficit position, slightly deeper than the prior year. These figures reflect a business that depends on seasonal working capital and Credit facilities. In September the company also said it had renewed its Accounts Receivable Facility with JPMorgan Chase (NYSE:JPM) Bank, extending its Maturity into the following summer.

Capital returns continue at a measured pace. The company paid dividends during the year and began repurchases under a large board-authorized program in August. On the call, management placed dividends and debt reduction first in its order of priorities, followed by tuck-in acquisitions. Baxter described further repurchases as "opportunistic, not planned." Market data had similarly noted that management recast the program as a gradual effort.

Technology spending is the other long-running commitment. The company is replacing its enterprise resource planning system and adding complementary software in a multi-year program, with substantial completion expected during the next fiscal year after the current one. Costs from this program are excluded from adjusted results, along with severance and various impairments recorded during the year. Those exclusions explain part of the distance between reported and adjusted earnings.

What the Report Means for the Cannabis Category

For a cannabis stocks audience, the principal takeaway is about classification rather than crop demand. The release presents a lawn and garden company, and the transaction history indicates that the most direct cannabis link now sits inside Vireo Growth's operations.

Federal policy has moved during the same period. A Sheppard Mullin summary explains that the Justice Department's April order moved FDA-approved products and state-licensed medical marijuana into Schedule III, while adult-use cannabis stayed in its existing schedule pending a separate hearing.

The next points of reference are operational. Management identified retailer inventory, commodity costs, pricing response in spring, and leverage progress as the factors shaping the coming year. Each is a lawn and garden question, which itself is the clearest message from the report about where the company now stands after leaving Hawthorne behind.