Scotts Miracle-Gro surges on earnings beat, $500M buyback
Hawthorne cannabis business divestiture and margin improvements drive investor optimism
Scotts Miracle-Gro shares climbed 1.5% in pre-market trading Wednesday after the lawn and garden products company delivered better-than-expected first-quarter earnings and announced a $500 million share repurchase program, alongside plans to divest its cannabis-focused Hawthorne subsidiary.
The Marysville, Ohio-based company reported a first-quarter adjusted net loss of $0.77 per share, improving on analyst expectations for a loss of $0.97 and marking a $0.11 improvement from the prior year. The stronger performance came despite challenging seasonal conditions for the typically slow quarter, which included net sales of $328.5 million from the U.S. Consumer division.
Gross margins showed meaningful progress, expanding 90 basis points year-over-year to reach 25.0% on a GAAP basis, with non-GAAP adjusted margins also rising 90 basis points to 25.4%. The margin improvement helped drive non-GAAP adjusted EBITDA to $3.0 million, up $2.1 million from the prior year.
The company's balance sheet strengthened notably, with net leverage improving by 0.49 times to 4.03x compared to the previous year, providing greater flexibility for capital allocation decisions.
Investors responded positively to the announcement of a multi-year share repurchase program authorizing up to $500 million in stock buybacks, though repurchases will not commence until late 2026. The authorization represents approximately 14% of Scotts Miracle-Gro's current $3.6 billion market capitalization.
Perhaps the most significant strategic development was the advancement of plans to divest Hawthorne, the company's cannabis cultivation and hydroponics subsidiary. Scotts Miracle-Gro entered into a non-binding memorandum of understanding with Vireo Growth Inc. to transfer Hawthorne Gardening Company in a share-based transaction expected to close in the fiscal second quarter.
The Hawthorne divestiture represents the culmination of a strategic pivot away from the volatile cannabis sector, which has faced persistent challenges including overproduction, regulatory barriers, and declining wholesale prices. The company cited "four years of unkept promises" and "total inaction at the federal level on cannabis-related issues" as contributing factors to its decision to exit the business.
"Moving Hawthorne out of Scotts Miracle-Gro is better for shareholders," the company has stated, noting that the separation will allow management to focus resources on its core consumer lawn and garden business while eliminating the earnings volatility associated with the cannabis sector.
The transaction is expected to be margin-accretive, and Vireo Growth has indicated plans to appoint Chris Hagedorn, currently Executive Vice President of Scotts Miracle-Gro and Executive Lead of the Hawthorne business, to its board upon completion of the transition.
Scotts Miracle-Gro reaffirmed its full-year fiscal 2026 guidance, projecting low single-digit growth for U.S. Consumer net sales, non-GAAP adjusted gross margin of at least 32%, and adjusted net income per share of $4.15 to $4.35. The company also anticipates free cash flow of $275 million and targets reducing its leverage ratio to the high 3s.
The guidance implies forward earnings of roughly $4.25 per share at the midpoint, placing the stock at approximately 15 times forward earnings—relatively attractive compared to the trailing multiple of 25.5 times. Analysts maintain a bullish outlook, with an average price target of $72.83, according to market data, representing roughly 15% upside from current levels.
Wednesday's pre-market advance builds on Scotts Miracle-Gro's recent recovery, with shares having climbed significantly from their 52-week low of $44.07 reached in late 2025. The stock remains well below its 52-week high of $75.64, suggesting room for further appreciation as the company executes its strategic realignment.
The combination of margin expansion, improving leverage metrics, and a clear strategy to focus on the core consumer business positions Scotts Miracle-Gro for more stable, predictable growth prospects following years of volatility associated with its cannabis investments. The $500 million buyback authorization provides additional support for shareholders, though the delayed timeline until late 2026 means immediate impact will be limited.