Overview
S&P Global Ratings upgraded The Scotts Miracle-Gro Co. (NYSE: SMG) to BB- from B+ on Tuesday, pointing to better operating performance and strengthened credit metrics. The ratings agency also raised the issue-level rating on Scotts' senior unsecured notes to B+ from B- and adjusted its recovery rating to 5 from 6, which S&P defines as an expected recovery range of approximately 10% to 30% in the event of a default.
Recent operating and cash-flow performance
S&P noted that over the 12 months ended March 28, 2026, Scotts' S&P Global Ratings-adjusted EBITDA increased 13% to $704 million. That gain was attributed to a shift in product mix toward higher-margin branded U.S. consumer items, supply-chain cost savings, and solid sell-through trends. Point-of-sale activity was reported up 4% through March, with e-commerce growth supported by increased marketing and advertising spending.
In its outlook, S&P expects the company to reduce adjusted net leverage to 3.7x as of Sept. 30, 2026, as management focuses on bringing leverage in line with a company-defined net leverage target of 3.0x to 3.5x. The ratings firm says the stable outlook reflects expectations that S&P Global Ratings-adjusted leverage will remain below 4x at fiscal year end and that EBITDA interest coverage will be at least 3x during the year, including at times of peak borrowing.
Near-term forecasts and pressures
Despite the upgrade, S&P anticipates a modest decline in adjusted EBITDA to about $691 million by Scotts' fiscal year-end. The downgrade in quarterly momentum is attributed to moderate commodity headwinds, weaker point-of-sale trends in the second half driven by unfavorable spring weather, and higher cash costs related to vendor payments that had previously been settled with equity. Free operating cash flow is forecast by S&P to be around $275 million in 2026, as the company manages cash costs while increasing capital expenditure to support growth.
Impact of the Hawthorne divestiture
The ratings commentary highlighted the April 2026 sale of Hawthorne to Vireo Growth Inc. as a structural change that supports margin expansion and reduces earnings volatility linked to the cannabis industry. S&P expects net sales to rise roughly 1.5% in 2026, driven by volumes in the first half of the year, along with approximately 100 basis points of gross margin expansion and about 200 basis points of EBITDA margin expansion in fiscal 2026.
Risks beyond 2026
S&P projects that profitability could face pressure in fiscal 2027 due to inflation in key inputs such as fertilizers and energy, a dynamic the firm attributes to developments in the Middle East. Nonetheless, the agency expects adjusted leverage to stay below 4x and EBITDA interest coverage to remain comfortably above 3x in that year.
Market snapshot included in source material
The original report included a market snapshot for SMG showing a recent close and after-hours change: 63.08 ▼ -0.09 (-0.14%) Closed · 15:59:59 · USD and an after-hours quote of 63.40 ▲ +0.32 (+0.51%) After Hours · 17:08:55. This data was part of the materials referenced by the ratings commentary.
Conclusion
S&P's upgrade reflects a combination of improved EBITDA, tangible free operating cash flow generation, and a strategic divestiture that removes a higher-volatility business from the portfolio. The firm still flags near-term headwinds and input-cost risk in 2027, but its base case anticipates leverage and coverage metrics that are consistent with the stable outlook.