The Scotts Miracle-Gro Co.

The stable outlook reflects our expectation that Scotts will maintain moderate momentum in the core U.S. Consumer business subject to fair weather conditions, continue to invest in the higher-growth hydroponics sector, and increase shareholder returns in 2021 while managing adjusted leverage around 3x. We believe reducing leverage below 3x would be temporary. We could lower the rating if we project adjusted leverage will increase to over 4x on a sustained basis. This could result if operating performance deteriorates meaningfully due to input cost volatility, escalating competition, customer losses, or extreme weather conditions in the U.S. during the company's peak season. We could downgrade Scotts if its financial policy becomes much more aggressive than we expect, there are unfavorable developments related

...We expect continued strong operating performance and improved credit metrics in fiscal 2020. The Scotts Miracle-Gro Co. has strong momentum in both the U.S. Consumer and Hawthorne segments, driven by more consumer activities as homeowners have spent more time on lawn and garden during the coronavirus pandemic. Scotts' Hawthorne subsidiary continues to take share in hydroponics. Most recently, third-quarter sales increased 27.5% year over year. We expect comparable sales growth to continue in the fall and adjusted EBITDA margin in fiscal 2020 to improve as the company benefits from operating leverage and less promotional activity. This will significantly and temporarily improve leverage to below 2.5x by the end of fiscal 2020 compared to 3x as of fiscal 2019. We expect sales growth to moderate to low-single¡digit percents in fiscal 2021, driven by low-single-digit growth in the U.S. Consumer segment and double-digit growth at Hawthorne segment. Financial policy will likely result in moderate...

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