The Scotts Miracle-Gro Co.

The stable outlook reflects our expectation that over the next year, Scotts will expand in the higher-growth hydroponics sector while experiencing a modest decline in its core U.S. Consumer business given tough comparisons, such that the company manages its adjusted leverage at about 3x. We could lower the rating if we project adjusted leverage will exceed 4x on a sustained basis. This could result if: Operating performance deteriorates meaningfully because of rising commodity, labor, and transportation costs or escalating competition, customer losses, or extreme weather conditions in the U.S. during the company's peak season; The company's financial policy becomes much more aggressive than we expect; There are unfavorable developments related to the Roundup brand, albeit a declining risk; or There

...We expect strong momentum to continue through fiscal 2021 but anticipate a modest top-line decline in fiscal 2022 as The Scotts Miracle-Gro Co. faces tough comparisons against fiscal 2021. The company has strong momentum in both the U.S. Consumer and Hawthorne segments, driven by the increase in consumer activity as homeowners are spending more time on their lawns and gardens. Scotts' Hawthorne subsidiary continues to take share in hydroponics. We expect total sales to increase about 19% and adjusted EBITDA to increase by a lower rate (in the low-teens) because of increased commodity, labor, and transportation costs in fiscal 2021 (ending Sept. 30, 2021). However, we expect consolidated revenue to decline about 5% in fiscal 2022, including a 10% decline in the U.S. consumer business, as demand normalizes and the company faces a tough comparison against fiscal 2021 figures. We expect adjusted leverage will be about 2.5x in fiscal 2021. Scotts' shareholder-friendly financial policy will likely...

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