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Central Garden & Pet Co.$38.96($.58)(1.47%)

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 Central Garden & Pet Company Announces Fiscal First Quarter Revenues and Profits
   Wednesday, February 05, 2020 4:01:00 PM ET

Fiscal Q1 2020 sales increased 4.5% to $482.8 million; Fiscal Q1 2020 loss per share of $0.08 vs. diluted EPS of $0.03 in Fiscal Q1 2019, in line with Company expectations

WALNUT CREEK, Calif.--(BUSINESS WIRE)--Central Garden & Pet Company (NASDAQ: CENT) (NASDAQ: CENTA), a leading innovator, producer and distributor of branded and private label products for the lawn & garden and pet supplies markets, today announced financial results for its fiscal 2020 first quarter ended December 28, 2019.

“Our first quarter performance was in line with our expectations, reflecting several headwinds we anticipated and discussed on our last earnings call,” said Tim Cofer, CEO of Central Garden & Pet. “Importantly, the first quarter is historically the smallest of the year, and we continue to be confident in our full year guidance.”

Cofer continued, “As we move through the balance of the year, we will invest in numerous growth initiatives. We have identified several opportunities that we believe will yield attractive returns over time. While these investments may negatively impact our results in the short term, we expect they will help pave the way for sustainable profitable growth in the years ahead. We have also been evaluating and fortifying our long-term strategy and look forward to sharing details with investors this summer.”

Total net sales increased 4.5% to $482.8 million compared to $462.0 million in the first quarter a year ago, driven in large part by recent acquisitions. Total Company organic sales were relatively flat, negatively impacted by the timing of customer purchases compared to the prior year's first quarter, the Company's exit from the fashion decor pottery product line, a major retailer's exit from the live fish category and the impact of a fire at its pet bedding business.

First quarter gross margin declined 100 basis points to 27.2%, due to an unfavorable mix of product sales and the impact of lower volumes in certain businesses. Operating income decreased to $2.1 million from $10.2 million in the first quarter a year ago. Operating margin decreased 180 basis points to 0.4% compared to 2.2%, due in part to the lower gross margin, higher corporate expenses and increased third-party expenses.

The Company's net loss was $4.4 million for the quarter compared to net income of $1.8 million in the first quarter a year ago. The loss per share for the quarter was $0.08 compared to income of $0.03 in the first quarter a year ago. EBITDA for the quarter was $15.2 million versus $22.5 million in the first quarter a year ago.

First quarter net sales for the Garden segment rose 5.9% to $128.8 million, driven by the Arden acquisition. Organic sales decreased 4.4% over the prior year period, negatively impacted by the Company's exit from the fashion decor pottery product line. Lower revenues in the Company's grass seed and controls businesses were also factors in the decline.

The Garden segment's operating loss increased to $8.3 million in the quarter from $4.6 million in the first quarter of fiscal 2019, and operating margin declined 270 basis points to 6.5%. Both the operating income and margin decreases were driven by the pottery category, and the inclusion of the Arden business, which was not in the Garden segment's results in the first quarter a year ago. These businesses accounted for the majority of the operating margin decline during the quarter. Garden EBITDA of $(5.1) million was down from $(1.8) million in the first quarter a year ago.

First quarter net sales for the Pet segment increased 4.0% to $354.0 million compared to the same period a year ago, aided by the Company's C&S acquisition. Organic Pet sales also rose, by 1.3%, with notable strength in dog treats and chews, aquatics and wild bird feed. These gains more than offset the negative impact of lower bedding sales, in part due to a fire at one of the Company's facilities during the quarter, as well as a decline in live fish sales due to a major retailer exiting the category during fiscal 2019.

The Pet segment’s operating income increased 1.6% compared to the first quarter a year ago to $30.2 million, aided by the C&S acquisition. Pet operating margin decreased to 8.5%, a decline of 20 basis points, due to the lingering effects of supply constraints in the aquatics business experienced in the fourth quarter of fiscal 2019. Pet EBITDA of $38.7 million increased from $37.8 million in the first quarter a year ago.

The Company's cash balance at the end of the quarter decreased to $445.8 compared to $478.7 million in the first quarter a year ago. Cash used by operations during the quarter was $18.0 million compared to cash generated of $6.8 million a year ago due primarily to higher inventory levels. Total debt at December 28, 2019 was $693.4 million compared to $692.4 million at December 29, 2018. Net interest expense of $8.6 million for the first quarter increased $0.5 million from $8.1 million in the prior-year period, mainly due to lower interest earned on the Company's cash balances during the quarter. The Company's leverage ratio at the end of the first quarter, as defined in the Company's credit agreement, was 3.0x compared to 3.2x at the end of the prior year quarter.

The Company’s effective tax rate for the first quarter of 2020 was 27.6%, compared with 14.3% for the first quarter of 2019.

During the quarter, the Company repurchased approximately 829 thousand shares, or $22.1 million, of its common stock. As of the end of the quarter, the Company had $100 million available under the Board’s previously authorized share repurchase program and an additional 600,000 shares under the Board's equity dilution authorization.

The Company continues to expect fiscal 2020 earnings per diluted share to be at, or modestly above, the $1.61 earned in the prior year. The guidance is inclusive of significant incremental investment intended to support sustainable organic growth in the years ahead.

The Company will host a conference call today at 4:30 p.m. Eastern Time / 1:30 p.m. Pacific Time to discuss its first quarter results. The conference call will be accessible via the internet through Central’s website, http://ir.central.com .

Alternatively, to listen to the call by telephone, dial (201) 689-8345 (domestic and international) using confirmation #13698383. A replay of the call will be available for three days by dialing (201) 612-7415 and entering confirmation #13698383.

Central Garden & Pet Company is a leading innovator, producer and distributor of branded and private label products for the lawn & garden and pet supplies markets. Committed to new product innovation, our products are sold to specialty independent and mass retailers. Participating categories in Lawn & Garden include: Grass seed and the brands PENNINGTON®, and THE REBELS®; wild bird feed and the brand PENNINGTON®; weed and insect control and the brands AMDRO®, SEVIN®, and OVER-N-OUT®; fertilizer and the brands PENNINGTON® and IRONITE®; live plants from BELL NURSERY; outdoor cushions and pillows from ARDEN COMPANIES; and decorative outdoor patio products under the PENNINGTON® brand. We also provide a host of other regional and application-specific garden brands and supplies. Participating categories in Pet include: Animal health and the brands ADAMS, COMFORT ZONE®, FARNAM®, HORSE HEALTH and VITAFLEX®; aquatics and reptile and the brands AQUEON®, CORALIFE®, SEGREST and ZILLA®; bird & small animal and the brands KAYTEE®, Forti-Diet® and CRITTER TRAIL®; and dog & cat and the brands TFH, NYLABONE®, FOUR PAWS®, IMS®, CADET®, DMC™, K&H Pet Products, PINNACLE® and AVODERM®. We also provide a host of other application-specific pet brands and supplies. Central Garden & Pet Company is based in Walnut Creek, California, and has approximately 5,900 employees, primarily in North America. For additional information on Central Garden & Pet Company, including access to the Company's SEC filings, please visit the Company’s website at www.central.com .

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: The statements contained in this release which are not historical facts, including expectations for future financial results, earnings guidance for fiscal 2020 and new product offerings, are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. All forward-looking statements are based upon the Company’s current expectations and various assumptions. There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this release including, but not limited to, the following factors:

  • seasonality and fluctuations in the Company’s operating results and cash flow;
  • fluctuations in market prices for seeds and grains and other raw materials and the Company’s inability to pass through cost increases in a timely manner;
  • adverse weather conditions;
  • our dependence upon our key executives;
  • potential acquisitions;
  • the impact of new accounting regulations and the U.S. Tax Cuts and Jobs Act on the Company's tax rate;
  • dependence on a small number of customers for a significant portion of our business;
  • the impacts of tariffs or a potential trade war;
  • risk associated with litigation arising from our business;
  • uncertainty about new product innovations and marketing programs; and
  • competition in our industries.

These risks and others are described in the Company’s Securities and Exchange Commission filings. The Company undertakes no obligation to publicly update these forward-looking statements to reflect new information, subsequent events or otherwise. The Company has not filed its Form 10-Q for the fiscal quarter ended December 28, 2019, so all financial results are preliminary and subject to change.

CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(Unaudited)

 

ASSETS

December 28,
2019

 

December 29,
2018

 

September 28,
2019

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

445,813

 

 

$

478,737

 

 

$

497,749

 

Restricted cash

12,990

 

 

10,921

 

 

12,952

 

Short term investments

 

 

 

 

 

Accounts receivable (less allowance for doubtful accounts of $21,257, $18,030 and $21,127)

268,229

 

 

250,223

 

 

300,135

 

Inventories, net

556,479

 

 

493,745

 

 

466,197

 

Prepaid expenses and other

37,569

 

 

38,398

 

 

30,160

 

Total current assets

1,321,080

 

 

1,272,024

 

 

1,307,193

 

 

 

 

 

 

 

Plant, property and equipment, net

241,795

 

 

211,560

 

 

245,405

 

Goodwill

289,854

 

 

281,177

 

 

286,077

 

Other intangible assets, net

145,153

 

 

148,782

 

 

146,137

 

Operating lease right-of-use assets

105,277

 

 

 

 

 

Other assets

31,998

 

 

37,303

 

 

40,208

 

Total

$

2,135,157

 

 

$

1,950,846

 

 

$

2,025,020

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

184,659

 

 

$

141,186

 

 

$

149,246

 

Accrued expenses

124,774

 

 

108,245

 

 

129,166

 

Current lease liabilities

34,320

 

 

 

 

 

Current portion of long-term debt

107

 

 

117

 

 

113

 

Total current liabilities

343,860

 

 

249,548

 

 

278,525

 

 

 

 

 

 

 

Long-term debt

693,329

 

 

692,332

 

 

693,037

 

Long-term lease liabilities

75,283

 

 

 

 

 

Deferred income taxes and other long-term obligations

49,513

 

 

52,482

 

 

57,281

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Common stock, $0.01 par value: 11,484,297, 12,145,135 and 11,543,969 shares outstanding at December 28, 2019, December 29, 2018 and September 28, 2019

115

 

 

121

 

 

115

 

Class A common stock, $0.01 par value: 42,289,882, 44,059,803 and 42,968,493 shares outstanding at December 28, 2019, December 29, 2018 and September 28, 2019

423

 

 

441

 

 

430

 

Class B stock, $0.01 par value: 1,647,922 shares outstanding at December 28, 2019 and 1,652,262 at December 29, 2018 and September 28, 2019

16

 

 

16

 

 

16

 

Additional paid-in capital

570,117

 

 

592,451

 

 

575,380

 

Retained earnings

403,693

 

 

364,726

 

 

421,742

 

Accumulated other comprehensive loss

(1,240

)

 

(1,492

)

 

(1,676

)

Total Central Garden & Pet Company shareholders’ equity

973,124

 

 

956,263

 

 

996,007

 

Noncontrolling interest

48

 

 

221

 

 

170

 

Total equity

973,172

 

 

956,484

 

 

996,177

 

Total

$

2,135,157

 

 

$

1,950,846

 

 

$

2,025,020

 

CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended

 

December 28, 2019

 

December 29, 2018

Net sales

$

482,828

 

 

$

461,990

 

Cost of goods sold and occupancy

351,562

 

 

331,808

 

Gross profit

131,266

 

 

130,182

 

Selling, general and administrative expenses

129,201

 

 

120,001

 

 

Operating income

2,065

 

 

10,181

 

Interest expense

(10,641

)

 

(10,614

)

Interest income

2,004

 

 

2,537

 

Other income (expense)

305

 

 

(192

)

Income (loss) before income taxes and noncontrolling interest

(6,267

)

 

1,912

 

Income tax expense (benefit)

(1,728

)

 

273

 

Income (loss) including noncontrolling interest

(4,539

)

 

1,639

 

Net loss attributable to noncontrolling interest

(122

)

 

(164

)

 

Net income (loss) attributable to Central Garden & Pet Company

$

(4,417

)

 

$

1,803

 

 

 

 

 

Net income (loss) per share attributable to Central Garden & Pet Company:

 

 

 

Basic

$

(0.08

)

 

$

0.03

 

Diluted

$

(0.08

)

 

$

0.03

 

 

 

 

 

Weighted average shares used in the computation of net income (loss) per share:

 

 

 

Basic

54,755

 

 

56,903

 

Diluted

54,755

 

 

58,001

 

Use of Non-GAAP Financial Measures

We report our financial results in accordance with accounting principles generally accepted in the United States (GAAP). However, to supplement the financial results prepared in accordance with GAAP, we use non-GAAP financial measures including EBITDA and organic sales. Management believes these non-GAAP financial measures that exclude the impact of specific items (described below) may be useful to investors in their assessment of our ongoing operating performance and provide additional meaningful comparisons between current results and results in prior operating periods.

EBITDA is defined by us as income before income tax, net other expense, net interest expense and depreciation and amortization (or operating income plus depreciation and amortization expense). We present EBITDA because we believe that EBITDA is a useful supplemental measure in evaluating the cash flows and performance of our business and provides greater transparency into our results of operations. EBITDA is used by our management to perform such evaluation. EBITDA should not be considered in isolation or as a substitute for cash flow from operations, income from operations or other income statement measures prepared in accordance with GAAP. We believe that EBITDA is frequently used by investors, securities analysts and other interested parties in their evaluation of companies, many of which present EBITDA when reporting their results. Other companies may calculate EBITDA differently and it may not be comparable.

We have also provided organic net sales, a non-GAAP measure that excludes the impact of businesses purchased or exited in the prior 12 months, because we believe it permits investors to better understand the performance of our historical business without the impact of recent acquisitions or dispositions.

The reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in the tables below. We have not provided a reconciliation of non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis due to the potential significant variability and limited visibility of the excluded items. We believe that the non-GAAP financial measures provide useful information to investors and other users of our financial statements by allowing for greater transparency in the review of our financial and operating performance. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our performance, and we believe these measures similarly may be useful to investors in evaluating our financial and operating performance and the trends in our business from management's point of view. While our management believes that non-GAAP measurements are useful supplemental information, such adjusted results are not intended to replace our GAAP financial results and should be read in conjunction with those GAAP results.

Organic Net Sales Reconciliation

We have provided organic net sales, a non-GAAP measure that excludes the impact of recent acquisitions and dispositions, because we believe it permits investors to better understand the performance of our historical business. We define organic net sales as net sales from our historical business derived by excluding the net sales from businesses acquired or exited in the preceding 12 months. After an acquired business has been part of our consolidated results for 12 months, the change in net sales thereafter is considered part of the increase or decrease in organic net sales.

 

 

GAAP to Non-GAAP Reconciliation
(in millions)
For the Three Months Ended December 28, 2019

 

 

Consolidated

 

Pet Segment

 

Garden Segment

 

 

 

 

Percent
change

 

 

 

Percent
change

 

 

 

Percent
change

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported net sales - Q1 FY20 (GAAP)

 

$

482.8

 

 

 

 

$

354.0

 

 

 

$

128.8

 

 

 

Reported net sales - Q1 FY19 (GAAP)

 

462.0

 

 

 

 

340.4

 

 

 

121.6

 

 

 

Increase in net sales

 

20.8

 

 

4.5

%

 

13.6

 

4.0

%

 

7.2

 

 

5.9

%

Effect of acquisition and divestitures on increase in net sales

 

21.7

 

 

 

 

9.1

 

 

 

12.6

 

 

 

Increase in organic net sales - Q1 2020

 

$

(0.9

)

 

(0.2

)%

 

$

4.5

 

1.3

%

 

$

(5.4

)

 

(4.4

)%

EBITDA Reconciliation

 

GAAP to Non-GAAP Reconciliation
(in thousands, except per share amounts)
For the Three Months Ended December 28, 2019

 

 

Garden

 

Pet

 

Corp

 

Total

Net income attributable to Central Garden & Pet

 

 

 

 

 

 

$

(4,417

)

Interest expense, net

 

 

 

 

 

 

8,637

 

Other income

 

 

 

 

 

 

(305

)

Income tax expense

 

 

 

 

 

 

(1,728

)

Net income attributable to noncontrolling interest

 

 

 

 

 

 

(122

)

Sum of items below operating income

 

 

 

 

 

 

6,482

 

Income (loss) from operations

 

$

(8,368

)

 

$

30,222

 

$

(19,789

)

 

$

2,065

 

Depreciation & amortization

 

3,295

 

 

8,490

 

1,355

 

 

13,140

 

EBITDA

 

$

(5,073

)

 

$

38,712

 

$

(18,434

)

 

$

15,205

 

 
 
EBITDA Reconciliation

GAAP to Non-GAAP Reconciliation
(in thousands, except per share amounts)
For the Three Months Ended December 29, 2018

 

 

Garden

 

Pet

 

Corp

 

Total

Net income attributable to Central Garden & Pet

 

 

 

 

 

 

$

1,803

 

Interest expense, net

 

 

 

 

 

 

8,077

 

Other income

 

 

 

 

 

 

192

 

Income tax expense

 

 

 

 

 

 

273

 

Net income attributable to noncontrolling interest

 

 

 

 

 

 

(164

)

Sum of items below operating income

 

 

 

 

 

 

8,378

 

Income (loss) from operations

 

$

(4,637

)

 

$

29,755

 

$

(14,937

)

 

$

10,181

 

Depreciation & amortization

 

2,826

 

 

8,056

 

1,470

 

 

12,352

 

EBITDA

 

$

(1,811

)

 

$

37,811

 

$

(13,467

)

 

$

22,533

 

 

Denise Hooper
Central Garden & Pet Company
925.948.3671

Source: Central Garden & Pet Company



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