Central Garden & Pet Company Announces Fiscal Third Quarter Results
Fiscal 3Q 2016 sales increased 12.0% to $514.5 million;
Fiscal 3Q 2016 Diluted EPS increased 34.2% to $0.51 from $0.38;
Adjusted Fiscal 3Q 2016 Diluted EPS increased 26.3% to $0.48;
Raised Adjusted EPS guidance to $1.18 or higher for FY 2016
WALNUT CREEK, Calif.–(BUSINESS WIRE)–Central Garden & Pet Company (NASDAQ: CENT) (NASDAQ: CENTA), a leading
innovator, marketer and producer of quality branded products for the
lawn and garden and pet supplies markets, today announced financial
results for its fiscal third quarter ended June 25, 2016.
Fiscal 2016 Third Quarter Financial Results
-
Sales increased 12.0% to $514.5 million compared to $459.4 million in
the third quarter a year ago. Organic sales growth, excluding three
businesses acquired in the prior 12 months and one business exited
earlier in the year, rose 5.0%. The Pet and Garden segments both
experienced organic growth; -
Gross margin improved 90 basis points compared to the third quarter a
year ago to 31.8%, driven by a favorable mix of product sales, reduced
raw material input costs and manufacturing efficiency improvements; -
Operating income of $48.2 million increased 23.6% compared to the
third quarter a year ago. Operating income included a $2.4 million
gain on the sale of a manufacturing plant. Operating margin of 9.4%
increased 90 basis points compared to the third quarter a year ago; -
Net income on a GAAP basis of $26.0 million increased 38.5% compared
to the third quarter a year ago, and earnings per diluted share
increased 34.2% to $0.51. On an adjusted basis, excluding the plant
sale, net income was $24.5 million, and earnings per diluted share was
$0.48.
“Central’s strong showing this quarter continues its trend of revenue
and profit growth,” said George Roeth, President & CEO of Central Garden
& Pet. “The areas where we have been focused are the main drivers of our
success. Organic sales growth was driven by our customer first
orientation, our gross margin expansion was enabled by executing on key
cost savings initiatives, and our bottom line was enhanced by the
effective on-going integration of our recent acquisitions and exiting an
unprofitable business.”
Pet Segment Fiscal 2016 Third Quarter Results
Third quarter net sales for the Pet segment increased 20.6% to $287.2
million, from the same period a year ago. Pet organic sales grew 4.3%,
driven by higher sales of other manufacturers’ products as well as
strength in the professional and wild bird feed categories. The Pet
segment’s branded product sales were $227.8 million, up 24.3% compared
to the third quarter a year ago and sales of other manufacturers’
products were $59.4 million, an increase of 8.4%.
The Pet segment’s operating income rose 17.7% compared to the third
quarter a year ago to $38.7 million and included a gain of $2.4 million
from the sale of a manufacturing plant during the quarter. Pet operating
margin decreased slightly to 13.5%, a decline of 30 basis points
compared to the third quarter a year ago.
Garden Segment Fiscal 2016 Third Quarter Results
Net sales for the Garden segment rose 2.7% compared to the third quarter
a year ago to $227.3 million, despite a decrease of $7.7 million from
the seasonal decor business that the Company exited earlier in the year.
Higher sales of other manufacturers’ products, as well as gains in wild
bird feed and controls revenues, drove the sales increase. The Garden
segment’s branded product sales were $175.9 million in the quarter, down
2.5% compared to the third quarter a year ago, reflecting the exit from
the seasonal decor business. Sales of other manufacturers’ products were
up 25.7% to $51.4 million.
The Garden segment’s operating income in the quarter rose 12.8% compared
to the third quarter a year ago to $26.5 million. Garden operating
margin improved 100 basis points to 11.6%. The increase in operating
margin was driven by the absence of the seasonal decor business, which
the Company exited earlier in the year, as well as a favorable mix of
product sales, lower raw material costs, and manufacturing efficiency
improvements, somewhat offset by increased marketing expenditures.
Year-to-Date Results & Fiscal Year Guidance
- Net sales increased 12.0% to $1.42 billion from the prior year period;
-
Branded product sales of $1.11 billion increased 10.7% and sales of
other manufacturers’ products of $302.7 million rose 17.0%; -
Operating income of $116.4 million was up 29.1% over the prior year
period and included $2.4 million of gains from a manufacturing plant
sale. Operating margin increased 110 basis points to 8.2%; -
Net income on a GAAP basis was $50.1 million, a 37.9% increase
compared to the prior year period; -
Earnings per share increased 35.6% to $0.99 per fully diluted share;
and -
Adjusted net income, excluding $14.3 million of charges in the first
quarter related to the Company’s refinancing of its fixed rate note
and $2.4 million of income related to the sale of a manufacturing
plant in the third quarter, was $57.8 million, a 59.1% gain compared
to the nine-month period a year ago. Adjusted earnings per fully
diluted share increased 56.2% to $1.14.
Roeth said, “Going forward, we will be even more aggressive in executing
on the initiatives we believe are important to the Company’s long-term
success. These include continuing to focus on our customers’ needs,
increasing our innovation output and success rate, and lowering our
costs to invest in growth. While there is a near-term cost to some of
these actions, we believe we will have the financial flexibility to fund
incremental investment while continuing to drive meaningful sales and
profit growth.” Roeth concluded, “We will have more to say on our
longer-term strategy and goals later this calendar year. In the
meantime, we will stay focused on executing on our current plan.”
The Company currently expects adjusted earnings per fully-diluted share
of $1.18 or higher for fiscal 2016, an increase of over 59% from the
prior year.
Additional Information
Total debt at June 25, 2016 was $395.1 million compared to $396.7
million at June 27, 2015. Net interest expense was $6.9 million for the
third quarter compared to $9.0 million in the prior-year period. The
decline in interest expense was due to the Company’s debt refinancing in
its fiscal first quarter.
The Company’s effective tax rate for the third quarter of 2016 was
35.9%, compared with 37.5% for the third quarter of 2015. The decline in
the tax rate was due primarily to projected additional tax credits in
the current year quarter. During the quarter, the Company did not
repurchase any shares of its common stock. Approximately $35.0 million
remains available under the Board approved share repurchase program.
Conference Call
The Company will host a conference call today at 4:30 p.m. Eastern Time
/ 1:30 p.m. Pacific Time to discuss its third 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 #13639789. A replay of
the call will be available for ten days by dialing (201) 612-7415 and
entering confirmation #13639789.
About Central Garden & Pet
Central Garden & Pet Company is a leading innovator, marketer and
producer of quality branded 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®, IRONITE® and
OVER-N-OUT®; 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™ and
ZODIAC®; aquatics and reptile and the brands AQUEON®, CORALIFE® and
ZILLA®; bird & small animal and the brands KAYTEE®, Forti-Diet® and
CRITTER TRAIL®; dog & cat and the brands TFH™, NYLABONE®, FOUR PAWS®,
IMS™, CADET®, PINNACLE® and AVODERM®; and equine and the brands FARNAM®,
HORSE HEALTH™ and VITAFLEX®. 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
3,700 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 favorable results
and cost reductions and earnings guidance for fiscal 2016 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 ability to pass through cost increases in
a timely manner; - adverse weather conditions;
-
the recent transition to a new CEO and our dependence upon our key
executives; -
dependence on a small number of customers for a significant portion of
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.
CENTRAL GARDEN & PET COMPANY |
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ASSETS |
June 25, 2016 |
June 27, 2015 |
September 26, 2015 |
|||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 40,000 | $ | 43,841 | $ | 47,584 | ||||||||||||||
Restricted cash | 12,029 | 12,590 | 13,157 | |||||||||||||||||
Accounts receivable (less allowance for doubtful accounts of $25,429, $18,573 and $19,296) |
241,954 | 223,149 | 207,402 | |||||||||||||||||
Inventories | 361,813 | 340,233 | 335,946 | |||||||||||||||||
Prepaid expenses and other | 45,075 | 54,558 | 49,731 | |||||||||||||||||
Total current assets | 700,871 | 674,371 | 653,820 | |||||||||||||||||
Land, buildings, improvements and equipment—net | 159,430 | 162,969 | 162,809 | |||||||||||||||||
Goodwill | 233,011 | 209,089 | 209,089 | |||||||||||||||||
Other intangible assets—net | 95,070 | 83,841 | 75,460 | |||||||||||||||||
Other assets | 28,525 | 25,467 | 30,419 | |||||||||||||||||
Total | $ | 1,216,907 | $ | 1,155,737 | $ | 1,131,597 | ||||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | 96,906 | $ | 90,423 | $ | 88,889 | ||||||||||||||
Accrued expenses | 102,953 | 110,070 | 87,724 | |||||||||||||||||
Current portion of long-term debt | 530 | 290 | 291 | |||||||||||||||||
Total current liabilities | 200,389 | 200,783 | 176,904 | |||||||||||||||||
Long-term debt | 394,603 | 396,395 | 396,691 | |||||||||||||||||
Other long-term obligations | 63,975 | 47,147 | 51,622 | |||||||||||||||||
Equity: | ||||||||||||||||||||
Common stock, $0.01 par value: 11,998,472, 11,908,317, and 11,908,317 shares outstanding at June 25, 2016, June 27, 2015 and September 26, 2015 |
120 | 119 | 119 | |||||||||||||||||
Class A common stock, $0.01 par value: 37,197,569, 35,970,174 and 36,462,299 shares outstanding at June 25, 2016, June 27, 2015 and September 26, 2015 |
371 | 360 | 364 | |||||||||||||||||
Class B stock, $0.01 par value: 1,652,262 shares outstanding | 16 | 16 | 16 | |||||||||||||||||
Additional paid-in capital | 390,270 | 388,762 | 388,636 | |||||||||||||||||
Accumulated earnings | 166,112 | 120,356 | 115,987 | |||||||||||||||||
Accumulated other comprehensive income (loss) | (805 | ) | 679 | 164 | ||||||||||||||||
Total Central Garden & Pet Company shareholders’ equity | 556,084 | 510,292 | 505,286 | |||||||||||||||||
Noncontrolling interest | 1,856 | 1,120 | 1,094 | |||||||||||||||||
Total equity | 557,940 | 511,412 | 506,380 | |||||||||||||||||
Total | $ | 1,216,907 | $ | 1,155,737 | $ | 1,131,597 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
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Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
June 25, 2016 |
June 27, 2015 |
June 25, 2016 |
June 27, 2015 |
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Net sales | $ | 514,544 | $ | 459,446 | $ | 1,415,605 | $ | 1,264,368 | ||||||||||||||||||||||
Cost of goods sold and occupancy | 350,799 | 317,409 | 982,735 | 884,288 | ||||||||||||||||||||||||||
Gross profit | 163,745 | 142,037 | 432,870 | 380,080 | ||||||||||||||||||||||||||
Selling, general and administrative expenses | 115,560 | 103,044 | 316,509 | 289,978 | ||||||||||||||||||||||||||
Income from operations | 48,185 | 38,993 | 116,361 | 90,102 | ||||||||||||||||||||||||||
Interest expense | (6,964 | ) | (8,978 | ) | (36,205 | ) | (31,357 | ) | ||||||||||||||||||||||
Interest income | 43 | 7 | 74 | 96 | ||||||||||||||||||||||||||
Other income (expense) | 318 | 585 | (243 | ) | 96 | |||||||||||||||||||||||||
Income before income taxes and noncontrolling interest | 41,582 | 30,607 | 79,987 | 58,937 | ||||||||||||||||||||||||||
Income taxes | 14,916 | 11,484 | 28,509 | 21,527 | ||||||||||||||||||||||||||
Income including noncontrolling interest | 26,666 | 19,123 | 51,478 | 37,410 | ||||||||||||||||||||||||||
Net income attributable to noncontrolling interest | 636 | 323 | 1,353 | 1,070 | ||||||||||||||||||||||||||
Net income attributable to Central Garden & Pet Company | $ | 26,030 | $ | 18,800 | $ | 50,125 | $ | 36,340 | ||||||||||||||||||||||
Net income per share attributable to Central Garden & Pet Company: | ||||||||||||||||||||||||||||||
Basic | $ | 0.53 | $ | 0.39 | $ | 1.03 | $ | 0.75 | ||||||||||||||||||||||
Diluted | $ | 0.51 | $ | 0.38 | $ | 0.99 | $ | 0.73 | ||||||||||||||||||||||
Weighted average shares used in the computation of net income per share: |
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Basic | 49,120 | 48,167 | 48,801 | 48,642 | ||||||||||||||||||||||||||
Diluted | 51,063 | 49,290 | 50,743 | 49,496 | ||||||||||||||||||||||||||
Use of Non-GAAP Financial Measures
We report our financial results in accordance with U.S. generally
accepted accounting principles (GAAP). However, management believes that
certain non-GAAP financial measures that exclude the $14.3 million
impact of the redemption of our 2018 Notes and the issuance of our 2023
Notes recognized during the quarter ended December 26, 2015 and the $2.4
million gain from the sale of a manufacturing plant during the quarter
ended June 25, 2016 may be useful in certain instances to provide
additional meaningful comparisons between current results and results in
prior operating periods that should be considered when assessing our
ongoing performance and providing consistency with our prior year
disclosure. The $14.3 million impact of the redemption of our 2018 Notes
and issuance of our 2023 Notes is included in interest expense in the
condensed consolidated statements of operations. The $2.4 million gain
from the sale of a manufacturing plant is included in selling, general
and administrative expenses in the condensed consolidated statements of
operations. We believe that the non-GAAP financial measures provide
useful information to investors and other users of our financial
statements, such as lenders. Management also uses these non-GAAP
financial measures in making financial, operating and planning decisions
and in evaluating our performance. 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.
GAAP to Non-GAAP Reconciliation (unaudited, in thousands, except per share amounts) For the Three months ended June 25, 2016 |
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June 25, 2016 | June 25, 2016 | June 27, 2015 | ||||||||||||||||||||||||
GAAP | Adjustment (A) | As Adjusted | GAAP | |||||||||||||||||||||||
Gross profit | 163,745 | — | 163,745 | 142,037 | ||||||||||||||||||||||
Selling, general and administrative expenses | 115,560 | 2,363 | 117,923 | 103,044 | ||||||||||||||||||||||
Income from operations | 48,185 | (2,363 | ) | 45,822 | 38,993 | |||||||||||||||||||||
Income tax expense | 14,916 | (848 | ) | 14,068 | 11,484 | |||||||||||||||||||||
Net income | $ | 26,030 | $ | (1,515 | ) | $ | 24,515 | $ | 18,800 | |||||||||||||||||
Earnings per share – diluted | $ | 0.51 | $ | 0.48 | $ | 0.38 | ||||||||||||||||||||
Weighted shares outstanding | 51,063 | 51,063 | 49,290 |
GAAP to Non-GAAP Reconciliation (unaudited, in thousands, except per share amounts) For the Nine months ended June 25, 2016 |
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June 25, 2016 | Adjustments | June 25, 2016 | June 27, 2015 | ||||||||||||||||||||||||||
GAAP | (A)(B) | As Adjusted | GAAP | ||||||||||||||||||||||||||
Gross profit | $ | 432,870 | $ | — | 432,870 | $ | 380,080 | ||||||||||||||||||||||
Selling, general and administrative expenses | 316,509 | 2,363 | 318,872 | 289,978 | |||||||||||||||||||||||||
Income from operations | 116,361 | (2,363 | ) | 113,998 | 90,102 | ||||||||||||||||||||||||
Interest expense | 36,205 | 14,339 | 21,866 | 31,357 | |||||||||||||||||||||||||
Income tax expense | 28,509 | 4,268 | 32,777 | 21,527 | |||||||||||||||||||||||||
Net income | $ | 50,125 | $ | 7,708 | $ | 57,833 | $ | 36,340 | |||||||||||||||||||||
Earnings per share – diluted | $ | 0.99 | $ | 1.14 | $ | 0.73 | |||||||||||||||||||||||
Weighted shares outstanding | 50,743 | 50,743 | 49,496 | ||||||||||||||||||||||||||
(A) During the third quarter of fiscal 2016, we recorded a $2.4 million
gain in our Pet Segment from the sale of a manufacturing plant resulting
from rationalizing our facilities to reduce excess capacity.
(B) The Non-GAAP financial information excludes the impact of the
redemption of our 2018 Notes and issuance of our 2023 Notes. As a result
of the bond redemption, we incurred incremental expenses of $14.3
million, comprised of a call premium payment of $8.3 million, a $2.7
million payment of overlapping interest expense for 30 days and a $3.3
million non-cash charge for the write off of unamortized deferred
financing costs and discount related to the 2018 Notes. These amounts
are included in interest expense in the condensed consolidated
statements of operations.
Organic net sales is a non-GAAP measure that excludes the impact of
acquisitions and dispositions in the comparable periods. We have
provided this measure because we believe it permits investors to better
understand the performance of our historical business without the
impacts from acquisitions and dispositions. The following tables provide
a reconciliation for our reported net sales under GAAP to our organic
net sales for our consolidated operations and Pet segment.
GAAP to Non-GAAP Reconciliation |
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June 25, 2016 | June 27, 2015 |
Percentage |
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Consolidated | |||||||||||||||||||||||
Reported Net Sales – GAAP | $ | 514.5 | $ | 459.4 |
12.0% |
|
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Effect of acquisitions | (40.1 | ) | — | ||||||||||||||||||||
Effect of divestitures | (0.3 | ) | (8.0 | ) | |||||||||||||||||||
Organic net sales | $ | 474.1 | $ | 451.4 |
5.0% |
|
GAAP to Non-GAAP Reconciliation (unaudited, in thousands) For the Three months ended June 25, 2016 |
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June 25, 2016 | June 27, 2015 |
Percentage |
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Pet Segment | |||||||||||||||||||||||
Reported Net Sales – GAAP | $ | 287.2 | $ | 238.1 |
20.6% |
|
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Effect of acquisitions | (38.8 | ) | — | ||||||||||||||||||||
Effect of divestitures | — | — | |||||||||||||||||||||
Organic net sales | $ | 248.4 | $ | 238.1 |
4.3% |
|
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Adjusted earnings per-fully diluted share
The company currently expects adjusted earnings per fully-diluted share
(a non-GAAP measure) of $1.18 or higher for fiscal 2016. We have not
provided GAAP estimates of expected earnings per fully diluted share or
a reconciliation to expected adjusted earnings per fully-diluted share
as the adjusted earnings per share guidance excludes the impact of any
potential acquisitions, non-operational charges or impairments that may
occur prior to fiscal year end, and are not known or contemplated at
this time. Any such adjustments could have a significant impact on our
fiscal 2016 GAAP results.
Contacts
Central Garden & Pet Company
Steve Zenker, 925-948-3657
VP
of Investor Relations & Communications