Fiscal 1Q 2017 sales increased 16.6% to
$419.5 million;Fiscal 1Q 2017 diluted EPS increased to $0.15
from $(0.18);Fiscal 1Q 2017 non-GAAP diluted EPS increased
to $0.12 from $0.01
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 first quarter ended
December 24, 2016.
"The first quarter puts Central well on track to deliver
our fiscal year earnings guidance, which will remain unchanged at
this time," said George Roeth, President & CEO of Central
Garden & Pet. "While over half of the year-over-year earnings
increase in the first quarter was related to acquisitions and
timing, we continue to be encouraged by our strong organic sales
growth and market share gains. We remain focused on executing with
excellence against our strategy and plan."
Fiscal 2017 First Quarter Financial
Results
Net sales increased 16.6% to $419.5 million compared to $359.8
million in the first quarter a year ago, in large part due to the
Company's recent two acquisitions, a favorable close to the Fall
garden season, and share growth in the Company's Pet segment.
Branded product sales of $332.9 million increased 20.4% and sales
of other manufacturers’ products of $86.7 million rose 4.1%.
Organic sales growth was 7.0%. Gross margin rose 110 basis points
compared to the first quarter a year ago to 28.8%, with both Garden
and Pet showing improvement.
Fiscal 2017 GAAP First Quarter Operating
Income, Net Earnings and EPS
- Operating income increased to $19.9
million from $8.8 million in the first quarter a year ago;
- Operating margin of 4.8% increased 240
basis points compared to 2.4% in the first quarter a year ago;
- Net income was $7.6 million compared to
a loss of $8.6 million in the first quarter a year ago; and
- Earnings per diluted share increased to
$0.15 from a loss of $(0.18) in the prior year period.
Fiscal 2017 Non-GAAP First Quarter
Operating Income, Net Earnings and EPS
Non-GAAP results for the first quarter of 2017 exclude a $2.0
million gain on the sale of a distribution facility. Non-GAAP
results for the first quarter of 2016 exclude the impact of $14.3
million of incremental costs from the redemption of the Company's
2018 Notes and issuance of its 2023 Notes, that are included in the
period's interest expense;
- Non-GAAP operating income increased to
$17.9 million from $8.8 million in the first quarter a year
ago;
- Non-GAAP operating margin of 4.3%
increased 190 basis points compared to 2.4% in the first quarter a
year ago;
- Non-GAAP net income was $6.3 million
compared to $0.3 million in the first quarter a year ago; and
- Non-GAAP earnings per diluted share
increased $0.11 to $0.12 from $0.01 in the prior year period.
Pet Segment Fiscal 2017 First Quarter
Results
First quarter net sales for the Pet segment increased 22.2% to
$304.0 million, from the same period a year ago, driven by
acquisitions and organic growth. Pet organic sales grew 6.1%,
driven by share gains in many of the Pet businesses, as well as
accelerated timing of customer orders. The Pet segment’s branded
product sales were $246.4 million, up 30.6% compared to the first
quarter a year ago and sales of other manufacturers’ products were
$57.7 million, a decrease of 4.0%.
The Pet segment’s operating income rose 27.5% compared to the
first quarter a year ago to $33.4 million. Pet operating margin
increased to 11.0%, a gain of 50 basis points compared to the first
quarter a year ago. Operating margin benefited from a favorable mix
of product sales during the quarter versus the prior year, as well
as higher profitability from the Company's DMC business, which had
depressed margins a year ago due to the impact of purchase price
accounting adjustments. The impact from these gains more than
offset the unfavorable margin impact from the Company's recent
acquisition of Segrest and increased spending on facilities as the
Company transitioned several of its dog & cat businesses to a
new location. Those activities are expected to continue for the
remainder of the year.
Garden Segment Fiscal 2017 First
Quarter Results
Net sales for the Garden segment rose 4.0% compared to the first
quarter a year ago to $115.5 million, despite a decrease of $5.2
million from the holiday decor business that the Company exited in
January 2016. Higher sales of other manufacturers' products, as
well as gains in grass seed and wild bird feed, drove the sales
increase. The Garden segment’s branded product sales were $86.5
million in the quarter, down 1.7% compared to the first quarter a
year ago, due to the exit from the holiday decor business. Sales of
other manufacturers’ products were up 25.0% to $29.0 million.
The Garden segment’s operating income in the quarter rose to
$2.7 million compared to a loss of $3.3 million in the first
quarter a year ago. Included in this quarter's results is a $2.0
million gain from the sale of a distribution facility. Garden
operating margin improved 520 basis points to 2.3%. Operating
margin benefited from the facility sale, additional volume
leveraging fixed operational costs and lower input costs.
2017 Guidance
The Company currently expects non-GAAP earnings per
fully-diluted share of $1.34 or higher for fiscal 2017, an increase
of 6% or more from the prior year. The estimate excludes the gain
from the distribution facility sale in the current quarter. Fiscal
2017 will have 53 weeks compared to 52 weeks in fiscal 2016;
however, the extra week is expected to only account for just $0.01
per share of 2017 earnings.
Mr. Roeth said, "It is important to note that our first quarter
is a very small part of the company’s annual earnings, and as such,
we are holding our guidance at this time. Our business plans are
delivering against expectations, and we continue to stay focused on
executing our strategies of accelerating our portfolio growth
momentum, increasing our innovation output and success rates, and
driving cost savings and productivity improvements. We fully expect
that these actions and associated investments will drive
sustainable profit growth in the years ahead; however quarterly
results versus a year ago may be somewhat lumpy due to our size,
weather and timing of activity."
Additional Information
Total debt at December 24, 2016 was $395.4 million compared
to $436.2 million at December 26, 2015. Net interest expense
was $6.8 million for the first quarter compared to $22.1 million in
the prior-year period. The decline in interest expense was due to
the Company's debt refinancing in the prior year's first
quarter.
The Company’s effective tax rate for the first quarter of 2017
was 35.8%, compared with 37.6% for the first quarter of 2016. 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 #13653386.
A replay of the call will be available for ten days by dialing
(201) 612-7415 and entering confirmation #13653386.
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®, DMC™, SEGREST, 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 4,100 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 2017 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
COMPANYCONDENSED CONSOLIDATED BALANCE SHEETS(in
thousands, except share and per share
amounts)(Unaudited)
ASSETS
December 24,2016
December 26,2015
September 24,2016
Current assets: Cash and cash equivalents $ 6,581 $ 9,006 $ 92,982
Restricted cash 10,981 11,939 10,910 Accounts receivable (less
allowance for doubtful accounts of $22,157, $21,213 and $21,069)
192,224 195,357 201,151 Inventories 430,171 416,458 362,004 Prepaid
expenses and other 53,346 59,873 47,759 Total
current assets 693,303 692,633 714,806 Land, buildings,
improvements and equipment—net 169,836 163,948 158,224 Goodwill
230,385 209,089 231,385 Other intangible assets—net 92,851 74,552
95,865 Other assets 61,326 70,987 11,913 Total
$ 1,247,701 $ 1,211,209 $ 1,212,193
LIABILITIES AND EQUITY Current liabilities: Accounts payable
$ 135,237 $ 129,091 $ 102,413 Accrued expenses 94,494 89,047 99,343
Current portion of long-term debt 397 292 463
Total current liabilities 230,128 218,430 202,219 Long-term
debt 395,011 435,893 394,806 Other long-term obligations 62,606
58,005 60,581 Equity: Common stock, 11,998,472, 11,908,317,
and 11,998,472 shares outstanding at December 24, 2016, December
26, 2015 and September 24, 2016 120 119 120 Class A common stock,
$0.01 par value: 37,558,042, 36,591,487 and 37,418,572 shares
outstanding at December 24, 2016, December 26, 2015 and September
24, 2016 375 366 374 Class B stock, $0.01 par value: 1,652,262
shares outstanding 16 16 16 Additional paid-in capital 392,402
390,583 393,297 Accumulated earnings 168,138 107,385 160,501
Accumulated other comprehensive income (loss) (1,802 ) (69 ) (1,294
) Total Central Garden & Pet Company shareholders’ equity
559,249 498,400 553,014 Noncontrolling interest 707 481
1,573 Total equity 559,956 498,881
554,587 Total $ 1,247,701 $ 1,211,209 $
1,212,193
CENTRAL GARDEN & PET
COMPANYCONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS(in thousands, except per share
amounts)(Unaudited)
Three Months Ended December 24, 2016
December 26, 2015 Net sales $ 419,498 $ 359,812 Cost of
goods sold and occupancy 298,820 260,026 Gross profit
120,678 99,786 Selling, general and administrative expenses 100,740
91,013 Operating income 19,938 8,773 Interest expense
(6,873 ) (22,145 ) Interest income 38 22 Other expense (967 ) (473
) Income (loss) before income taxes and noncontrolling interest
12,136 (13,823 ) Income tax expense (benefit) 4,347 (5,200 )
Income (loss) including noncontrolling interest 7,789 (8,623 ) Net
income (loss) attributable to noncontrolling interest 152
(21 ) Net income (loss) attributable to Central Garden & Pet
Company $ 7,637 $ (8,602 ) Net income (loss) per
share attributable to Central Garden & Pet Company: Basic $
0.15 $ (0.18 ) Diluted $ 0.15 $ (0.18 )
Weighted average shares used in the computation of net income per
share: Basic 49,665 48,566 Diluted 51,810 48,566
Use of Non-GAAP Financial Measures
We report our financial results in accordance with U.S.
generally accepted accounting principles (GAAP). However, to
supplement the financial results prepared in accordance with GAAP,
we use non-GAAP financial measures including non-GAAP operating
income on a consolidated and segment basis and non-GAAP net income
and diluted net income per share. 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.
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 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.
We have not provided a reconciliation of non-GAAP guidance measures
to the corresponding GAAP measures on a forward-looking basis,
because such reconciliation cannot be done without unreasonable
efforts due to the potential significant variability and limited
visibility of the excluded items discussed below.
Non-GAAP financial measures reflect adjustments based on the
following items:
- Gains or losses on disposals of
significant plant assets: we have excluded the impact of gains or
losses on the disposal of facilities as these represent infrequent
transactions that impact comparability between operating periods.
We believe the adjustment of these gains or losses supplements the
GAAP information with a measure that may be used to help assess the
sustainability of our continuing operating performance.
- Loss on early extinguishment of debt:
we have excluded the charges associated with the refinancing of our
2018 Notes as the amount and frequency of such charges are not
consistent and are significantly impacted by the timing and size of
debt financing transactions.
- Tax impact: adjustment represents the
impact of the tax effect of the pre-tax non-GAAP adjustments
excluded from non-GAAP net income. The tax impact of the non-GAAP
adjustments is calculated based on the consolidated effective tax
rate on a GAAP basis, applied to the non-GAAP adjustments, unless
the underlying item has a materially different tax treatment.
- 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.
From time to time in the future, there may be other items that
we may exclude if we believe that doing so is consistent with the
goal of providing useful information to investors and
management.
The non-GAAP adjustments reflect the following:
(1) During the first quarter of fiscal 2017, we recorded a $2.0
million gain in our Garden segment from the sale of a distribution
facility resulting from rationalizing our facilities to reduce
excess capacity. This adjustment was recorded as part of selling,
general and administrative costs in the condensed consolidated
statements of operations.
(2) During the first quarter of fiscal 2016, we redeemed our
2018 Notes and issued senior notes due November 2023. As a result
of the 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.
Operating Income Reconciliation
GAAP to Non-GAAP
Reconciliation(in thousands) For the Three Months
Ended
December 24, 2016 December 26, 2015 GAAP
operating income $ 19,938 $ 8,773
Sale of distribution facility
(1) (2,050 ) — Non-GAAP operating income $ 17,888 $
8,773 GAAP operating margin 4.8 % 2.4 % Non-GAAP operating
margin 4.3 % 2.4 %
GAAP to Non-GAAP
Reconciliation(in thousands, except per share amounts)
For the Three Months Ended
Net Income and Diluted Net Income Per Share Reconciliation
December 24, 2016
December 26, 2015
GAAP net income (loss) attributable to Central Garden & Pet $
7,637 $ (8,602 ) Sale of distribution facility
(1)
(2,050 ) — 2018 notes redemption
(2)
— 14,339 Tax effects of non-GAAP adjustments 734 (5,394 ) Total net
income (loss) impact from non-GAAP adjustments $ (1,316 ) $ 8,945
Non-GAAP net income attributable to Central Garden & Pet
$ 6,321 $ 343 GAAP diluted net income per share $ 0.15 $ (0.18 )
Non-GAAP diluted net income per share $ 0.12 $ 0.01 Shares used in
GAAP diluted net earnings per share calculation 51,810 48,566
Shares used in non-GAAP diluted net earnings per share calculation
51,810 50,684
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 thousands) For the Three Months
Ended
Consolidated
December 24,2016
December 26,2015
Percentagechange
Reported Net Sales - GAAP $ 419.5 $ 359.8 16.6 % Effect of
acquisitions and divestitures 41.8 6.7 Organic net
sales $ 377.7 $ 353.1 7.0 %
GAAP to Non-GAAP
Reconciliation(in thousands) For the Three Months
Ended
Pet Segment
December 24,2016
December 26,2015
Percentagechange
Reported Net Sales - GAAP $ 304.0 $ 248.7 22.2 % Effect of
acquisitions and divestitures 41.8 1.6 Organic net
sales 262.2 247.1 6.1 %
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version on businesswire.com: http://www.businesswire.com/news/home/20170202006225/en/
Central Garden & Pet CompanySteve Zenker, 925-948-3657VP of
Investor Relations & Communications
Central Garden and Pet (NASDAQ:CENT)
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