Fiscal 2Q 2017 sales increased 5.3% to
$569.9 million;Fiscal 2Q 2017 diluted EPS increased to $0.67
from $0.65
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 second quarter ended
March 25, 2017.
"Our second quarter results continue to reflect our initiatives
to grow sales and profits organically," said George Roeth,
President & CEO. "During the quarter we continued to grow
faster than our categories, gaining market share across the
majority of our businesses, with strong execution and a clear focus
on demand-creation activities. On top of that, our M&A efforts
continue to enhance our overall operating results."
Fiscal 2017 Second Quarter Financial
Results
Net sales increased 5.3% to $569.9 million compared to $541.2
million in the second quarter a year ago, due in large part to the
Company's recent Segrest acquisition. Organic sales growth, which
excludes the Segrest business purchased in October 2016, rose 1.7%.
Branded product sales of $457.2 million increased 5.7%, and sales
of other manufacturers’ products of $112.7 million rose 3.9%.
Second quarter gross margin rose 90 basis points compared to the
second quarter a year ago to 32.2%, with both Garden and Pet
showing improvement. Operating income increased to $63.9 million
from $59.4 million in the second quarter a year ago. Higher gross
profit, as well as a modest decline in corporate SG&A expense,
more than offset higher SG&A expenditures in the Garden and Pet
segments made to help fuel future growth. Operating margin of 11.2%
increased 20 basis points compared to 11.0% in the second quarter a
year ago. Net income of $34.7 million rose 6.1% compared to $32.7
million in the second quarter a year ago and earnings per diluted
share increased 3.1% to $0.67 from $0.65.
Pet Segment Fiscal 2017 Second Quarter
Results
Second quarter net sales for the Pet segment increased 8.4% to
$298.4 million, from the same period a year ago, driven primarily
by the Segrest acquisition. Pet organic sales grew 1.3%, impacted
to some degree from timing differences compared to the prior year,
which benefited this year's first quarter and held back growth in
the second quarter. For perspective, consumption in the Nielsen pet
categories for our products over the 13-week period ending March
25, 2017 grew 3.0%. Fiscal year-to-date organic growth in the Pet
segment was 3.6%. The Pet segment’s second quarter branded product
sales were $240.5 million, up 10.9% compared to a year ago and
sales of other manufacturers’ products were $57.9 million, a
decrease of 0.9%.
The Pet segment’s operating income rose 6.9% compared to the
second quarter a year ago to $34.6 million. Pet operating margin
decreased to 11.6%, a decline of 20 basis points compared to the
second quarter a year ago. While operating margin benefited from a
higher gross margin, the benefit was more than offset by higher
SG&A expenses as a percent of sales, most notably in the dog
and cat category, which continued its efforts to consolidate
several facilities during the quarter.
Garden Segment Fiscal 2017 Second
Quarter Results
Net sales for the Garden segment, all organic, rose 2.1%
compared to the second quarter a year ago to $271.5 million, due
primarily to higher control and fertilizer sales and increased
sales of other manufacturer's products. The Garden segment’s
branded product sales were $216.7 million in the quarter, up 0.4%
compared to the second quarter a year ago. Sales of other
manufacturers’ products were up 9.4% to $54.8 million.
The Garden segment’s operating income in the quarter rose to
$46.0 million compared to $44.4 million in the second quarter a
year ago. Garden operating margin improved 20 basis points to
16.9%, benefiting from a higher gross margin, offset to a large
degree by higher SG&A expenses as a percent of sales. SG&A
expenses rose as the Company invested in demand-creation activities
to drive top-line growth in the current year and beyond.
Year-to-date 2017 Operating Income, Net
Earnings and EPS
Year-to-date non-GAAP results through the second quarter of 2017
exclude a $2.0 million gain on the sale of a distribution facility.
Results for the same period a year ago 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;
For the six months ending March 25, 2017, the Company
reported:
- Year-to-date sales of $989.4 million
compared with $901.1 million a year ago;
- Operating income of $83.8 million
increased $15.6 million from $68.2 million in the first six months
of 2016; non-GAAP operating income increased to $81.7 million from
$68.2 million.
- Operating margin of 8.5% increased 90
basis points from 7.6% in the first six months of fiscal 2016.
Non-GAAP operating margin of 8.3% increased 70 basis points to
7.6%.
- Net income rose 75.6% to $42.3 million
from $24.1 million a year ago. Non-GAAP net income was $41.0
million compared to $33.4 million in the first six months of 2016;
and
- Diluted EPS of $0.82 rose 70.8% from
$0.48 per share a year ago. Non-GAAP earnings per diluted share
increased 19.7% to $0.79 from $0.66 in the first six months of
2016.
2017 Guidance
Given the strong performance to-date, the Company currently
expects non-GAAP earnings per fully-diluted share of $1.37 or
higher for fiscal 2017, an increase of 8.7% or more from the prior
year, excluding any impact from the acquisition of K&H
Manufacturing that closed last week. Sales trends in the second
half are expected to remain strong, however non-operating factors
are expected to impact net income in the second half of the year.
These factors include timing differences of corporate expenses
versus the prior year, a higher projected tax rate, and two new
joint venture investments which likely will have a negative effect
on earnings in the back half of the current fiscal year, before
contributing positively to earnings next fiscal year.
Roeth concluded, "Overall, we remain pleased with our efforts to
position the company for sustained growth through organic sales
gains, cost savings, margin improvement, and strategic M&A
activity, all intended to drive profit growth for years to
come."
Additional Information
Total debt at March 25, 2017 was $496.2 million compared to
$497.0 million at March 26, 2016. Net interest expense was
$6.8 million for the second quarter compared to $7.1 million in the
prior-year period.
The Company’s effective tax rate for the second quarter of 2017
was 37.1%, compared with 36.0% for the second quarter of 2016. The
increase in the tax rate was due primarily to reduced projected tax
incentives in the current year.
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 #13659646.
A replay of the call will be available for three days by dialing
(201) 612-7415 and entering confirmation #13659646.
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 COMPANY CONDENSED
CONSOLIDATED BALANCE SHEETS (in thousands, except share and
per share amounts) (Unaudited) ASSETS
March 25, 2017
March 26, 2016 September 24,
2016 Current assets: Cash and cash equivalents $ 6,169 $ 9,826
$ 92,982 Restricted cash 10,988 11,946 10,910 Accounts receivable
(less allowance for doubtful accounts of $20,227, $23,759 and
$21,069) 343,202 340,526 201,151 Inventories 426,385 390,754
362,004 Prepaid expenses and other 54,074 50,758
47,759 Total current assets 840,818 803,810 714,806
Land, buildings, improvements and equipment—net 175,940 164,794
158,224 Goodwill 230,385 213,753 231,385 Other intangible
assets—net 91,424 82,989 95,865 Other assets 60,361 57,753
11,913 Total $ 1,398,928 $ 1,323,099 $
1,212,193
LIABILITIES AND EQUITY Current
liabilities: Accounts payable $ 141,791 $ 133,211 $ 102,413 Accrued
expenses 101,421 97,682 99,343 Current portion of long-term debt
374 594 463 Total current liabilities 243,586
231,487 202,219 Long-term debt 495,870 496,396 394,806 Other
long-term obligations 64,981 62,274 60,581 Equity: Common
stock, 12,176,787, 11,908,317, and 11,998,472 shares outstanding at
March 25, 2017, March 26, 2016 and September 24, 2016 122 119 120
Class A common stock, $0.01 par value: 37,731,149, 36,794,100 and
37,418,572 shares outstanding at March 25, 2017, March 26, 2016 and
September 24, 2016 377 368 374 Class B stock, $0.01 par value:
1,652,262 shares outstanding 16 16 16 Additional paid-in capital
391,541 391,665 393,297 Accumulated earnings 202,822 140,082
160,501 Accumulated other comprehensive income (loss) (1,658 ) (528
) (1,294 ) Total Central Garden & Pet Company shareholders’
equity 593,220 531,722 553,014 Noncontrolling interest 1,271
1,220 1,573 Total equity 594,491 532,942
554,587 Total $ 1,398,928 $ 1,323,099 $
1,212,193
CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in
thousands, except per share amounts) (Unaudited)
Three Months Ended Six Months Ended
March 25,2017
March 26,2016
March 25,2017
March 26,2016
Net sales $ 569,924 $ 541,249 $ 989,422 $ 901,061 Cost of goods
sold and occupancy 386,395 371,910 685,215
631,936 Gross profit 183,529 169,339 304,207 269,125
Selling, general and administrative expenses 119,669 109,936
220,409 200,949 Operating income 63,860 59,403
83,798 68,176 Interest expense (6,830 ) (7,096 ) (13,703 ) (29,241
) Interest income 8 9 46 31 Other expense (965 ) (88 ) (1,932 )
(561 ) Income before income taxes and noncontrolling interest
56,073 52,228 68,209 38,405 Income tax expense 20,824 18,793
25,171 13,593 Income including noncontrolling
interest 35,249 33,435 43,038 24,812 Net income attributable to
noncontrolling interest 565 738 717 717
Net income attributable to Central Garden & Pet Company $
34,684 $ 32,697 $ 42,321 $ 24,095
Net income per share attributable to Central Garden &
Pet Company: Basic $ 0.69 $ 0.67 $ 0.85 $ 0.50
Diluted $ 0.67 $ 0.65 $ 0.82 $ 0.48
Weighted average shares used in the computation of
net income per share: Basic 50,079 48,717 49,872 48,641 Diluted
51,983 50,445 51,911 50,558
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: the 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 Six Months
Ended
March 25, 2017 March 26, 2016 GAAP operating
income $ 83,798 $ 68,176 Sale of distribution facility
(1)
(2,050 ) — Non-GAAP operating income $ 81,748
$ 68,176 GAAP operating margin 8.5 % 7.6 % Non-GAAP
operating margin 8.3 % 7.6 %
GAAP to Non-GAAP
Reconciliation(in thousands, except per share
amounts)For the Six Months Ended
Net Income and Diluted Net Income Per Share Reconciliation
March 25, 2017 March 26, 2016 GAAP net income
(loss) attributable to Central Garden & Pet $ 42,321 $ 24,095
Sale of distribution facility
(1)
(2,050 ) — 2018 notes redemption
(2)
— 14,339 Tax effects of non-GAAP adjustments 757 (5,075 ) Total net
income (loss) impact from non-GAAP adjustments $ (1,293 ) $ 9,264
Non-GAAP net income attributable to Central Garden & Pet
$ 41,028 $ 33,359 GAAP diluted net income per share $ 0.82 $ 0.48
Non-GAAP diluted net income per share $ 0.79 $ 0.66 Shares used in
GAAP diluted net earnings per share calculation 51,911 50,558
Shares used in non-GAAP diluted net earnings per share calculation
51,911 50,558
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
March 25, 2017
Consolidated Pet Segment
Percentage change Percentage change
Reported net sales - Q2 FY17 (GAAP) $ 569.9 $ 298.4
Reported net sales - Q2 FY16 (GAAP)
541.2 275.3 Increase in net sales 28.7
5.3 % 23.1 8.4 % Effect of acquisition and divestitures on increase
in net sales 19.4 3.6 % 19.4 7.1 % Increase in
organic net sales - Q2 2017 $ 9.3 1.7 % $ 3.7 1.3 %
GAAP to Non-GAAP
Reconciliation(in millions) For the Six Months Ended
March 25, 2017
Consolidated Pet Segment Percent change
Percent change Reported net sales - Q2 FY17 (GAAP) $
989.4 $ 602.4
Reported net sales - Q2 FY16 (GAAP)
901.1 524.0 Increase in net sales 88.3
9.8 % 78.4 15.0 % Effect of acquisition and divestitures on
increase in net sales 54.4 6.0 % 59.6 11.4 % Increase
in organic net sales $ 33.9 3.8 % $ 18.8 3.6 %
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170503006364/en/
Central Garden & Pet CompanySteve Zenker, 925-948-3657VP of
Investor Relations & Communications
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