Fiscal 3Q 2018 sales increased 14.5% to
$657.9 million
Fiscal 3Q 2018 diluted EPS increased to
$0.79 vs. $0.62 in Fiscal 3Q 2017
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 2018
third quarter ended June 30, 2018.
Fiscal 2018 Third Quarter Financial
Results
Total net sales increased 14.5% to $657.9 million compared to
$574.6 million in the third quarter a year ago, driven by two
recent acquisitions as well as strong organic growth in the
Company's Pet segment. Total Company organic growth, facing a
difficult comparison with last year's third quarter organic growth
of 7.6%, was essentially flat, down 0.1%. Reduced demand in the
organic Garden business, impacted by unfavorable weather early in
the quarter and a significant year-over-year shift in selling weeks
during the third quarter, adversely impacted results, more than
offsetting the strong organic growth in the Pet segment. Branded
product sales of $516.8 million increased 11.8%, and sales of other
manufacturers’ products of $141.1 million rose 25.5%, impacted by
the acquisition of General Pet, the Company's new distribution
business. Gross margin of 30.7% declined 120 basis points compared
to the third quarter a year ago, due primarily to the lower organic
volumes in the Company's Garden segment, as well as an unfavorable
shift in the mix of sales, and higher raw material, freight, and
labor costs across the Company.
Third quarter operating income increased to $60.8 million from
$57.9 million in the third quarter a year ago and operating margin
decreased 90 basis points to 9.2% compared to 10.1%. Operating
income benefited from the Company's recent Bell Nursery acquisition
while operating margin was negatively impacted by the decrease in
gross margin, partially offset by a decrease in SG&A as a
percent of sales of 30 basis points.
Net income of $41.5 million increased 28.8% compared to $32.2
million in the third quarter a year ago, due to the revenue
increase and a lower effective tax rate. The tax rate benefited
from a reduction in Federal tax rates and recent changes in
accounting standards around non-cash equity compensation expense.
The impact of these changes more than offset an increase in
interest expense of $3.3 million. Earnings per diluted share
increased 27.4% to $0.79 from $0.62 in the third quarter a year
ago.
"Central continued its strong growth trajectory during the
quarter, despite unfavorable weather and the calendar shift, which
significantly impacted our Garden segment," said George Roeth,
President & CEO of Central Garden & Pet. "It is really a
testament to our strategy and the strength and diversity of our
portfolio of businesses to be able to show meaningful growth in
such a challenging environment." Roeth continued, "Year-to-date, we
are financially where we expected to be, with market share gains in
both business segments, and are continuing to position our Company
for future sustainable organic growth and expansion through
acquisitions."
Pet Segment Fiscal 2018 Third Quarter
Results
Third quarter net sales for the Pet segment increased 13.2% to
$354.7 million, from the same period a year ago, driven almost
equally by higher organic Pet sales, which increased 6.6%, and the
acquisition of General Pet, which closed in early April. Continued
strength in the e-commerce and mass channels were primary drivers
of the organic increase, with particular strength in the Company's
dog & cat and pet distribution businesses. The Pet segment’s
third quarter branded product sales were $267.9 million, up 5.3%
compared to a year ago, and sales of other manufacturers’ products
were $86.9 million, an increase of 47.3%, largely driven by the
acquisition of General Pet.
The Pet segment’s operating income increased 8.7% compared to
the third quarter a year ago to $39.2 million. Pet operating margin
decreased to 11.1%, a decline of 40 basis points compared to the
third quarter a year ago, due to the negative impact of the
inclusion of General Pet.
Garden Segment Fiscal 2018 Third
Quarter Results
Net sales for the Garden segment rose 16.1% to $303.2 million,
due to the Company's recent acquisition of Bell Nursery. The third
quarter is typically the largest and only profitable quarter of the
year for Bell Nursery. Organic growth decreased 8.2%, significantly
impacted by unfavorable weather in the key month of April and a
significant shift in selling weeks in the Company's third fiscal
quarter vs. a year ago. By contrast, the Garden segment had a
strong second fiscal quarter, when organic sales grew 5.8%. The
Garden segment’s branded product sales, including Bell, were $248.9
million in the quarter, up 19.9% compared to the third quarter a
year ago. Sales of other manufacturers’ products were up 1.5% to
$54.3 million.
The Garden segment’s operating income in the quarter increased
6.7% to $40.9 million due to the inclusion of Bell Nursery.
Operating margin decreased 120 basis points to 13.5% due largely to
lower organic volume. Increased commodity costs and unfavorable
freight costs were also contributing factors. Importantly,
year-to-date, Garden operating margin was relatively flat vs. the
same period a year ago.
Year-to-date 2018 Operating Income, Net
Earnings and EPS
For the nine months ended June 30, 2018, the Company
reported:
- Year-to-date sales of $1,713.0 million
increased 9.5% compared with $1,564.0 million a year ago with
organic sales up 2.5%. Garden sales over the period increased 9.8%
and organic sales declined 0.6% while Pet sales increased 9.3% for
the period with organic sales up 4.7%.
- Gross margin decreased 40 basis points
to 30.8% compared to 31.2% in the first nine months of fiscal
2017.
- Operating income of $149.1 million
increased 5.2% or $7.4 million from $141.7 million in the first
nine months of 2017. Non-GAAP operating income, excluding the sale
of a distribution facility in the prior year, increased 6.7% to
$149.1 million from $139.7 million.
- Operating margin of 8.7% decreased 40
basis points from 9.1% in the first nine months of fiscal 2017.
Non-GAAP operating margin of 8.7% decreased 20 basis points from
8.9%.
- Net income rose 51.6% to $113.0 million
from $74.6 million a year ago. Non-GAAP net income, which excludes
the impact of the revaluation of deferred tax amounts in fiscal
2018 and the gain from the sale of a distribution facility in 2017,
was $96.7 million or an increase of 31.9% compared to $73.3 million
in the first nine months of 2017; and
- Diluted earnings per share of $2.15
rose 49.3% from $1.44 per share a year ago. Non-GAAP earnings per
diluted share increased 29.6% to $1.84 from $1.42 in the first nine
months of 2017.
Additional Information
The Company's cash balance at the end of the quarter increased
to $204.4 million compared to $14.5 million in the third quarter a
year ago. Total debt at June 30, 2018 was $691.9 million
compared to $435.4 million at June 24, 2017. Net interest
expense was $10.0 million for the third quarter compared to $7.2
million in the prior-year period. The increases are primarily due
to the Company's issuance of $300 million of senior notes in
December 2017. The Company's leverage ratio at the end of the third
quarter, as defined in the Company's credit agreement, was 3.2x
compared to 2.1x at the end of the prior year quarter.
The Company’s effective tax rate for the third quarter of 2018
was 21.5%, compared with 37.2% for the third quarter of 2017. The
decrease reflects the reduction in the Federal tax rate and the
impact from the changes in recent accounting standards around
non-cash equity compensation expense.
2018 Guidance
The Company is maintaining its fiscal 2018 guidance expecting
non-GAAP earnings per fully-diluted share of $1.90 or higher for
the year. Due to the Bell Nursery acquisition occurring in the
middle and most profitable part of the fiscal year, fiscal 2018
earnings benefit from the exclusion of two quarters where Bell
Nursery typically is not profitable. If the full year of Bell
Nursery were included in the Company’s 2018 fiscal year results, it
is estimated that while Bell would still be accretive, the
Company’s EPS would be $0.10 lower than the expected $1.90 or
higher guidance. Consequently, it is expected that next year's
earnings will have less accretion from Bell Nursery due to the
inclusion of a full year of Bell Nursery's results.
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 #13681162.
A replay of the call will be available for three days by dialing
(201) 612-7415 and entering confirmation #13681162.
About Central Garden &
Pet
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; 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 5,000 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, expectations for future financial
results, earnings guidance for fiscal 2018 and expected impact of
Bell Nursery on fiscal 2019 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;
- 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;
- potential impacts of tariffs or 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.
CENTRAL GARDEN & PET
COMPANY
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands, except share and per
share amounts)
(Unaudited)
ASSETS June 30, 2018 June 24,
2017 September 30, 2017 Current assets: Cash and cash
equivalents $ 204,388 $ 14,473 $ 32,397 Restricted cash 13,978
10,999 12,645 Accounts receivable (less allowance for doubtful
accounts of $22,021, $21,277 and $21,436) 348,781 279,504 237,868
Inventories 428,007 383,449 382,101 Prepaid expenses and other
26,735 21,558 18,045 Total current assets
1,021,889 709,983 683,056 Land, buildings, improvements and
equipment—net
211,817
177,784 180,913 Goodwill 268,243 230,385 256,275 Other intangible
assets—net 138,610 90,004 116,067
Other assets 67,846 113,185 70,595 Total $
1,708,405 $ 1,321,341 $ 1,306,906
LIABILITIES AND EQUITY Current liabilities: Accounts payable
$ 108,129 $ 106,408 $ 103,283 Accrued expenses 122,897 112,091
116,549 Current portion of long-term debt 119 375 375
Total current liabilities 231,145 218,874 220,207
Long-term debt 691,741 435,074 395,278 Deferred taxes and other
long-term obligations 40,798 38,386 54,279 Equity: Common
stock, $0.01 par value: 12,145,135, 12,160,023, and 12,160,023
shares outstanding at June 30, 2018, June 24, 2017 and September
30, 2017 121 122 122 Class A common stock, $0.01 par value:
38,373,324, 37,933,970 and 38,019,736 shares outstanding at June
30, 2018, June 24, 2017 and September 30, 2017 384 379 380 Class B
stock, $0.01 par value: 1,652,262 shares outstanding 16 16 16
Additional paid-in capital 392,412 392,995 396,790 Accumulated
earnings 352,355 235,070 239,329 Accumulated other comprehensive
loss (1,153 ) (1,487 ) (951 ) Total Central Garden & Pet
Company shareholders’ equity 744,135 627,095 635,686 Noncontrolling
interest 586 1,912 1,456 Total equity 744,721
629,007 637,142 Total $ 1,708,405 $
1,321,341 $ 1,306,906
CENTRAL GARDEN & PET
COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per share
amounts)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, 2018 June 24, 2017 June 30,
2018 June 24, 2017 Net sales $ 657,943 $ 574,592
$ 1,713,048 $ 1,564,014 Cost of goods sold and occupancy 455,879
391,319 1,184,690 1,076,534 Gross
profit 202,064 183,273 528,358 487,480
Selling, general and administrative
expenses
141,245 125,340 379,232 345,749
Operating income 60,819 57,933 149,126 141,731 Interest expense
(10,597 ) (7,273 ) (28,577 ) (20,976 ) Interest income 584 53 1,464
99 Other income (expense) 2,126 1,626 542 (306
) Income before income taxes and noncontrolling interest 52,932
52,339 122,555 120,548 Income tax expense 11,395 19,450
8,802 44,621 Income including
noncontrolling interest 41,537 32,889 113,753 75,927 Net income
(loss) attributable to noncontrolling interest (8 ) 641 727
1,358 Net income attributable to Central
Garden & Pet Company $ 41,545 $ 32,248 $ 113,026
$ 74,569 Net income per share attributable to
Central Garden & Pet Company: Basic $ 0.81 $ 0.64
$ 2.22 $ 1.49 Diluted $ 0.79 $ 0.62 $
2.15 $ 1.44 Weighted average shares used in
the computation of net income per share: Basic 51,134 50,507 50,938
50,084 Diluted 52,575 51,825 52,670 51,769
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.
Non-GAAP financial measures reflect adjustments based on the
following items:
- The U.S. government enacted
comprehensive tax legislation commonly referred to as the Tax Cuts
and Job Act (the "Tax Reform Act") in December 2017. We have
excluded the transitional impact of the Tax Reform Act as the
remeasurement of our deferred tax assets and liabilities does not
reflect the ongoing impact of the lower U.S. statutory rate on our
current year earnings.
- 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.
- 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) Transitional impact of U.S. Tax Reform: As a result of
the Tax Reform Act, during the first quarter of fiscal 2018, the
Company recorded a provisional tax benefit of $16.3 million due to
the remeasurement of its deferred tax assets and liabilities. We
have excluded only this transitional impact and have not included
in the adjustment the ongoing impact of the lower U.S. statutory
rate on our current year earnings. (2) 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.
Operating Income Reconciliation
GAAP to Non-GAAP
Reconciliation(in thousands)For the Nine Months
Ended
Consolidated Garden
June 30,2018
June 24,2017
June 30,2018
June 24,2017
GAAP operating income $ 149,126 $ 141,731 $ 93,975 $ 87,050 Gain on
sale of distribution facility
(2)
— (2,050 ) — (2,050 ) Non-GAAP operating income $
149,126 $ 139,681 $ 93,975 $ 85,000
GAAP operating margin 8.7 % 9.1 % 13.2 % 13.4 % Non-GAAP operating
margin 8.7 % 8.9 % 13.2 % 13.1 %
GAAP to Non-GAAP
Reconciliation(in thousands, except per share
amounts)For the Nine Months Ended
Net Income and Diluted Net Income Per Share Reconciliation
June 30, 2018 June 24, 2017 GAAP net income
attributable to Central Garden & Pet $ 113,026 $ 74,569 Gain on
sale of distribution facility (2) — (2,050 ) Tax effect of sale of
distribution facility adjustment — 759 Tax effect of revaluation of
deferred tax amounts (1) 16,343 — Total impact on net
income from non-GAAP adjustments $ 16,343 $ (1,291 )
Non-GAAP net income attributable to Central Garden & Pet $
96,683 $ 73,278 GAAP diluted net income per share $ 2.15 $ 1.44
Non-GAAP diluted net income per share $ 1.84 $ 1.42 Shares used in
GAAP and non-GAAP diluted net earnings per share calculation 52,670
51,769
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
June 30, 2018
Consolidated Pet Segment Garden
Segment
Percentchange
Percentchange
Percentchange
Reported net sales - Q3 FY18 (GAAP) $ 657.9 $ 354.7 $ 303.2
Reported net sales - Q3 FY17 (GAAP) 574.6 313.4 261.2
Increase in net sales 83.3 14.5
%
41.3 13.2 % 42.0 16.1
%
Effect of acquisition and divestitures on increase in net sales
84.0 20.6 63.4 Increase
(decrease) in organic net sales - Q3 2018 $ (0.7 ) (0.1 )% $ 20.7
6.6 % $ (21.4 ) (8.2 )%
GAAP to Non-GAAP
Reconciliation(in millions)For the Nine Months Ended
June 30, 2018
Consolidated Pet Segment Garden
Segment
Percentchange
Percentchange
Percentchange
Reported net sales - Q3 FY18 (GAAP) $ 1,713.0 $ 1,001.5
$ 711.5 Reported net sales - Q3 FY17 (GAAP) 1,564.0
915.9 648.1 Increase in net sales 149 9.5 % 85.6 9.3
% 63.4 9.8
%
Effect of acquisition and divestitures on increase in net sales
110.2 42.6 67.6 Increase
(decrease) in organic net sales - Q3 2018 $ 38.8 2.5 % $
43.0 4.7 % $ (4.2 ) (0.6 )%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180801005960/en/
Central Garden & Pet CompanySteve Zenker, 925-948-3657VP
Finance - Investor Relations, FP&A, & Corporate
Communications
Central Garden and Pet (NASDAQ:CENT)
Historical Stock Chart
From Aug 2024 to Sep 2024
Central Garden and Pet (NASDAQ:CENT)
Historical Stock Chart
From Sep 2023 to Sep 2024