Q1 2021 net sales increased 22.7% to $592.2
million
Q1 2021 diluted EPS of $0.10; an increase of
$0.18 vs. prior year
Q1 2021 diluted Non-GAAP EPS of $0.29; up
$0.37 vs. prior year
Acquisitions strengthen Central's position
in the Garden Segment
Central Garden & Pet Company (NASDAQ: CENT, CENTA)
("Central"), a market leader in the Garden and Pet industries,
today announced financial results for its fiscal 2021 first quarter
ended December 26, 2020.
“We delivered another quarter of strong financial results
reflecting solid execution, robust consumer demand in Pet and
Garden and the unwavering dedication of our employees,” said Tim
Cofer, CEO of Central Garden & Pet. “I’m pleased with the
continued progress against our Central to Home strategy and remain
excited about the road ahead. Recent examples of our strategy in
action include three acquisitions, which will build scale in our
Garden segment, expand into attractive adjacencies and advance our
omnichannel and digital capabilities.”
Fiscal 2021 First Quarter Financial Results
Total net sales increased 22.7% to $592.2 million compared to
$482.8 million in the first quarter a year ago, driven by organic
strength in both segments.
First quarter gross margin increased 70 basis points to 27.9%,
driven by favorable mix of product sales and volume-related
efficiencies partially offset by continued supply-chain constraints
and inflationary pressures.
Operating income increased to $27.0 million from $2.1 million in
the first quarter a year ago. Operating margin increased 420 basis
points to 4.6% compared to 0.4% in the prior year quarter, driven
by improved gross margin as well as operating efficiencies. EBITDA
increased 162.8% to $40.0 million from $15.2 million in the first
quarter a year ago.
Net interest expense increased to $20.8 million from $8.6
million in the first quarter a year ago, mainly due to incremental
interest expense related to recognizing the impacts of the call
premium, unamortized debt issuance cost and double interest on the
debt retired during the quarter.
The Company's net income increased $10.0 million to $5.6 million
from a net loss of $4.4 million in the first quarter a year ago.
Diluted earnings per share for the quarter grew $0.18 to $0.10 from
$(0.08) in the prior year quarter. This translates to non-GAAP
diluted earnings per share of $0.29, up $0.37 from $(0.08) in the
quarter a year ago, excluding the incremental interest expense
related to debt refinancing and the loss on the sale of the
Breeder's Choice business.
Garden Segment Fiscal 2021 First Quarter Results
First quarter net sales for the Garden segment increased 34.1%
to $155.8 million, driven by strength across the portfolio, with
particularly strong growth in distribution, wild bird feed, grass
seed, controls and fertilizers and live plants.
Garden segment operating income increased $11.5 million to $4.7
million from an operating loss of $6.9 million in the prior year
quarter, and operating margin rose 890 basis points to 3.0%. Garden
segment EBITDA of $7.3 million was up from $(4.2) million in the
prior year quarter, primarily driven by volume strength and gross
margin improvement coupled with operating leverage.
Pet Segment Fiscal 2021 First Quarter Results
First quarter net sales for the Pet segment increased 19.0% to
$436.4 million from $366.6 million in the first quarter a year ago,
driven by strong growth across the segment, with notable
contributions from dog and cat, distribution and small animal
supplies.
Pet segment operating income increased to $43.5 million, up
51.5% compared to the first quarter a year ago, and operating
margin rose 220 basis points to 10.0%. Pet segment EBITDA increased
to $52.6 million from $37.8 million in the first quarter a year
ago, primarily driven by stronger sales volume and favorable
product mix as well as overhead efficiencies.
Additional Information
The Company's cash balance at the end of the quarter increased
36.4% to $608.3 million compared to $445.8 million in the first
quarter a year ago. The Company used approximately $83 million of
its cash to pay for the acquisition of DoMyOwn. Cash used by
operations during the quarter was $36.1 million compared to $18.0
million in the first quarter a year ago. The increase was driven
primarily by an increase in inventory due to the seasonal build in
preparation for the lawn and garden season and the overall demand
for the Company's products.
Total debt as of December 26, 2020 was $789.0 million compared
to $693.4 million at December 28, 2019. The Company successfully
refinanced its 2023 senior notes, raising an additional $100
million of debt. The Company's leverage ratio at the end of the
first quarter, as defined in the Company's credit agreement, was
2.3x compared to 3.0x at the end of the prior year quarter.
The Company’s effective tax rate was 19.7% compared with 27.6%
for the first quarter in the prior year.
Acquisitions
On December 18, 2020, the Company closed the acquisition of
DoMyOwn, a leading and fast-growing online retailer of
professional-grade control products, strengthening the Company's
position in the control product category. Further, on January 8,
the Company closed the acquisition of Hopewell Nursery, a leading
provider of live plants. The acquisition of Green Garden Products,
a leading provider of vegetable, herb and flower seed packages and
seed starters, is expected to close in the second quarter of fiscal
2021. These acquisitions are very recent and subject to purchase
accounting. The Company will provide information as to management's
expectations regarding the impact of the acquisitions on the
Company's fiscal 2021 results during the Company's second quarter
earnings call.
2021 Guidance
The Company continues to project fiscal 2021 EPS to be at or
above $1.90, as compared to prior year EPS of $2.20. This guidance
does not include the impact of its recent acquisitions or
additional acquisitions that may close during fiscal 2021. As
previously stated, the projected decline compared to fiscal 2020
reflects additional investments in capacity expansion, brand
building and eCommerce as the Company continues to invest in
sustainable growth, increasing labor and freight and key commodity
costs in addition to resuming more normal levels of promotional
activity and travel. The Company also anticipates second-half
headwinds associated with lapping almost ideal weather for the
gardening season and the COVID-19 tailwinds in fiscal 2020. In
addition, the Company incurred non-GAAP expenses in the first
quarter of fiscal 2021 related to its recent debt refinancing as
well as the loss on the sale of the Breeder's Choice business,
which impacts EPS by $(0.15) and $(0.04), respectively.
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 first quarter
fiscal 2021 results. The conference call will be accessible on the
investor relations section of the Company's website
http://ir.central.com.
Alternatively, to listen to the call by telephone, dial (201)
689-8345 (domestic and international) using confirmation #13714995.
A replay of the call will be available for three days by dialing
(201) 612-7415 and entering confirmation #13714995.
The Company has also made available an Investor Presentation on
the investor relations section of the Company's website
http://ir.central.com.
About Central Garden & Pet
Central Garden & Pet (NASDAQ: CENT, CENTA) understands that
home is central to life and has proudly nurtured happy and healthy
homes for over 40 years. With 2020 net sales of $2.7 billion,
Central is on a mission to lead the future of the pet and garden
industries. The Company’s innovative and trusted products are
dedicated to help lawns grow greener, gardens bloom bigger, pets
live healthier and communities grow stronger. Central is home to a
leading portfolio of more than 65 high-quality brands including
Pennington, Nylabone, Kaytee, Amdro and Aqueon, strong
manufacturing and distribution capabilities and a passionate,
entrepreneurial growth culture. Central Garden & Pet is based
in Walnut Creek, California and has over 6,300 employees across
North America and Europe. For additional information about Central,
please visit the Company’s website at www.central.com.
Safe Harbor Statement
“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 increased
levels of investment to drive capacity expansion, brand building
and eCommerce, increases in labor and freight cost as well as key
commodities, in addition to resuming more normal levels of travel
and promotional activity and their impact on future growth, and
earnings guidance for fiscal 2021, 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:
- the impact of the COVID-19 pandemic on our business, including
but not limited to, (i) the impact on our workforce, operations,
fill rates, supply chain, demand for our products and services, and
our financial results and condition, (ii) our ability to
successfully manage the challenges associated with the COVID-19
pandemic, and (iii) the potential for future reductions in demand
for product categories, which benefited from the COVID-19
pandemic;
- the success of our new Central to Home strategy
- 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;
- our dependence upon our key executives;
- risks associated with our acquisition strategy, including our
ability to successfully integrate our recently announced
acquisitions;
- the impact of new accounting regulations on the Company's tax
rate;
- dependence on a small number of customers for a significant
portion of our business;
- the impact of tariffs or further expansion of the 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 26, 2020, 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 26, 2020
December 28, 2019
September 26, 2020
Current assets:
Cash and cash equivalents
$
608,285
$
445,813
$
652,712
Restricted cash
13,670
12,990
13,685
Accounts receivable (less allowances of
$30,951, $21,257 and $27,661)
322,806
268,229
391,773
Inventories, net
574,878
556,479
439,615
Prepaid expenses and other
28,074
37,569
27,498
Total current assets
1,547,713
1,321,080
1,525,283
Plant, property and equipment, net
252,157
241,795
244,667
Goodwill
289,955
289,854
289,955
Other intangible assets, net
131,557
145,153
134,924
Operating lease right-of-use assets
115,833
105,277
115,882
Other assets
108,884
31,998
28,653
Total
$
2,446,099
$
2,135,157
$
2,339,364
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
$
216,991
$
184,659
$
205,234
Accrued expenses
189,290
124,774
201,436
Current lease liabilities
34,834
34,320
33,495
Current portion of long-term debt
97
107
97
Total current liabilities
441,212
343,860
440,262
Long-term debt
788,921
693,329
693,956
Long-term lease liabilities
85,729
75,283
86,516
Deferred income taxes and other long-term
obligations
43,224
49,513
40,956
Equity:
Common stock, $0.01 par value: 11,336,358,
11,484,297 and 11,336,358 shares outstanding at December 26, 2020,
December 28, 2019 and September 26, 2020
113
115
113
Class A common stock, $0.01 par value:
42,171,329, 42,289,882 and 41,856,626 shares outstanding at
December 26, 2020, December 28, 2019 and September 26, 2020
422
423
419
Class B stock, $0.01 par value: 1,612,374
shares outstanding at December 26, 2020, 1,647,922 at December 28,
2019 and 1,612,374 at September 26, 2020
16
16
16
Additional paid-in capital
570,678
570,117
566,883
Retained earnings
516,394
403,693
510,781
Accumulated other comprehensive loss
(1,032
)
(1,240
)
(1,409
)
Total Central Garden & Pet Company
shareholders’ equity
1,086,591
973,124
1,076,803
Noncontrolling interest
422
48
871
Total equity
1,087,013
973,172
1,077,674
Total
$
2,446,099
$
2,135,157
$
2,339,364
CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per
share amounts, unaudited)
Three Months Ended
December 26, 2020
December 28, 2019
Net sales
$
592,230
$
482,828
Cost of goods sold and occupancy
426,811
351,562
Gross profit
165,419
131,266
Selling, general and administrative
expenses
138,379
129,201
Operating income
27,040
2,065
Interest expense
(20,975
)
(10,641
)
Interest income
206
2,004
Other income
752
305
Income (loss) before income taxes and
noncontrolling interest
7,023
(6,267
)
Income tax expense (benefit)
1,381
(1,728
)
Income (loss) including noncontrolling
interest
5,642
(4,539
)
Net income (loss) attributable to
noncontrolling interest
29
(122
)
Net income (loss) attributable to Central
Garden & Pet Company
$
5,613
$
(4,417
)
Net income (loss) per share attributable
to Central Garden & Pet Company:
Basic
$
0.10
$
(0.08
)
Diluted
$
0.10
$
(0.08
)
Weighted average shares used in the
computation of net income (loss) per share:
Basic
53,734
54,755
Diluted
54,686
54,755
CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands,
unaudited)
Three Months Ended
December 26, 2020
December 28, 2019
Cash flows from operating
activities:
Net income (loss)
$
5,642
$
(4,539
)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and amortization
12,915
13,140
Amortization of deferred financing
costs
475
446
Non-cash lease expense
9,087
8,513
Stock-based compensation
4,669
4,152
Debt extinguishment costs
8,577
—
Loss on sale of business
2,611
—
Deferred income taxes
973
1,890
Gain on sale of property and equipment
(664
)
(8
)
Other
210
474
Change in assets and liabilities
(excluding businesses acquired):
Accounts receivable
68,929
32,173
Inventories
(137,635
)
(89,327
)
Prepaid expenses and other assets
(1,362
)
(8,065
)
Accounts payable
10,134
35,700
Accrued expenses
(13,393
)
(4,422
)
Other long-term obligations
1,437
115
Operating lease liabilities
(8,720
)
(8,264
)
Net cash used by operating
activities
(36,115
)
(18,022
)
Cash flows from investing
activities:
Additions to plant, property and
equipment
(14,661
)
(9,877
)
Payments to acquire companies, net of cash
acquired
(80,887
)
—
Proceeds from the sale of business
2,400
—
Investments
—
(424
)
Other investing activities
(223
)
(75
)
Net cash used in investing
activities
(93,371
)
(10,376
)
Cash flows from financing
activities:
Repayments of long-term debt
(400,024
)
(31
)
Proceeds from issuance of long-term
debt
500,000
—
Premium paid on extinguishment of debt
(6,124
)
—
Repurchase of common stock, including
shares surrendered for tax withholding
(871
)
(23,054
)
Payment of contingent consideration
liability
(110
)
(77
)
Distribution to noncontrolling
interest
(478
)
—
Payment of financing costs
(8,031
)
(869
)
Net cash provided (used) by financing
activities
84,362
(24,031
)
Effect of exchange rate changes on cash
and cash equivalents
682
531
Net decrease in cash, cash equivalents
and restricted cash
(44,442
)
(51,898
)
Cash, cash equivalents and restricted cash
at beginning of period
666,397
510,701
Cash, cash equivalents and restricted
cash at end of period
$
621,955
$
458,803
Supplemental information:
Cash paid for interest
$
13,180
$
12,944
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 non-GAAP net
income and diluted net income per share, 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.
Non-GAAP financial measures reflect adjustments based on the
following items:
- Incremental expenses from note redemption and issuance: we have
excluded the impact of the incremental expenses incurred from the
note redemption and issuance as they represent an infrequent
transaction that occurs in limited circumstances that impacts the
comparability between operating periods. We believe the adjustment
of these expenses supplements the GAAP information with a measure
that may be used to assess the sustainability of our operating
performance.
- Loss on sale of business: we have excluded the impact of the
loss on the sale of a business as it represents an infrequent
transaction that occurs in limited circumstances that impacts the
comparability between operating periods. We believe the adjustment
of this loss supplements the GAAP information with a measure that
may be used to assess the sustainability of our operating
performance.
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 2021,
we issued $500 million aggregate principal amount of 4.125% senior
notes due October 2030. We used the proceeds to redeem all of our
outstanding 6.125% senior notes due 2023. As a result of our
redemption of the 2023 Notes, we incurred incremental expenses of
approximately $10.0 million, comprised of a call premium payment of
$6.1 million, overlapping interest expense of approximately $1.4
million and a $2.5 million non-cash charge for the write-off of
unamortized financing costs in interest expense. These amounts are
included in Interest expense in the consolidated statements of
operations.
(2)
During the first quarter of fiscal 2021,
we recognized a loss of $2.6 million, included in selling, general
and administrative expense in the consolidated statement of
operations, from the sale of our Breeder’s Choice business unit
after concluding it was not a strategic business for our Pet
segment.
GAAP to Non-GAAP
Reconciliation For the Three Months Ended
Net Income and Diluted Net Income Per
Share Reconciliation
December 26, 2020
December 28, 2019
(in thousands, except per
share amounts)
GAAP net income (loss) attributable to
Central Garden & Pet Company
$
5,613
$
(4,417
)
Incremental expenses from note redemption
and issuance
(1
)
9,952
—
Loss on sale of business
(2
)
2,611
—
Tax effect of incremental expenses and
loss on sale
$
(2,470
)
$
—
Non-GAAP net income (loss) attributable to
Central Garden & Pet Company
$
15,706
$
(4,417
)
GAAP diluted net income (loss) per
share
$
0.10
$
(0.08
)
Non-GAAP diluted net income (loss) per
share
$
0.29
$
(0.08
)
Shares used in GAAP and non-GAAP diluted
net earnings per share calculation
54,686
54,755
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 For the Three Months Ended December 26
2020
Consolidated
Pet Segment
Garden Segment
Percent change
Percent change
Percent change
(in millions)
Reported net sales - Q1 FY21 (GAAP)
$
592.2
$
436.4
$
155.8
Reported net sales - Q1 FY20 (GAAP)
482.8
366.6
116.2
Increase in net sales
109.4
22.7
%
69.8
19.0
%
39.6
34.1
%
Effect of acquisition and divestitures on
increase in net sales
1.6
1.9
(0.3
)
Increase in organic net sales - Q1
FY21
$
111.0
23.0
%
$
71.7
19.6
%
$
39.3
33.8
%
EBITDA Reconciliation
GAAP to Non-GAAP
Reconciliation For the Three Months Ended December 26, 2020
Garden
Pet
Corp
Total
(in thousands)
Net income attributable to Central Garden
& Pet Company
—
—
—
$
5,613
Interest expense, net
—
—
—
20,769
Other income
—
—
—
(752
)
Income tax expense
—
—
—
1,381
Net income attributable to noncontrolling
interest
—
—
—
29
Sum of items below operating income
—
—
—
21,427
Income (loss) from operations
$
4,651
$
43,525
$
(21,136
)
$
27,040
Depreciation & amortization
2,638
9,085
1,192
12,915
EBITDA
$
7,289
$
52,610
$
(19,944
)
$
39,955
EBITDA Reconciliation
GAAP to Non-GAAP
Reconciliation For the Three Months Ended December 28, 2019
Garden
Pet
Corp
Total
(in thousands)
Net loss attributable to Central Garden
& Pet Company
—
—
—
$
(4,417
)
Interest expense, net
—
—
—
8,637
Other income
—
—
—
(305
)
Income tax benefit
—
—
—
(1,728
)
Net loss attributable to noncontrolling
interest
—
—
—
(122
)
Sum of items below operating income
—
—
—
6,482
Income (loss) from operations
$
(6,883
)
$
28,737
$
(19,789
)
$
2,065
Depreciation & amortization
2,713
9,072
1,355
13,140
EBITDA
$
(4,170
)
$
37,809
$
(18,434
)
$
15,205
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210203005822/en/
Investor Relations Contact Friederike Edelmann 925
412-6726 fedelmann@central.com
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