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:
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:
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)
211,817
CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Selling, general and administrative expenses
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:
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:
GAAP to Non-GAAP Reconciliation(in thousands)For
the Nine Months Ended
June 30,2018
June 24,2017
June 30,2018
June 24,2017
(2)
GAAP to Non-GAAP Reconciliation(in thousands,
except per share amounts)For the Nine Months Ended
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
Percentchange
Percentchange
Percentchange
%
%
GAAP to Non-GAAP Reconciliation(in millions)For
the Nine Months Ended June 30, 2018
Percentchange
Percentchange
Percentchange
%
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