Fiscal 2Q 2018 sales increased 7.6% to
$613.1 million; Organic sales up 6.1%
Fiscal 2Q 2018 diluted EPS increased to
$0.86 vs. $0.67 in Fiscal 2Q 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
second quarter ended March 31, 2018.
Fiscal 2018 Second Quarter Financial
Results
Total net sales increased 7.6% to $613.1 million compared to
$569.9 million in the second quarter a year ago driven by solid
organic growth in both the Garden and Pet segments. Organic sales
increased 6.1%, benefiting from new product introductions, shelf
space gains, and expanded distribution of both branded and private
label products. Branded product sales of $497.6 million increased
8.8%, and sales of other manufacturers’ products of $115.5 million
rose 2.5%. Gross margin of 31.7% declined 50 basis points compared
to the second quarter a year ago, due in part to a shift in the mix
of sales in the Pet segment, and an increase in certain raw
materials and freight costs across the Company.
Second quarter operating income increased to $65.8 million from
$63.9 million in the second quarter a year ago and operating margin
decreased 50 basis points to 10.7%. Operating margin was negatively
impacted by the decrease in gross margin, while SG&A as a
percentage of sales remained flat at 21.0%.
Net income of $45.2 million increased 30.4% compared to $34.7
million in the second quarter a year ago, due to the revenue
increase, a reduction in Federal tax rates, recent changes in
accounting standards around non-cash equity compensation expense,
and an increase in other income from the Company's joint venture
investments. The impact of these changes more than offset an
increase in interest expense of $3.7 million. Earnings per diluted
share increased 28.4% to $0.86 from $0.67 in the second quarter a
year ago.
"Central reported another quarter of solid results, and we are
very pleased with the organic growth that we are driving," said
George Roeth, President & CEO of Central Garden & Pet. "We
are executing well in bringing new products to market and expanding
distribution of existing products in channels where we are
under-represented, all while providing significant value to both
our customers and consumers." Roeth continued, "We experienced
strong sell-in for the garden season this quarter. How consumer
takeaway plays out in our third fiscal quarter will largely
determine how much of this quarter's gain we retain."
Pet Segment Fiscal 2018 Second Quarter
Results
Second quarter net sales for the Pet segment increased 7.8% to
$321.7 million, from the same period a year ago, driven primarily
by higher organic Pet sales, which increased 6.3%. Continued
strength in the e-commerce and mass channels were primary drivers
of the increase. The Pet segment’s second quarter branded product
sales were $257.4 million, up 7.0% compared to a year ago, and
sales of other manufacturers’ products were $64.3 million, an
increase of 11.1%, driven primarily by growth at one large grocery
customer where the Company is in the process of rolling out its new
store-within-a-store operating concept.
The Pet segment’s operating income declined 5.4% compared to the
second quarter a year ago to $32.8 million. Pet operating margin
decreased to 10.2%, a decline of 140 basis points compared to the
second quarter a year ago. A lower gross margin, impacted by an
unfavorable sales mix, due in part to unfavorable weather for the
animal health business, was a factor in the decline, as were higher
logistics expenses in the Company's Pet distribution business
related to the ramp up for expected volume gains.
Garden Segment Fiscal 2018 Second
Quarter Results
Net sales for the Garden segment rose 7.3% to $291.4 million,
including revenue from the Company's acquisition of Bell Nursery
that closed in mid-March. Organic growth increased 5.8%. A strong
load-in for the season, as well as favorable timing of orders vs.
the prior year, drove the organic sales growth. Most major Garden
business categories experienced increases, continuing to benefit
from new products and expanded distribution of both branded and
private label products. The Garden segment’s branded product sales
were $240.2 million in the quarter, up 10.8% compared to the second
quarter a year ago. Sales of other manufacturers’ products were
down 6.6% to $51.2 million.
The Garden segment’s operating income in the quarter increased
10.3% to $50.7 million. Operating margin increased 50 basis points
to 17.4% due to cost savings and production efficiencies. Both
income and margin benefited in particular from stronger results in
the grass seed business.
Year-to-date 2018 Operating Income, Net
Earnings and EPS
For the six months ended March 31, 2018, the Company
reported:
- Year-to-date sales of $1,055.1 million
increased 6.6% compared with $989.4 million a year ago. Organic
sales increased 4.0%.
- Gross margin increased 20 basis points
to 30.9% compared to 30.7% in the first six months of fiscal
2017.
- Operating income of $88.3 million
increased 5.4% or $4.5 million from $83.8 million in the first six
months of 2017; non-GAAP operating income, excluding the sale of a
distribution facility in the prior year, increased 8.0% to $88.3
million from $81.7 million.
- Operating margin of 8.4% decreased 10
basis points from 8.5% in the first six months of fiscal 2017.
Non-GAAP operating margin of 8.4% increased 10 basis points from
8.3%.
- Net income rose 68.9% to $71.5 million
from $42.3 million a year ago. Non-GAAP net income, which excludes
the impact of the revaluation of the deferred tax amounts in fiscal
2018 and the gain from the sale of a distribution facility in 2017,
was $55.1 million or an increase of 34.4% compared to $41.0 million
in the first six months of 2017; and
- Diluted earnings per share of $1.36
rose 65.9% from $0.82 per share a year ago. Non-GAAP earnings per
diluted share increased 32.9% to $1.05 from $0.79 in the first six
months of 2017.
Additional Information
Other income in the second quarter of 2018 increased to $1.5
million of income from an expense of $1.0 million in the second
quarter of 2017, due primarily to one joint venture which is
seasonal in nature and was not in the second quarter results of the
prior year.
The Company's cash balance at the end of the quarter increased
to $132.3 million compared to $6.2 million in the second quarter a
year ago. Total debt at March 31, 2018 was $691.1 million
compared to $496.2 million at March 25, 2017. Net interest
expense was $9.9 million for the second quarter compared to $6.8
million in the prior-year period. The increases are primarily due
to the Company's issuance of $300 million of fixed income
securities in December 2017. The Company's leverage ratio at the
end of the second quarter, as defined in the Company's credit
agreement, was 3.2x compared to 2.5x at the end of the prior year
quarter.
The Company’s effective tax rate for the second quarter of 2018
was 20.3%, compared with 37.1% for the second 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 raising its annual guidance and now expects
non-GAAP earnings per fully-diluted share of $1.90 or higher for
fiscal 2018, with the increase predominately due to the inclusion
of the Bell Nursery acquisition, though there does remain
uncertainty as to how the garden season will play out through the
remainder of the fiscal 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 second 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 #13678235.
A replay of the call will be available for three days by dialing
(201) 612-7415 and entering confirmation #13678235.
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 almost 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
and earnings guidance for fiscal 2018 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;
- 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 31, 2018 March 25, 2017
September 30, 2017 Current assets: Cash and cash equivalents
$ 132,265 $ 6,169 $ 32,397 Restricted cash 13,948 10,988 12,645
Accounts receivable (less allowance for doubtful accounts of
$20,976, $20,227 and $21,436) 395,151 343,202 237,868 Inventories
465,522 426,385 382,101 Prepaid expenses and other 26,677
23,610 18,045 Total current assets 1,033,563 810,354
683,056 Land, buildings, improvements and equipment—net
210,563 175,940 180,913 Goodwill 268,243 230,385 256,275 Other
intangible assets—net 141,530 91,424 116,067 Other assets 50,064
60,361 70,595 Total $ 1,703,963 $
1,368,464 $ 1,306,906
LIABILITIES AND
EQUITY Current liabilities: Accounts payable $ 150,975 $
141,791 $ 103,283 Accrued expenses 116,414 101,421 116,549 Current
portion of long-term debt 20 374 375 Total
current liabilities 267,409 243,586 220,207 Long-term debt
691,084 495,870 395,278 Deferred taxes and other long-term
obligations 40,368 34,517 54,279 Equity: Common stock, $0.01
par value: 12,145,135, 12,176,787, and 12,160,023 shares
outstanding at March 31, 2018, March 25, 2017 and September 30,
2017 121 122 122 Class A common stock, $0.01 par value: 38,171,595,
37,731,149 and 38,019,736 shares outstanding at March 31, 2018,
March 25, 2017 and September 30, 2017 382 377 380 Class B stock,
$0.01 par value: 1,652,262 shares outstanding 16 16 16 Additional
paid-in capital 393,852 391,541 396,790 Accumulated earnings
310,810 202,822 239,329 Accumulated other comprehensive loss (673 )
(1,658 ) (951 ) Total Central Garden & Pet Company
shareholders’ equity 704,508 593,220 635,686 Noncontrolling
interest 594 1,271 1,456 Total equity 705,102
594,491 637,142 Total $ 1,703,963 $
1,368,464 $ 1,306,906
CENTRAL GARDEN & PET
COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per share
amounts)
(Unaudited)
Three Months Ended Six Months Ended
March 31,2018
March 25,2017
March 31,2018
March 25,2017
Net sales $ 613,094 $ 569,924 $ 1,055,105 $ 989,422 Cost of goods
sold and occupancy 418,637 386,395 728,811
685,215 Gross profit 194,457 183,529 326,294 304,207
Selling, general and administrative expenses 128,671 119,669
237,987 220,409 Operating income 65,786 63,860
88,307 83,798 Interest expense (10,575 ) (6,830 ) (17,980 ) (13,703
) Interest income 693 8 880 46 Other income (expense) 1,505
(965 ) (1,584 ) (1,932 ) Income before income taxes and
noncontrolling interest 57,409 56,073 69,623 68,209 Income tax
(benefit) expense 11,643 20,824 (2,593 ) 25,171
Income including noncontrolling interest 45,766 35,249
72,216 43,038 Net income attributable to noncontrolling interest
532 565 735 717 Net income attributable
to Central Garden & Pet Company $ 45,234 $ 34,684
$ 71,481 $ 42,321 Net income per share
attributable to Central Garden & Pet Company: Basic $ 0.89
$ 0.69 $ 1.41 $ 0.85 Diluted $ 0.86
$ 0.67 $ 1.36 $ 0.82 Weighted
average shares used in the computation of net income per share:
Basic 50,871 50,079 50,816 49,872 Diluted 52,658 51,983 52,693
51,911
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:
- 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 Six Months Ended Consolidated Garden
March 31,2018
March 25,2017
March 31,2018
March 25,2017
GAAP operating income $ 88,307 $ 83,798 $ 53,046 $
48,681 Gain on sale of distribution facility (2) — (2,050 )
— (2,050 ) Non-GAAP operating income $ 88,307
$ 81,748 $ 53,046 $ 46,631
GAAP operating margin 8.4 % 8.5 % 13.0 % 12.6 % Non-GAAP
operating margin 8.4 % 8.3 % 13.0 % 12.0 %
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 31,
2018 March 25, 2017 GAAP net income attributable
to Central Garden & Pet $ 71,481 $ 42,321 Gain on sale of
distribution facility (2) — (2,050 ) Tax effect of sale of
distribution facility adjustment — 757 Tax effect of revaluation of
deferred assets (1) 16,343 — Total impact on net
income from non-GAAP adjustments $ 16,343 $ (1,293 )
Non-GAAP net income attributable to Central Garden & Pet $
55,138 $ 41,028 GAAP diluted net income per share $ 1.36 $ 0.82
Non-GAAP diluted net income per share $ 1.05 $ 0.79 Shares used in
GAAP and non-GAAP diluted net earnings per share calculation 52,693
51,911
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 31, 2018
Consolidated Pet Segment Garden
Segment
Percentchange
Percentchange
Percentchange
Reported net sales - Q2 FY18
(GAAP) $ 613.1 $ 321.7 $ 291.4 Reported net sales - Q2 FY17 (GAAP)
569.9 298.4 271.5 Increase in net sales 43.2
7.6 % 23.3 7.8 % 19.9 7.3 % Effect of acquisition and divestitures
on increase in net sales 8.6 4.4
4.2 Increase in organic net sales - Q2 2018 $
34.6 6.1 % $ 18.9 6.3 % $ 15.7 5.8 %
GAAP to Non-GAAP Reconciliation(in millions)
For the Six Months Ended March 31, 2018 Consolidated
Pet Segment Garden Segment
Percentchange
Percentchange
Percentchange
Reported net sales - Q2 FY18 (GAAP) $ 1,055.1 $ 646.7
$ 408.4 Reported net sales - Q2 FY17 (GAAP) 989.4
602.4 387.0 Increase in net sales 65.7 6.6 %
44.3 7.4 % 21.4 5.5 % Effect of acquisition and divestitures on
increase in net sales 26.3 22.1 4.2
Increase in organic net sales $ 39.4 4.0 % $
22.2 3.7 % $ 17.2 4.4 %
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version on businesswire.com: https://www.businesswire.com/news/home/20180507006002/en/
Central Garden & Pet CompanySteve Zenker, 925-948-3657VP
Finance - Investor Relations, FP&A, & Corporate
Communications
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