Fiscal 1Q 2019 sales increased 4.5% to
$462.0 million
Fiscal 1Q 2019 diluted EPS decreased to
$0.03 vs. $0.50 in Fiscal 1Q 2018
Fiscal 1Q 2019 non-GAAP diluted EPS
decreased to $0.03 vs. $0.19 in Fiscal 1Q 2018
Maintaining fiscal year diluted EPS guidance
of $1.80 or higher
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 2019
first quarter ended December 29, 2018.
Fiscal 2019 First Quarter Financial
Results
Total net sales increased 4.5% to $462.0 million compared to
$442.0 million in the first quarter a year ago, driven by two
recent acquisitions, Bell Nursery and General Pet. Total Company
organic growth declined 1.7%, due in part to timing of orders from
a large Garden customer in the quarter compared to the prior year's
first quarter. Strength in the Company's wild bird feed business
offset some of the organic growth decline in the first quarter.
Branded product sales of $354.4 million increased 1.3%, and sales
of other manufacturers’ products of $107.6 million increased 16.7%,
favorably impacted by the acquisition of General Pet. Gross margin
of 28.2% declined 160 basis points compared to the first quarter a
year ago, due in part to the inclusion of the Company's recent Bell
Nursery and General Pet acquisitions, which will anniversary at the
end of the Company's second fiscal quarter. A less favorable mix of
sales and higher raw material and labor costs also negatively
impacted gross margin. Mix is expected to improve throughout the
year and price increases taken at the beginning of the calendar
year are expected to mitigate much of the margin pressure from the
higher costs for the remainder of the year.
First quarter operating income decreased to $10.2 million from
$22.5 million in the first quarter a year ago and operating margin
decreased 290 basis points to 2.2% compared to 5.1%. The Company's
lower gross margin was a factor, as was higher warehousing and
freight costs. EBITDA for the quarter was $22.5 million versus
$33.7 million in the first quarter a year ago.
Net income of $1.8 million decreased from $26.2 million in the
first quarter a year ago, due in large part to a tax benefit in the
first quarter of last year related to a revaluation of the
Company's deferred tax accounts. Net income, excluding the tax
benefit from the prior year, declined from $9.9 million, due to the
operating income decline and higher interest costs. Earnings per
diluted share decreased to $0.03 in the quarter on both a GAAP and
non-GAAP basis compared to $0.50 and $0.19 on a GAAP and non-GAAP
basis, respectively, in the first quarter a year ago.
"While challenged by the expected headwinds that we articulated
last quarter, the results for our first quarter came in largely as
we expected, excluding the key customer shipment timing. With a
strong sales performance in January, we are comfortable where our
businesses stand at his point in the year," said George Roeth,
President & CEO of Central Garden & Pet. "We continue to
expect to end the year with healthy organic sales and profitability
growth in both our Garden and Pet segments, primarily driven by new
products, a more favorable mix of sales, and higher organic margins
aided by pricing actions and continued cost savings. We, therefore,
are reaffirming guidance for the year and are comfortable with the
progress we are making."
Pet Segment Fiscal 2019 First Quarter
Results
First quarter net sales for the Pet segment increased 4.7% to
$340.4 million, from the same period a year ago, driven by the
acquisition of General Pet. Organic Pet sales were down 0.6%,
impacted by a decline in animal health sales, driven by increased
competition in the behavior modification category and a shift in
order patterns in Central's equine business. The Company expects a
product improvement launch for behavior modification and normal
equine consumption results to help mitigate these issues in the
back half of the year. In addition, wild bird feed sales rose,
benefiting from harsh winter weather early in the season. The Pet
segment’s first quarter branded product sales were $262.0 million,
down 0.3% compared to a year ago, and sales of other manufacturers’
products were $78.5 million, an increase of 26.1%, driven by the
impact of General Pet.
The Pet segment’s operating income decreased 17.7% compared to
the first quarter a year ago to $29.8 million. Pet operating margin
decreased to 8.7%, a decline of 240 basis points compared to the
first quarter a year ago, due in part to the lower margins
associated with General Pet, higher raw material, freight, and
labor costs, and an unfavorable sales mix. Many of these margin
pressures are expected to lessen or be eliminated in the second
half of the year. Pet EBITDA of $37.8 million declined 12.7% from
$43.3 million in the first quarter a year ago.
Garden Segment Fiscal 2019 First
Quarter Results
First quarter net sales for the Garden segment rose 4.0% to
$121.6 million, due to the Company's acquisition of Bell Nursery.
Organic growth decreased 4.6%, impacted by a timing shift at a
large customer, which placed significant seasonal load-in orders in
January this year versus December last year. It is noteworthy that
Garden consumption at the Company's largest customers in the
quarter rose substantially and has continued strong through
January. The Garden segment’s branded product sales, including Bell
Nursery, were $92.5 million in the quarter, up 6.3% compared to the
first quarter a year ago. Sales of other manufacturers’ products
were down 2.8% to $29.1 million.
The Garden segment had an operating loss of $4.6 million in the
quarter compared to an operating gain of $2.3 million in the first
quarter of fiscal 2018. Operating margin decreased 580 basis points
to 3.8%, due to the inclusion of Bell Nursery as a result of its
extreme seasonality, lower organic volumes, and higher costs. The
first quarter is very unprofitable for Bell Nursery, which was not
included in the Company's results in last year's first quarter. The
acquisition will anniversary late in the Company's second fiscal
quarter. Inflationary cost pressure on raw materials, freight, and
labor was also a factor, which should be mitigated going forward
with the price increases that took place at the beginning of the
calendar year. Garden EBITDA of ($1.8) million declined from $3.9
million in the first quarter a year ago.
Additional Information
The Company's cash balance at the end of the quarter increased
to $478.7 million compared to $283.5 million in the first quarter a
year ago, reflecting the proceeds of the Company's equity offering
in August 2018. Total debt at December 29, 2018 was $692.4
million compared to $691.3 million at December 30, 2017. Net
interest expense of $8.1 million for the first quarter increased
$0.9 million from $7.2 million in the prior-year period. The
Company's leverage ratio at the end of the first quarter, as
defined in the Company's credit agreement, was 3.2x compared to
3.3x at the end of the prior year quarter.
Other expense in the first quarter of $0.2 million decreased
$2.9 million from an expense of $3.1 million for the same period a
year ago. The improvement was due primarily to lower losses from an
equity investment.
The Company’s effective tax rate for the first quarter of 2019
was 14.3%, compared with a tax benefit for the first quarter of
2018. The prior year quarter reflected a provisional tax benefit of
$16.3 million. Adjusting for that tax benefit resulted in an
effective tax rate of 17.3% in the prior year quarter.
2019 Guidance
The Company is maintaining its fiscal 2019 guidance of earnings
per fully-diluted share of $1.80 or higher for the year. The
guidance excludes the impact of the Company's February 2, 2019
acquisition of the remaining 55% interest in Arden Companies, a
manufacturer of outdoor cushions and pillows, it did not previously
own.
The Company expects certain factors will continue to be a drag
on second quarter 2019 earnings before more favorable trends and
comparisons should allow it to show meaningful sales, margin, and
profit growth in the second half of the year. Specifically, the
inclusion of Bell Nursery in its results for the second quarter,
will be a factor, as Bell Nursery has historically only shown a
profit in the Company's third fiscal quarter. In addition, in the
second quarter of fiscal 2018, the Company had organic sales growth
of 6%, making for a difficult comparison this year. The second half
of the year is expected to benefit from the alleviation of
inflationary pressures, price increases, a more favorable mix of
sales, and the positive impact of the Company's cost savings
initiatives.
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
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 #13686895.
A replay of the call will be available for three days by dialing
(201) 612-7415 and entering confirmation #13686895.
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 5,400 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
financial results, earnings guidance for fiscal 2019 expected cost
and mix improvements in the second half of fiscal 2019 and new
product offerings, 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;
- potential acquisitions;
- 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;
- the impacts of recent tariffs or a
potential 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
December 29,2018
December 30,2017
September 29,2018
Current assets: Cash and cash equivalents $ 478,737 $ 283,466 $
482,106 Restricted cash 10,921 12,419 10,899 Accounts receivable
(less allowance for doubtful accounts of $18,030, $20,481 and
$24,125) 250,223 235,075 275,908 Inventories 493,745 440,421
427,823 Prepaid expenses and other 38,398 22,519
20,562 Total current assets 1,272,024 993,900 1,217,298
Land, buildings, improvements and equipment—net 211,560
179,230 217,647 Goodwill 281,177 256,275 281,177 Other intangible
assets—net 148,782 113,726 152,265 Other assets 37,303
74,221 38,822 Total $ 1,950,846 $ 1,617,352
$ 1,907,209
LIABILITIES AND EQUITY
Current liabilities: Accounts payable $ 141,186 $ 124,583 $ 110,259
Accrued expenses 108,245 100,004 102,583 Current portion of
long-term debt 117 372 122 Total current
liabilities 249,548 224,959 212,964 Long-term debt 692,332
690,964 692,031 Deferred taxes and other long-term obligations
52,482 39,478 49,380 Equity: Common stock, $0.01 par value:
12,145,135, 12,160,023 and 12,145,135 shares outstanding at
December 29, 2018, December 30, 2017 and September 29, 2018 121 122
121 Class A common stock, $0.01 par value: 44,059,803, 38,029,367
and 43,953,265 shares outstanding at December 29, 2018, December
30, 2017 and September 29, 2018 441 380 439 Class B stock,
$0.01 par value: 1,652,262 shares outstanding 16 16 16 Additional
paid-in capital 592,451 396,702 590,168 Accumulated earnings
364,726 265,576 362,923 Accumulated other comprehensive loss (1,492
) (907 ) (1,218 ) Total Central Garden & Pet Company
shareholders’ equity 956,263 661,889 952,449 Noncontrolling
interest 221 62 385 Total equity 956,484
661,951 952,834 Total $ 1,950,846 $
1,617,352 $ 1,907,209
CENTRAL GARDEN &
PET COMPANY CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (in thousands, except per share amounts)
(Unaudited) Three Months Ended
December 29,2018
December 30,2017
Net sales $ 461,990 $ 442,011 Cost of goods sold and occupancy
331,808 310,174 Gross profit 130,182 131,837
Selling, general and administrative
expenses
120,001 109,316
Operating income 10,181
22,521 Interest expense (10,614 ) (7,405 ) Interest income 2,537
187 Other expense (192 ) (3,089 ) Income before income taxes and
noncontrolling interest 1,912 12,214 Income tax expense (benefit)
273 (14,236 ) Income including noncontrolling
interest 1,639 26,450 Net income (loss) attributable to
noncontrolling interest (164 ) 203
Net income
attributable to Central Garden & Pet Company $ 1,803
$ 26,247 Net income per share attributable to Central
Garden & Pet Company: Basic $ 0.03 $ 0.52 Diluted
$ 0.03 $ 0.50 Weighted average shares used in
the computation of net income per share: Basic 56,903 50,730
Diluted 58,001 52,695
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 net sales 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.
EBITDA is defined by us as income before income tax, net other
expense, net interest expense and depreciation and amortization. We
present EBITDA because we believe that EBITDA is a useful
supplemental measure in evaluating the cash flows and performance
of our business and providers 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
substitutes for cash flow from operations, income from operations
or other income statement measure 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, 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 item:
- 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 or future year earnings.
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, the Company recorded a provisional tax benefit
of $16.3 million in the quarter ended December 30, 2017, 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 or future year earnings.
GAAP to Non-GAAP
Reconciliation(in thousands, except per share amounts)
For the Three Months Ended
Net Income and Diluted Net Income Per Share Reconciliation
December 29, 2018 December 30, 2017
GAAP net income attributable to Central Garden & Pet $ 1,803 $
26,247 Tax effect of revaluation of deferred tax amounts (1) —
16,343 Non-GAAP net income attributable to Central Garden & Pet
$ 1,803 $ 9,904 GAAP diluted net income per share $ 0.03 $ 0.50
Non-GAAP diluted net income per share $ 0.03 $ 0.19 Shares used in
GAAP and non-GAAP diluted net earnings per share calculation 58,001
52,695
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 December 29, 2018
Consolidated Pet Segment Garden
Segment
Percentchange
Percentchange
Percentchange
Reported net sales - Q1 FY19 (GAAP) $ 462.0 $ 340.4 $ 121.6
Reported net sales - Q1 FY18 (GAAP) 442.0 325.1 116.9
Increase in net sales 20.0 4.5
%
15.3 4.7
%
4.7 4.0
%
Effect of acquisition and divestitures on increase in net sales
27.3 17.2 10.1
Decrease in organic net sales - Q1
2019
$ (7.3 ) (1.7 )% $ (1.9 ) (0.6 )% $ (5.4 ) (4.6 )%
EBITDA
Reconciliation GAAP to Non-GAAP
Reconciliation(in thousands, except per share amounts)
For the Three Months Ended December 29, 2018 Garden
Pet Corp Total Net income
attributable to Central Garden & Pet — — — $ 1,803
Interest expense, net — — — 8,077
Other income
— — — 192 Income tax expense — — — 273
Net loss attributable to noncontrolling
interest
— — — (164 )
Sum of items below operating income
— — — 8,378
Income (loss) from operations
$ (4,637 ) $ 29,755 $ (14,937 ) $ 10,181 Depreciation &
amortization 2,826 8,056 1,470 12,352
EBITDA $ (1,811 ) $ 37,811 $ (13,467 ) $ 22,533
EBITDA
Reconciliation GAAP to Non-GAAP
Reconciliation(in thousands, except per share amounts)
For the Three Months Ended December 30, 2017 Garden
Pet Corp Total Net income
attributable to Central Garden & Pet
—
—
—
26,247 Interest expense, net — — — 7,218
Other income
— — — 3,089
Income tax benefit
— — — (14,236 ) Net income attributable to noncontrolling interest
— — — 203 Sum of items below operating
income — — — (3,726 )
Income (loss) from operations
$ 2,300 $ 36,176 $ (15,955 ) $ 22,521 Depreciation &
amortization 1,569 7,145 2,449 11,163
EBITDA $ 3,869 $ 43,321 $ (13,506 ) $ 33,684
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190206005671/en/
Steve ZenkerVP Finance - Investor Relations, FP&A, &
Corporate CommunicationsCentral Garden & Pet
Company925.948.3657
Central Garden and Pet (NASDAQ:CENT)
Historical Stock Chart
From Jun 2024 to Jul 2024
Central Garden and Pet (NASDAQ:CENT)
Historical Stock Chart
From Jul 2023 to Jul 2024