Fiscal 2016 diluted EPS of $0.87 vs. diluted
EPS of $0.64 for fiscal 2015
Fiscal 2016 non-GAAP diluted EPS of $1.26
vs. non-GAAP diluted EPS of $0.74 for fiscal 2015
Central Garden & Pet Company (NASDAQ: CENT) (NASDAQ: CENTA),
a leading innovator, marketer and producer of quality branded
products for the lawn and garden and pet supplies markets, today
announced financial results for its fiscal year and fourth quarter
ended September 24, 2016.
Fiscal 2016 Summary
Net sales increased 10.8% to $1.83 billion compared to $1.65
billion a year ago. Branded product sales of $1.44 billion
increased 9.7% and sales of other manufacturers’ products of $386.2
million rose 15.0%. Organic sales growth, adjusting for businesses
purchased or exited that impacted the year, rose 4.2%. The Pet and
Garden segments both experienced organic growth. Gross margin
improved 60 basis points to 30.2% compared to 29.6% in the prior
year despite the dilutive effects of the Company's recent
acquisitions, which negatively impacted fiscal 2016 gross margin by
100 basis points. The Company's gross margin benefited from a
favorable mix of product sales, reduced raw material input costs,
as well as its exit from the holiday decor business.
Fiscal 2016 GAAP Operating Income, Net
Earnings and EPS
- Operating income of $129.4 million was
up 41.5% over fiscal 2015 from $91.4 million;
- Operating margin of 7.1% increased 160
basis points compared to fiscal 2015;
- Net income was $44.5 million, a 39.2%
increase compared to $32.0 million in fiscal 2015; and
- Earnings per share increased 35.9% to
$0.87 per fully diluted share.
Fiscal 2016 Non-GAAP Operating Income, Net
Earnings and EPS
- Non-GAAP results for fiscal 2016
exclude $14.3 million of charges in the first quarter related to
the Company's refinancing of its fixed rate notes, $2.4 million of
income related to the sale of a manufacturing plant in the third
quarter, and non-cash impairment charges of $18.4 million in the
fourth quarter primarily related to the Company's investment in two
joint ventures. Only $1.8 million of the impairment charge impacted
operating income;
- Non-GAAP results for fiscal 2015
exclude a Pet non-cash intangible impairment charge of $7.3
million, all of which impacted operating income;
- Non-GAAP operating income for the year,
excluding the items above, was $128.8 million and an operating
margin of 7.0% compared to $98.7 million and 6.0% in the prior
year;
- Non-GAAP net income was $64.4 million,
a 75.8% gain compared to $36.6 million in the period a year
ago;
- Non-GAAP earnings per fully diluted
share increased 70.3% to $1.26 per fully diluted share.
Fiscal 2016 Fourth Quarter Financial
Results
Net sales increased 7.0% to $413.4 million compared to $386.4
million in the fourth quarter a year ago. Branded product sales of
$330.0 million increased 6.7% and sales of other manufacturers’
products of $83.5 million rose 8.3%. Organic sales growth,
adjusting for businesses purchased or exited that impacted the
year, rose 2.6%. The Pet and Garden segments both experienced
organic growth; Gross margin improved 120 basis points compared to
the fourth quarter a year ago to 29.1%, benefiting primarily from
the Company's exit from the holiday decor business.
Fourth Quarter GAAP Operating Income, Net
Earnings and EPS
- Operating income of $13.0 million was
up $11.7 million compared to $1.3 million in the fourth quarter a
year ago. Operating margin of 3.1% increased 280 basis points
compared to the fourth quarter a year ago;
- Net loss of $5.6 million increased
28.4% compared to the fourth quarter a year ago due to additional
net impairment charges of $11.1 million versus the prior year;
and
- Loss per fully-diluted share increased
22.2% to $0.11.
Fourth Quarter Non-GAAP Operating Income,
Net Earnings and EPS
- Non-GAAP results exclude non-cash
impairment charges of $18.4 million in the fourth quarter of fiscal
2016 including $1.8 million that impacted operating income;
- Comparably, in the fourth quarter of
fiscal 2015, non-GAAP results exclude a Pet non-cash intangible
impairment charge of $7.3 million, all of which impacted operating
income;
- Non-GAAP operating income, excluding
the above items, was $14.8 million and non-GAAP operating margin
was 3.6% compared to $8.6 million and 2.2% in the fourth quarter of
fiscal 2015;
- Non-GAAP net income of $6.6 million
increased $6.3 million compared to the fourth quarter a year ago;
and
- Non-GAAP earnings per diluted share of
$0.13 increased $0.12.
"Central's results this quarter and year reflect continued
disciplined execution of our initiatives to grow revenues and
profits," said George Roeth, President & CEO of Central Garden
& Pet. "Our efforts to grow organically have led to successful
new products, expanded distribution and vendor relationships, and
ultimately, market share gains. In addition, our recent
acquisitions are performing at or above expectations."
Pet Segment Fiscal 2016 Fourth Quarter
Results
Fourth quarter net sales for the Pet segment increased 14.9% to
$270.7 million, from the same period a year ago, driven in large
part by acquisitions. The Pet segment’s branded product sales were
$214.6 million, up 18.7% compared to the fourth quarter a year ago,
and sales of other manufacturers’ products were $56.0 million, an
increase of 2.3%. Pet organic sales grew 2.6%, on strength in most
of the segment's categories.
The Pet segment’s operating income rose 23.8% compared to the
fourth quarter a year ago to $22.6 million and included a $1.8
million non-cash impairment charge. In the prior year, there was a
non-cash charge of $7.3 million for intangible impairments. Pet
operating margin, aided by the lower impairment charges compared to
the prior year, rose to 8.3%, an increase of 60 basis points
compared to the fourth quarter a year ago. Excluding the intangible
charges in both years, non-GAAP operating margin declined from the
fourth quarter of 2015, primarily due to the Company's investments
for future growth. The Company expects more favorable operating
margin comparisons in the year ahead.
Garden Segment Fiscal 2016 Fourth
Quarter Results
Net sales for the Garden segment declined 5.3% compared to the
fourth quarter a year ago to $142.8 million, due primarily to a
decrease of $13.6 million from the holiday decor business that the
Company exited earlier in the year. The Garden segment’s branded
product sales were $115.3 million in the quarter, down 10.2%
compared to the fourth quarter a year ago. Sales of other
manufacturers’ products were up 23.0% to $27.4 million. Garden
organic sales, excluding the holiday decor business, rose 2.7%,
driven by higher sales of grass seed and other manufacturers'
products.
The Garden segment’s operating income in the quarter rose to
$2.7 million compared to $0.9 million in the fourth quarter a year
ago. Garden operating margin improved 130 basis points to 1.9%,
aided by the absence of the holiday decor business in the current
quarter.
2017 Guidance
The Company currently expects earnings per fully-diluted share
of $1.34 or higher for fiscal 2017, an increase of 6% or more from
the prior year. Fiscal 2017 will have 53 weeks compared to 52 weeks
in fiscal 2016. The extra week is expected to account for
approximately $0.01 per share of 2017 earnings. Capital
expenditures are expected to be approximately $40 million to $45
million on an increase in investment to drive future growth.
Mr. Roeth said, "Delivering sustainable, profitable growth is a
key strategic goal for our team. To that end, we are
increasing our investment and developing a three-year line of sight
to our ability to deliver improved innovation output and success
rates, as well as cost savings and productivity
improvements. At the same time, we are continuing to take
steps to create greater portfolio momentum, by making strategic
acquisitions and divestitures and managing each of our businesses
differentially based on their profit characteristics and growth
potential.” Roeth continued, “The costs of these initiatives will
slow down 2017 earnings growth but are expected to generate
meaningful top and bottom-line growth going forward.” Roeth
concluded, "We enter the new year as financially sound as we have
ever been, and I am energized by the passion of our employees and
the opportunities in front of us as we move forward."
Additional Information
At September 24, 2016, the Company’s cash and short-term
investments balance was $93.0 million, compared to $47.6 million a
year ago. Cash flow from operations for the fourth quarter of
fiscal 2016 was $61.8 million, compared to $30.8 million in the
fourth quarter of fiscal 2015.
Total debt at September 24, 2016 was $395.3 million
compared to $397.0 million at September 26, 2015. Net interest
expense was $6.6 million for the fourth quarter compared to $8.6
million in the prior-year period. The decline in interest expense
was due to the Company's debt refinancing in its fiscal first
quarter. During the quarter, the Company did not repurchase any
shares of its common stock. Approximately $35 million remains
available under the Board approved share repurchase program.
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 fourth quarter
and fiscal 2016 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 #13650358.
A replay of the call will be available for ten days by dialing
(201) 612-7415 and entering confirmation #13650358.
About Central Garden &
Pet
Central Garden & Pet Company is a leading innovator,
marketer and producer of quality branded 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®, IRONITE® and OVER-N-OUT®; 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™ and ZODIAC®; aquatics and
reptile and the brands AQUEON®, CORALIFE® and ZILLA®; bird &
small animal and the brands KAYTEE®, Forti-Diet® and CRITTER
TRAIL®; dog & cat and the brands TFH™, NYLABONE®, FOUR PAWS®,
IMS™, CADET®, PINNACLE® and AVODERM®; and equine and the brands
FARNAM®, HORSE HEALTH™ and VITAFLEX®. 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 4,100 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
favorable results and cost reductions, operating margin expansion,
and earnings guidance for fiscal 2017 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 ability to
pass through cost increases in a timely manner;
- adverse weather conditions;
- the recent transition to a new CEO and
our dependence upon our key executives;
- 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)
Unaudited
ASSETS September 24, 2016
September 26, 2015 Current assets: Cash and
cash equivalents $ 92,982 $ 47,584 Restricted cash 10,910 13,157
Accounts receivable, net 201,151 207,402 Inventories 362,004
335,946 Prepaid expenses, deferred income taxes and other 47,759
49,731 Total current assets 714,806 653,820 Plant,
property and equipment, net 158,224 162,809 Goodwill 231,385
209,089 Other intangible assets, net 95,865 75,460 Other assets
11,913 30,419 Total $ 1,212,193 $ 1,131,597
LIABILITIES AND EQUITY Current liabilities: Accounts payable
$ 102,413 $ 88,889 Accrued expenses 99,343 87,724 Current portion
of long-term debt 463 291 Total current liabilities 202,219
176,904 Long-term debt 394,806 396,691 Deferred income taxes
and other long-term obligations 60,581 51,622 Equity: Common
stock 120 119 Class A common stock 374 364 Class B stock 16 16
Additional paid-in capital 393,297 388,636 Retained earnings
160,501 115,987 Accumulated other comprehensive income (loss)
(1,294 ) 164 Total Central Garden & Pet shareholders’ equity
553,014 505,286 Noncontrolling interest 1,573 1,094 Total
equity 554,587 506,380 Total $ 1,212,193 $ 1,131,597
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per share
amounts)
(unaudited)
Three Months Ended Fiscal Year Ended
September 24,2016
September 26,2015
September 24,2016
September 26,2015
Net sales $ 413,412 $ 386,369 $ 1,829,017 $ 1,650,737 Cost of goods
sold and occupancy 293,232 278,397 1,275,967
1,162,685 Gross profit 120,180 107,972 553,050 488,052
Selling, general and administrative expenses 105,355 99,367 421,864
389,345 Intangible asset impairment 1,828 7,272 1,828
7,272 Operating income 12,997 1,333 129,358 91,435
Interest expense (6,642 ) (8,670 ) (42,847 ) (40,027 ) Interest
income 66 33 140 129 Other income (expense) (16,770 ) (83 ) (17,013
) 13 Income (loss) before income taxes and noncontrolling
interest (10,349 ) (7,387 ) 69,638 51,550 Income tax expense
(benefit) (4,456 ) (2,992 ) 24,053 18,535 Net income
(loss) including noncontrolling interest (5,893 ) (4,395 ) 45,585
33,015 Net income (loss) attributable to noncontrolling interest
(282 ) (26 ) 1,071 1,044 Net income (loss)
attributable to Central Garden & Pet Company $ (5,611 ) $
(4,369 ) $ 44,514 $ 31,971 Net income (loss)
per share attributable to Central Garden & Pet Company: Basic $
(0.11 ) $ (0.09 ) $ 0.91 $ 0.66 Diluted $ (0.11 ) $
(0.09 ) $ 0.87 $ 0.64 Weighted average shares
used in the computation of net income per share: Basic 49,453
48,322 48,964 48,562 Diluted 49,453 48,322 51,075 49,638
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, non-GAAP selling, general and
administrative (SG&A) expense, non-GAAP operating income on a
consolidated and segment basis, non-GAAP interest expense, non-GAAP
other income (expense) 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:
- Asset impairment charges: we have
excluded the impact of asset impairments on intangible assets and
equity method investments as such non-cash amounts are inconsistent
in amount and frequency and are impacted by the timing and/or size
of acquisitions. We believe that the adjustment of these charges
supplements the GAAP information with a measure that can be used to
assess the sustainability of our operating performance.
- Gains or losses on disposals of
significant plant assets: we have excluded the impact of gains or
losses on the disposal of significant plant assets as these
represent infrequent transactions that impact the 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 assess the sustainability of our operating
performance.
- Loss on early extinguishment of debt:
we have excluded the charges associated with the refinancing of our
2018 Notes as the amount and frequency of such charges is not
consistent and is significantly impacted by the timing and size of
debt financing transactions.
- Tax impact: 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 made reflect the following:
(1) During the fourth quarter of fiscal 2016 and
fiscal 2015, we recognized non-cash impairment charges in our Pet
segment of $1.8 million and $7.3 million, respectively, related to
the impairment of intangible assets caused by increased competition
and declining volume of sales. These impairments are included
within Intangible asset impairment. (2) During fiscal 2016,
we recorded a $2.4 million gain in our Pet segment from the sale of
a manufacturing plant resulting from rationalizing our facilities
to reduce excess capacity. This adjustment was recorded as part of
Selling, general and administrative costs. (3) During the
first quarter of fiscal 2016, we redeemed our 2018 Notes and issued
senior notes due November 2023. As a result of the bond redemption,
we incurred incremental expenses of $14.3 million, comprised of a
call premium payment of $8.3 million, a $2.7 million payment of
overlapping interest expense for 30 days and a $3.3 million
non-cash charge for the write off of unamortized deferred financing
costs and discount related to the 2018 Notes. These amounts are
included in interest expense in the consolidated statements of
operations. (4) During the fourth quarter of 2016, we
recognized a non-cash impairment charge of $16.6 million related to
our investment in two joint ventures as a result of changes in
marketplace conditions, which impacted the expected cash flows and
recoverability of the investment. The impairment is included within
Other income (expense).
GAAP to Non-GAAP
Reconciliation(in thousands) For the Year Ended
September
Non-GAAP Adjustments 2016 2015
Impairments of intangible assets (1) $ 1,828 $ 7,272 (Gain)/loss on
disposal of plant assets (2) (2,363 ) Incremental expenses from
note redemption and issuance (3) 14,339 Impairment of equity method
investments (4) 16,572 Total non-GAAP adjustments
30,376 7,272 Tax effects of non-GAAP adjustments (10,492 ) (2,618 )
Total net income impact from non-GAAP adjustments $ 19,884 $
4,654
SG&A Expense Reconciliation GAAP
SG&A expense $ 423,692 $ 396,617 SG&A expense impact from
non-GAAP adjustments (1) (2) 535 (7,272 ) Non-GAAP SG&A
expense $ 424,227 $ 389,345 GAAP SG&A expense as
a percentage of net sales 23.1 % 24.0 % Non-GAAP SG&A expense
as a percentage of net sales 23.2 % 23.6 %
Operating
Income Reconciliation GAAP operating income $ 129,358 $ 91,435
Total operating income impact from non-GAAP adjustments (1)(2) (535
) 7,272 Non-GAAP operating income $ 128,823 $ 98,707
GAAP operating margin 7.1 % 5.5 % Non-GAAP operating margin
7.0 % 6.0 %
Pet Segment Operating Income
Reconciliation GAAP Pet segment operating income $ 119,930 $
98,798 Total operating income impact from non-GAAP adjustments
(1)(2) (535 ) 7,272 Non-GAAP Pet segment operating income $
119,395 $ 106,070 GAAP Pet segment operating margin
11.1 % 11.0 % Non-GAAP Pet operating margin 11.0 % 11.9 %
Interest Expense Reconciliation GAAP interest expense $
(42,847 ) N/A Impact from non-GAAP adjustment (3) 14,339
Non-GAAP interest expense $ (28,508 )
GAAP to Non-GAAP
Reconciliation(in thousands) For the Year Ended
September
Net Income and Diluted Net Income Per Share Reconciliation
2016 2015 GAAP net income attributable to Central
Garden & Pet $ 44,514
$
31,971 Total non-GAAP adjustments (1)(2) (3)(4) 30,376 7,272 Tax
effects of non-GAAP adjustments (10,492 ) (2,618 ) Non-GAAP
net income attributable to Central Garden & Pet $ 64,398
$
36,625 GAAP diluted net income per share $ 0.87
$
0.64 Non-GAAP diluted net income per share $ 1.26
$
0.74 Shares used in GAAP and non-GAAP diluted net earnings per
share calculation 51,075 49,638
GAAP to Non-GAAP
Reconciliation(in thousands) For the Quarter Ended
September 24, 2016
Net income and diluted net income per share September 24,
2016 September 26, 2015 GAAP net income (loss) $
(5,611 ) $ (4,369 ) Total non-GAAP Adjustments (1)(2) (3)(4) 18,400
7,272 Tax effect
(6,224
) (2,618 ) Net income impact
12,176
4,654 Non-GAAP net income $
6,565
$ 285 GAAP diluted loss per share $ (0.11 ) $ (0.09 ) Non-GAAP
diluted income per share $ 0.13 $ 0.01 Basic 49,453 48,322 Diluted
51,645 49,922
GAAP to Non-GAAP
Reconciliation(in thousands) For the Quarter Ended
September 24, 2016 Operating income reconciliation
September 24, 2016 September 26, 2015
GAAP operating income
$
12,997
$
1,333 Total operating income impact from non-GAAP (1) 1,828
7,272 Non-GAAP operating income 14,825 8,605
GAAP operating margin 3.1 % 0.3 % Non-GAAP operating margin 3.6 %
2.2 % Net sales
$
413,412
$
386,369
Organic Net Sales Reconciliation
We have provided organic net sales, a non-GAAP measure that
excludes the impact of 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 ReconciliationFor the Year Ended
September 24, 2016 Consolidated Pet
Segment Garden Segment Reported net sales - GAAP
10.8 % 20.9 % (1.2 )% Impact of acquisitions and divestitures 6.6 %
14.9 % (3.2 )% Organic net sales 4.2 % 6.0 % 2.0 %
GAAP
to Non-GAAP ReconciliationFor the Quarter Ended September
24, 2016 Consolidated Pet Segment Garden
Segment Reported net sales - GAAP 7.0 % 14.9 % (5.3 )% Impact
of acquisitions and divestitures
4.4
%
12.3
%
(8.0
)% Organic net sales
2.6
%
2.6
%
2.7
%
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161201006359/en/
Central Garden & Pet CompanySteve Zenker, 925-948-3657VP of
Investor Relations & Communications
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