Fiscal 1Q 2018 sales increased 5.4% to
$442.0 million;Fiscal 1Q 2018 diluted EPS increased to $0.50
vs. $0.15 in Fiscal 1Q 2017Fiscal 1Q 2018 non-GAAP diluted
EPS increased to $0.19 vs. $0.12 in Fiscal 1Q 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 record first quarter financial results for
its fiscal 2018 first quarter ended December 30, 2017.
Fiscal 2018 First Quarter Financial
Results
Total net sales increased 5.4% to $442.0 million compared to
$419.5 million in the first quarter a year ago, primarily driven by
acquisitions. Organic sales increased 1.1%, contributed almost
equally from the Garden and Pet segments despite difficult
comparisons with 1Q 2017, when sales grew 7.0% over the prior year.
Branded product sales of $349.9 million increased 5.1%, and sales
of other manufacturers’ products of $92.1 million rose 6.3%. First
quarter gross margin rose 100 basis points to 29.8% compared to the
first quarter a year ago.
First Quarter GAAP Operating Income, Net
Earnings and EPS
- Operating income increased to $22.5
million from $19.9 million and operating margin of 5.1% increased
30 basis points, compared to 4.8% in the first quarter a year ago.
The period a year ago included $2.0 million gain from the sale of a
Garden distribution facility. SG&A as a percent of sales
increased 70 basis points to 24.7% due primarily to the
distribution facility sale positively impacting last year's
results.
- Net income of $26.2 million rose
substantially compared to $7.6 million in the first quarter a year
ago due primarily to a revaluation of the Company's deferred tax
accounts necessitated by a change in the Federal tax laws. The tax
impact of the change added $16.3 million to net income.
- Earnings per diluted share increased to
$0.50 from $0.15.
First Quarter Non-GAAP Operating Income,
Net Earnings and EPS
- Non-GAAP results for the first quarter
of 2018 exclude the tax impact of the revaluation of the Company's
deferred tax accounts.
- Non-GAAP results for the first quarter
of 2017 exclude the sale of the Garden distribution facility.
- Non-GAAP operating income was $22.5
million, up from $17.9 million and non-GAAP operating margin was
5.1%, an increase of 80 basis points, compared to 4.3% in the first
quarter a year ago. A higher gross margin in both the Garden &
Pet segments was the principal cause of the increase. SG&A as a
percent of sales increased 20 basis points to 24.7%.
- Non-GAAP net income increased to $9.9
million compared to $6.3 million in the first quarter a year
ago.
- Non-GAAP earnings per diluted share
increased 58.3% to $0.19 from $0.12.
Pet Segment Fiscal 2018 First
Quarter Results
First quarter net sales for the Pet segment increased 6.9% to
$325.1 million, from the same period a year ago, driven primarily
by the Segrest and K&H acquisitions. Pet organic sales grew
1.1%, as strength in the e-commerce channel more than offset lower
sales at certain pet specialty retailers. In addition, comparisons
versus the prior year were challenging, as the Pet segment organic
growth in last year's first quarter increased 6.1%. The Pet
segment’s first quarter branded product sales were $262.9 million,
up 6.7% compared to a year ago and sales of other manufacturers’
products were $62.2 million, an increase of 7.7%.
The Pet segment’s operating income increased 8.3% compared to
the first quarter a year ago to $36.2 million. Pet operating margin
increased to 11.1%, an improvement of 10 basis points compared to
the first quarter a year ago. A higher gross margin, partially
offset by higher logistics costs to ramp up for expected volume
gains in the Pet Distribution business, was a key factor in the
change.
Garden Segment Fiscal 2018 First
Quarter Results
Net sales for the Garden segment, all organic, rose 1.3%
compared to the first quarter a year ago to $116.9 million. The
first quarter is seasonally the lowest quarter for the Garden
segment. Revenues were aided by strength in the controls and
fertilizers category, which benefited from shipments of new
products and expanded distribution. Wild bird feed results were a
drag on growth, negatively impacted by unfavorable weather. The
Garden segment’s branded product sales were $87.0 million in the
quarter, up 0.6% compared to the first quarter a year ago. Sales of
other manufacturers’ products were up 3.3% to $29.9 million.
The Garden segment’s GAAP operating income in the quarter
declined $0.4 million to $2.3 million compared to $2.7 million in
the first quarter a year ago and operating margin decreased 30
basis points to 2.0%. The decline in both were due to the inclusion
of a $2.0 million gain on the sale of a distribution facility in
the first quarter of last year. Excluding the distribution facility
sale, Garden operating income rose $1.7 million and operating
margin increased 150 basis points compared to the same period a
year ago, driven by a higher gross margin that benefited from cost
savings initiatives.
"Our Company continues to execute well against our growth
objectives, as our increased investments in demand creation and
cost reduction efforts are continuing to drive organic growth and
higher profitability," said George Roeth, President & CEO of
Central Garden and Pet. "As we adapt to a changing retail
environment, especially in the pet industry, we are pleased by our
progress in e-commerce. At the same time, in brick & mortar, we
are taking meaningful actions with our product offerings and our
Segrest acquisition, to develop programs in partnership with key
customers, to drive store traffic and higher market baskets in the
near-term."
Additional Information
Other expense increased from $1.0 million to $3.1 million,
impacted principally by two joint ventures. It is expected that
this line item may vary greatly from quarter to quarter, in part
due to the seasonal nature of one of the larger joint ventures and
due to the early stages of some of the other investments.
Total debt at December 30, 2017 was $691.3 million compared
to $395.4 million at December 24, 2016. Net interest expense
was $7.2 million for the first quarter compared to $6.8 million in
the prior-year period. Both rose due to the Company's issuance of
$300 million of fixed income securities in December 2017. The vast
majority of the proceeds is currently reflected in the Company's
cash balance at the end of the quarter, which increased to $283
million compared to $7 million in the first quarter a year ago. The
Company's leverage ratio at the end of the first quarter, as
defined in the Company's credit agreement, was 3.3x compared to
2.1x in the prior year quarter.
The Company’s effective tax rate for the first quarter of 2018
was negative, compared with 35.8% for the first quarter of 2017.
The tax rate this year reflects the revaluation of the Company's
deferred tax accounts, favorably impacted by a recent reduction in
the U.S. Federal corporate tax rate. On a Non-GAAP basis, removing
the impact of the revaluation of the deferred tax accounts, the
Company's tax rate was 17.3%. This non-GAAP rate reflects a lower
weighted average tax rate for the year as well as a favorable
impact from recent changes in accounting standards around non-cash
equity compensation expense, which is expected to continue for the
entire fiscal year.
2018 Guidance
The Company is raising its annual guidance and now expects
non-GAAP earnings per fully-diluted share of $1.85 or higher for
fiscal 2018, an increase of 23.3% or more from the prior year and
up from the previous guidance of $1.62 or higher. Favorable
tailwinds from the lower tax rate is the driver for the increase
over prior guidance. The lower Federal tax rate and the change in
the recording of non-cash compensation are expected to
substantially lower the Company's tax rate for the year compared to
prior years. The guidance excludes the impact of the one-time
revaluation of tax deferred accounts, which is one-time in nature
and reflected in the Company's 1Q 2018 GAAP results.
Roeth concluded, "We feel great about our start to the fiscal
year and have confidence that our businesses will continue to grow
as expected in the year ahead."
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 #13675498.
A replay of the call will be available for three days by dialing
(201) 612-7415 and entering confirmation #13675498.
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®; 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 4,200 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 the expected impact of tax
reform, 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
December 30,2017
December 24,2016
September 30,2017
Current assets: Cash and cash equivalents $ 283,466 $ 6,581 $
32,397 Restricted cash 12,419 10,981 12,645 Accounts receivable
(less allowance for doubtful accounts of $20,481, $22,157 and
$21,436) 235,075 192,224 237,868 Inventories 440,421 430,171
382,101 Prepaid expenses and other 22,519 22,399
18,045 Total current assets 993,900 662,356 683,056
Land, buildings, improvements and equipment—net 179,230 169,836
180,913 Goodwill 256,275 230,385 256,275 Other intangible
assets—net 113,726 92,851 116,067 Other assets 74,221 61,326
70,595 Total $ 1,617,352 $ 1,216,754 $
1,306,906
LIABILITIES AND EQUITY Current
liabilities: Accounts payable $ 124,583 $ 135,237 $ 103,283 Accrued
expenses 100,004 94,494 116,549 Current portion of long-term debt
372 397 375 Total current liabilities 224,959
230,128 220,207 Long-term debt 690,964 395,011 395,278
Deferred taxes and other long-term obligations 39,478 31,659 54,279
Equity: Common stock, 12,160,023, 11,998,472, and 12,160,023
shares outstanding at December 30, 2017, December 24, 2016 and
September 30, 2017 122 120 122 Class A common stock, $0.01 par
value: 38,029,367, 37,558,042 and 38,019,736 shares outstanding at
December 30, 2017, December 24, 2016 and September 30, 2017 380 375
380 Class B stock, $0.01 par value: 1,652,262 shares outstanding 16
16 16 Additional paid-in capital 396,702 392,402 396,790
Accumulated earnings 265,576 168,138 239,329 Accumulated other
comprehensive loss (907 ) (1,802 ) (951 ) Total Central Garden
& Pet Company shareholders’ equity 661,889 559,249 635,686
Noncontrolling interest 62 707 1,456 Total
equity 661,951 559,956 637,142 Total $
1,617,352 $ 1,216,754 $ 1,306,906
CENTRAL GARDEN & PET
COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per share
amounts)
(Unaudited)
Three Months Ended
December 30,2017
December 24,2016
Net sales $ 442,011 $ 419,498 Cost of goods sold and occupancy
310,174 298,820 Gross profit 131,837 120,678 Selling,
general and administrative expenses 109,316 100,740
Operating income 22,521 19,938 Interest expense (7,405 ) (6,873 )
Interest income 187 38 Other expense (3,089 ) (967 ) Income before
income taxes and noncontrolling interest 12,214 12,136 Income tax
(benefit) expense (14,236 ) 4,347 Income including
noncontrolling interest 26,450 7,789 Net income attributable to
noncontrolling interest 203 152 Net income
attributable to Central Garden & Pet Company $ 26,247 $
7,637 Net income per share attributable to Central
Garden & Pet Company: Basic $ 0.52 $ 0.15 Diluted
$ 0.50 $ 0.15 Weighted average shares used in
the computation of net income per share: Basic 50,730 49,665
Diluted 52,695 51,810
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, 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 Three Months Ended Consolidated Garden
December 30, 2017 December 24, 2016
December 30, 2017 December 24, 2016 GAAP
operating income $ 22,521 $ 19,938 $ 2,300 $ 2,676 Gain on sale of
distribution facility
(2)
— (2,050 ) — (2,050 ) Non-GAAP operating
income $ 22,521 $ 17,888 $ 2,300 $ 626
GAAP operating margin 5.1 % 4.8 % 2.0 % 2.3
%
Non-GAAP operating margin 5.1 % 4.3 % 2.0 % 0.5
%
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 30,
2017 December 24, 2016 GAAP net income
attributable to Central Garden & Pet $ 26,247 $ 7,637 Gain on
sale of distribution facility (2) — (2,050 ) Tax effect of sale of
distribution facility adjustment — 734 Tax effect of revaluation of
deferred assets (1) 16,343 — Total impact on net
income from non-GAAP adjustments $ 16,343 $ (1,316 ) Non-GAAP net
income attributable to Central Garden & Pet $ 9,904 $
6,321 GAAP diluted net income per share $ 0.50 $ 0.15
Non-GAAP diluted net income per share $ 0.19 $ 0.12 Shares used in
GAAP and non-GAAP diluted net earnings per share calculation 52,695
51,810
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 30, 2017
Consolidated Pet Segment
Percentagechange
Percentagechange
Reported net sales - Q1 FY18 (GAAP) $ 442.0 $ 325.1
Reported net sales - Q1 FY17 (GAAP) 419.5 304.0
Increase in net sales 22.5 5.4% 21.1 6.9% Effect of acquisition and
divestitures on increase in net sales 17.7 4.3% 17.7
5.8% Increase in organic net sales - Q1 2018 $ 4.8 1.1% $
3.4 1.1%
GAAP to Non-GAAP Reconciliation(in
millions) For the Three Months Ended Consolidated
December 24, 2016 December 26, 2015
Percentage change Reported Net Sales - GAAP $ 419.5 $
359.8 16.6% Effect of acquisitions and divestitures 41.8
6.7 Organic net sales $ 377.7 $ 353.1
7.0%
GAAP to Non-GAAP Reconciliation(in
millions) For the Three Months Ended Pet Segment
December 24, 2016 December 26, 2015
Percentage change Reported Net Sales - GAAP $ 304.0 $
248.7 22.2 % Effect of acquisitions and divestitures 41.8
1.6 Organic net sales $ 262.2 $ 247.1
6.1 %
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version on businesswire.com: http://www.businesswire.com/news/home/20180207006163/en/
Central Garden & Pet CompanySteve Zenker, 925-948-3657VP
Finance - Investor Relations, FP&A, & Corporate
Communications
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