Q1 fiscal 2022 net sales increased 12% to
$661 million
Q1 fiscal 2022 diluted GAAP EPS grew $0.06
to $0.16
Maintains outlook for fiscal 2022 diluted
GAAP EPS of $3.10 or better
Central Garden & Pet Company (NASDAQ: CENT) (NASDAQ: CENTA)
(“Central”), a market leader in the garden and pet industries,
today announced financial results for its fiscal 2022 first quarter
ended December 25, 2021.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20220202005708/en/
Central Garden & Pet Q1 2022
Financial Results (Graphic: Business Wire)
“We delivered another solid quarter thanks to continued demand
for our Pet and Garden brands and the perseverance of our
employees,” said Tim Cofer, CEO of Central Garden & Pet. “Our
recent acquisitions exceeded our expectations for the quarter, and
we remain encouraged by the fundamentals of our organic business in
light of the extraordinary growth in the prior year. We are
confident in our team's ability to perform as we face the ongoing
challenges associated with the pandemic.”
Fiscal 2022 First Quarter Financial Results
Net sales increased 12% to $661 million compared to $592 million
a year ago, driven by recent acquisitions, which contributed $70
million to the quarter. Organic sales were in line with the prior
year quarter.
Gross margin was 30.0%, an increase of 210 basis points compared
to a year ago, driven primarily by pricing and favorable product
mix, partially offset by cost inflation in key commodities, freight
and labor.
Operating income decreased 3% to $26 million from $27 million a
year ago. Operating margin was 4.0% compared to 4.6% in the prior
year. The margin decline was largely due to continued inflation and
heightened investment spending.
Net interest expense was $14 million compared to $21 million a
year ago primarily due to incremental interest expense related to
recognizing the impacts of the call premium, unamortized debt
issuance cost and double interest on the debt retired during the
first quarter a year ago partially offset by higher debt
outstanding.
The Company's net income increased 61% to $9 million from $6
million a year ago. Diluted GAAP earnings per share for the quarter
was $0.16, an increase of $0.06 compared to the prior year quarter.
Adjusted EBITDA increased 16% to $52 million from $45 million a
year ago.
The Company’s effective tax rate was 20.7% compared to 19.7% in
the prior year quarter.
Garden Segment Fiscal 2022 First Quarter Results
Net sales for the Garden segment increased 45% to $225 million
driven by a $70 million contribution from recent acquisitions
offsetting a modest decline in organic sales of 0.3%. Strength in
wild bird, chemicals & fertilizer as well as live plants was
more than offset by declines in garden distribution and grass
seed.
Garden segment operating income increased 30% to $6 million
driven by the strong performance of recent acquisitions. Operating
margin declined 30 basis points to 2.7%, mainly driven by
inflationary pressures and heightened investment spending partially
offset by contributions from acquisitions and improved pricing.
Garden segment adjusted EBITDA increased 115% to $16 million from
$7 million in the prior year quarter.
Pet Segment Fiscal 2022 First Quarter Results
Net sales for the Pet segment were $436 million, in line with
the prior year with notable contributions from animal health, dog
and cat and the Company's pet distribution businesses offset by
declines in pet beds and small animal and aquatic supplies.
Pet segment operating income increased 4% to $45 million, and
operating margin grew 40 basis points to 10.4%. Pet segment
adjusted EBITDA increased 4% to $55 million from $53 million a year
ago, largely driven by improved pricing and favorable product mix
partially offset by inflationary headwinds and heightened
investment spending.
Additional Information
The Company's cash balance at the end of the quarter was $296
million compared to $608 million a year ago. Cash used by
operations during the quarter was $92 million compared to $36
million a year ago. The increase in cash used by operations was
driven primarily by working capital requirements.
Total debt as of December 25, 2021 was $1.2 billion compared to
$789 million at December 26, 2020. The Company's leverage ratio1)
at the end of the first quarter was 2.9x compared to 2.3x at the
end of the prior year quarter. The Company repurchased
approximately 153,000 shares or $6.7 million of its stock during
the quarter.
Fiscal 2022 Guidance
The Company continues to expect fiscal 2022 GAAP EPS to be $3.10
or better. The outlook takes into account increasing costs for
commodities, freight and labor, headwinds associated with a return
to more normalized consumer demand patterns following extraordinary
demand spanning two fiscal years and resuming more historical
levels of promotional activity. This guidance further includes
anticipated pricing actions across the Company's portfolio as well
as investments in capacity expansion, brand building, consumer
insights, innovation and eCommerce to drive sustainable growth.
This outlook does not include the impact of acquisitions that may
close during fiscal 2022.
Conference Call
The Company's senior management will host a conference call
today at 4:30 p.m. Eastern Time (1:30 p.m. Pacific Time) to discuss
its first quarter fiscal 2022 results. The conference call and
related materials can be accessed at http://ir.central.com.
Alternatively, to listen to the call by telephone, dial (201)
689-8345 (domestic and international) using confirmation
#13726329.
1) Calculated using adjusted EBITDA as per the Company's ABL
agreement, filed with the SEC on December 21, 2021.
About Central Garden & Pet
Central Garden & Pet (NASDAQ: CENT) (NASDAQ: CENTA)
understands that home is central to life and has proudly nurtured
happy and healthy homes for over 40 years. With fiscal 2021 net
sales of $3.3 billion, Central is on a mission to lead the future
of the pet and garden industries. The Company’s innovative and
trusted products are dedicated to helping lawns grow greener,
gardens bloom bigger, pets live healthier and communities grow
stronger. Central is home to a leading portfolio of more than 65
high-quality brands including Pennington, Nylabone, Kaytee, Amdro
and Aqueon, strong manufacturing and distribution capabilities and
a passionate, entrepreneurial growth culture. Central Garden &
Pet is based in Walnut Creek, California and has over 7,000
employees across North America and Europe. For additional
information about Central, please visit www.central.com.
Safe Harbor Statement
“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 increased
levels of investment to drive capacity expansion, brand building
and eCommerce, increases in labor and freight cost as well as key
commodities, the accretive expectations for recent acquisitions, a
return to more normalized consumer demand patterns, in addition to
resuming more normal levels of travel and promotional activity and
their impact on future growth, and earnings guidance for fiscal
2022, 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:
- our ability to successfully manage the continuing impact of
COVID-19 on our business, including but not limited to, the impact
on our workforce, operations, fill rates, supply chain, demand for
our products and services, and our financial results and
condition;
- the potential for future reductions in demand for product
categories that benefited from the COVID-19 pandemic;
- the success of our Central to Home strategy;
- risks associated with our acquisition strategy, including our
ability to successfully integrate acquisitions and the impact of
purchase accounting on our financial results;
- inflation and other adverse macro-economic conditions;
- fluctuations in market prices for seeds and grains and other
raw materials;
- fluctuations in energy prices, fuel and related petrochemical
costs;
- our inability to pass through cost increases in a timely
manner;
- supply chain delays and disruptions resulting in lost sales,
reduced fill rates and service levels and delays in expanding
capacity and automating processes;
- adverse weather conditions;
- seasonality and fluctuations in our operating results and cash
flow;
- supply shortages in pet birds, small animals and fish;
- dependence on a small number of customers for a significant
portion of our business;
- impacts of tariffs or a trade war;
- consolidation trends in the retail industry;
- declines in consumer spending during economic downturns;
- risks associated with new product introductions, including the
risk that our new products will not produce sufficient sales to
recoup our investment;
- competition in our industries;
- continuing implementation of an enterprise resource planning
information technology system;
- potential environmental liabilities;
- risk associated with international sourcing;
- access to and cost of additional capital;
- potential goodwill or intangible asset impairment;
- our dependence upon our key executives;
- our ability to recruit and retain new members of our management
team to support our growing businesses and to hire and retain
employees;
- our inability to protect our trademarks and other proprietary
rights;
- litigation and product liability claims;
- regulatory issues;
- the impact of product recalls;
- potential costs and risks associated with actual or potential
cyber attacks;
- potential dilution from issuance of authorized shares;
- the voting power associated with our Class B stock; and
- the impact of new accounting regulations and the possibility
our effective tax rate will increase as a result of future changes
in the corporate tax rate or other tax law changes.
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. The
Company has not filed its Form 10-Q for the fiscal quarter ended
December 25, 2021, so all financial results are preliminary and
subject to change.
CENTRAL GARDEN & PET
COMPANY
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands, except share
and per share amounts, unaudited)
ASSETS
December 25, 2021
December 26, 2020
September 25, 2021
Current assets:
Cash and cash equivalents
$
296,038
$
608,285
$
426,422
Restricted cash
12,913
13,670
13,100
Accounts receivable (less allowances of
$27,937, $30,951 and $29,219)
343,659
322,806
385,384
Inventories, net
844,899
574,878
685,237
Prepaid expenses and other
34,213
28,074
33,514
Total current assets
1,531,722
1,547,713
1,543,657
Plant, property and equipment, net
340,133
252,157
328,571
Goodwill
369,391
289,955
369,391
Other intangible assets, net
130,190
131,557
134,431
Operating lease right-of-use assets
169,709
115,833
165,602
Other assets
576,896
108,884
575,028
Total
$
3,118,041
$
2,446,099
$
3,116,680
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
$
244,826
$
216,991
$
245,542
Accrued expenses
225,062
189,290
234,965
Current lease liabilities
43,051
34,834
40,731
Current portion of long-term debt
411
97
1,081
Total current liabilities
513,350
441,212
522,319
Long-term debt
1,185,057
788,921
1,184,683
Long-term lease liabilities
132,174
85,729
130,125
Deferred income taxes and other long-term
obligations
58,560
43,224
56,012
Equity:
Common stock, $0.01 par value: 11,335,658,
11,336,358 and 11,335,658 shares outstanding at December 25, 2021,
December 26, 2020 and September 25, 2021
113
113
113
Class A common stock, $0.01 par value:
42,205,761, 42,171,329 and 42,282,922 shares outstanding at
December 25, 2021, December 26, 2020 and September 25, 2021
422
422
423
Class B stock, $0.01 par value: 1,612,374,
1,612,374 and 1,612,374 at December 25, 2021, December 26, 2020 and
September 25, 2021
16
16
16
Additional paid-in capital
578,917
570,678
576,446
Retained earnings
650,032
516,394
646,082
Accumulated other comprehensive loss
(1,273
)
(1,032
)
(831
)
Total Central Garden & Pet Company
shareholders’ equity
1,228,227
1,086,591
1,222,249
Noncontrolling interest
673
422
1,292
Total equity
1,228,900
1,087,013
1,223,541
Total
$
3,118,041
$
2,446,099
$
3,116,680
CENTRAL GARDEN & PET
COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per
share amounts, unaudited)
Three Months Ended
December 25, 2021
December 26, 2020
Net sales
$
661,398
$
592,230
Cost of goods sold
463,202
426,811
Gross profit
198,196
165,419
Selling, general and administrative
expenses
171,982
138,379
Operating income
26,214
27,040
Interest expense
(14,484
)
(20,975
)
Interest income
76
206
Other income (expense)
(209
)
752
Income before income taxes and
noncontrolling interest
11,597
7,023
Income tax expense
2,401
1,381
Income including noncontrolling
interest
9,196
5,642
Net income attributable to noncontrolling
interest
187
29
Net income attributable to Central Garden
& Pet Company
$
9,009
$
5,613
Net income per share attributable to
Central Garden & Pet Company:
Basic
$
0.17
$
0.10
Diluted
$
0.16
$
0.10
Weighted average shares used in the
computation of net income per share:
Basic
53,491
53,734
Diluted
54,909
54,686
CENTRAL GARDEN & PET
COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands,
unaudited)
Three Months Ended
December 25, 2021
December 26, 2020
Cash flows from operating activities:
Net income
$
9,196
$
5,642
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization
20,202
12,915
Amortization of deferred financing
costs
640
475
Non-cash lease expense
11,405
9,087
Stock-based compensation
5,187
4,669
Debt extinguishment costs
169
8,577
Loss on sale of business
—
2,611
Deferred income taxes
2,737
973
Gain on sale of property and equipment
(88
)
(664
)
Other
18
210
Change in assets and liabilities
(excluding businesses acquired):
Accounts receivable
41,508
68,929
Inventories
(159,932
)
(137,635
)
Prepaid expenses and other assets
(3,635
)
(1,362
)
Accounts payable
1,150
10,134
Accrued expenses
(9,790
)
(13,393
)
Other long-term obligations
(53
)
1,437
Operating lease liabilities
(11,172
)
(8,720
)
Net cash used by operating activities
(92,458
)
(36,115
)
Cash flows from investing activities:
Additions to plant, property and
equipment
(24,210
)
(14,661
)
Payments to acquire companies, net of cash
acquired
—
(80,887
)
Proceeds from the sale of business
—
2,400
Investments
(1,918
)
—
Other investing activities
—
(223
)
Net cash used in investing activities
(26,128
)
(93,371
)
Cash flows from financing activities:
Repayments of long-term debt
(767
)
(400,024
)
Proceeds from issuance of long-term
debt
—
500,000
Premium paid on extinguishment of debt
—
(6,124
)
Repurchase of common stock, including
shares surrendered for tax withholding
(7,775
)
(871
)
Payment of contingent consideration
liability
(89
)
(110
)
Distribution to noncontrolling
interest
(806
)
(478
)
Payment of financing costs
(2,153
)
(8,031
)
Net cash (used) provided by financing
activities
(11,590
)
84,362
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(395
)
682
Net decrease in cash, cash equivalents and
restricted cash
(130,571
)
(44,442
)
Cash, cash equivalents and restricted cash
at beginning of period
439,522
666,397
Cash, cash equivalents and restricted cash
at end of period
$
308,951
$
621,955
Supplemental information:
Cash paid for interest
$
19,750
$
13,180
New operating lease right of use
assets
$
15,616
$
9,281
Use of Non-GAAP Financial Measures
We report our financial results in accordance with accounting
principles generally accepted in the United States (GAAP). However,
to supplement the financial results prepared in accordance with
GAAP, we use non-GAAP financial measures including non-GAAP net
income and diluted net income per share, adjusted EBITDA and
organic sales. 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.
Adjusted EBITDA is defined by us as income before income tax,
net other expense, net interest expense, depreciation and
amortization and stock-based compensation (or operating income plus
depreciation and amortization and stock-based compensation
expense). We present adjusted EBITDA because we believe that
adjusted EBITDA is a useful supplemental measure in evaluating the
cash flows and performance of our business and provides greater
transparency into our results of operations. Adjusted EBITDA is
used by our management to perform such evaluation. Adjusted EBITDA
should not be considered in isolation or as a substitute for cash
flow from operations, income from operations or other income
statement measures prepared in accordance with GAAP. We believe
that adjusted EBITDA is frequently used by investors, securities
analysts and other interested parties in their evaluation of
companies, many of which present adjusted EBITDA when reporting
their results. Other companies may calculate adjusted EBITDA
differently and 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 items:
- Incremental expenses from note redemption and issuance: we have
excluded the impact of the incremental expenses incurred from the
note redemption and issuance as they represent an infrequent
transaction that occurs in limited circumstances that impacts the
comparability between operating periods. We believe the adjustment
of these expenses supplements the GAAP information with a measure
that may be used to assess the sustainability of our operating
performance.
- Loss on sale of business: we have excluded the impact of the
loss on the sale of a business as it represents an infrequent
transaction that occurs in limited circumstances that impacts the
comparability between operating periods. We believe the adjustment
of this loss supplements the GAAP information with a measure that
may be used to assess the sustainability of our operating
performance.
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)
During the first quarter of fiscal 2021,
we issued $500 million aggregate principal amount of 4.125% senior
notes due October 2030. We used a portion of the proceeds to redeem
all of our outstanding 6.125% senior notes due 2023. As a result of
our redemption of the 2023 Notes, we incurred incremental expenses
of approximately $10.0 million, comprised of a call premium payment
of $6.1 million, overlapping interest expense of approximately $1.4
million and a $2.5 million non-cash charge for the write-off of
unamortized financing costs. These amounts are included in Interest
expense in the condensed consolidated statements of operations.
(2)
During the first quarter of fiscal 2021,
we recognized a loss of $2.6 million, included in selling, general
and administrative expense in the consolidated statement of
operations, from the sale of our Breeder’s Choice business unit
after concluding it was not a strategic business for our Pet
segment.
GAAP to Non-GAAP
Reconciliation
For the Three Months
Ended
Net Income and Diluted Net Income Per
Share Reconciliation
December 25, 2021
December 26, 2020
(in thousands, except per
share amounts)
GAAP net income attributable to Central
Garden & Pet Company
$
9,009
$
5,613
Incremental expenses from note redemption
and issuance
(1)
—
9,952
Loss on sale of business
(2)
—
2,611
Tax effect of incremental expenses, loss
on sale and impairment
—
(2,470
)
Non-GAAP net income attributable to
Central Garden & Pet Company
$
9,009
$
15,706
GAAP diluted net income per share
$
0.16
$
0.10
Non-GAAP diluted net income per share
$
0.16
$
0.29
Shares used in GAAP and non-GAAP diluted
net earnings per share calculation
54,909
54,686
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.
Consolidated
GAAP to Non-GAAP
Reconciliation
For Three Months Ended
December 25, 2021
Net sales (GAAP)
Effect of acquisition
&
divestitures on
increase in net sales
Net sales organic
(in millions)
Q1 FY 22
$
661.4
$
70.0
$
591.4
Q1 FY 21
592.2
3.9
588.3
$ increase
$
69.2
$
66.1
$
3.1
% increase
11.7
%
0.5
%
Pet
GAAP to Non-GAAP
Reconciliation
For Three Months Ended
December 25, 2021
Net sales (GAAP)
Effect of acquisition
&
divestitures on
increase in net sales
Net sales organic
(in millions)
Q1 FY 22
$
436.0
$
—
$
436.0
Q1 FY 21
436.4
3.9
432.5
$ increase (decrease)
$
(0.4
)
$
(3.9
)
$
3.5
% increase (decrease)
(0.1
) %
0.8
%
Garden
GAAP to Non-GAAP
Reconciliation
For Three Months Ended
December 25, 2021
Net sales (GAAP)
Effect of acquisition
&
divestitures on
increase in net sales
Net sales organic
(in millions)
Q1 FY 22
$
225.4
$
70.0
$
155.4
Q1 FY 21
155.8
—
155.8
$ increase (decrease)
$
69.6
$
70.0
$
(0.4
)
% increase (decrease)
44.7
%
(0.3
) %
Adjusted EBITDA Reconciliation
GAAP to Non-GAAP
Reconciliation
For the Three Months Ended
December 25, 2021
Garden
Pet
Corp
Total
(in thousands)
Net income attributable to Central Garden
& Pet Company
$
—
$
—
$
—
$
9,009
Interest expense, net
—
—
—
14,408
Other expense
—
—
—
209
Income tax expense
—
—
—
2,401
Net income attributable to noncontrolling
interest
—
—
—
187
Sum of items below operating income
—
—
—
17,205
Income (loss) from operations
$
6,057
$
45,251
$
(25,094
)
$
26,214
Depreciation & amortization
9,620
9,549
1,033
20,202
Noncash stock-based compensation
—
—
5,187
5,187
Adjusted EBITDA
$
15,677
$
54,800
$
(18,874
)
$
51,603
Adjusted EBITDA Reconciliation
GAAP to Non-GAAP
Reconciliation
For the Three Months Ended
December 26, 2020
Garden
Pet
Corp
Total
(in thousands)
Net income attributable to Central Garden
& Pet Company
$
—
$
—
$
—
$
5,613
Interest expense, net
—
—
—
20,769
Other expense
—
—
—
(752
)
Income tax expense
—
—
—
1,381
Net income attributable to noncontrolling
interest
—
—
—
29
Sum of items below operating income
—
—
—
21,427
Income (loss) from operations
$
4,651
$
43,525
$
(21,136
)
$
27,040
Depreciation & amortization
2,638
9,085
1,192
12,915
Noncash stock-based compensation
4,669
4,669
Adjusted EBITDA
$
7,289
$
52,610
$
(15,275
)
$
44,624
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220202005708/en/
Investor Relations Contact Friederike Edelmann VP,
Investor Relations (925) 412-6726 fedelmann@central.com
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