Market Overview

Central Garden & Pet Company Announces Fiscal 2019 & Fourth Quarter Results

Share:

Fiscal 2019 diluted EPS of $1.61 vs. $2.32 for fiscal 2018

Fiscal 2019 non-GAAP diluted EPS of $1.60 vs. $1.91 for fiscal 2018

Fiscal 2019 GAAP operating income of $152.1 million vs. $167.3 million for fiscal 2018

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 year and fourth quarter ended September 28, 2019.

Tim Cofer, Central Garden & Pet's new Chief Executive Officer said, "My early days at Central have strengthened my conviction that Central is well-positioned as a leader in the pet and garden industries. One of my observations is that we have opportunities to enhance our position by investing more in demand creation capabilities and initiatives to drive long-term sustainable profitable growth."

Mr. Cofer continued, "These investments, while dampening our earnings growth rate in fiscal 2020, are expected to yield meaningful benefits in the years ahead. Over the next several months - informed by further conversations with all our stakeholders - I will be working with our team to build upon the current Central strategy and make adjustments where appropriate. I look forward to sharing the details of that plan in the spring." Cofer concluded, "We have great brands, strong leadership, talented people and a dynamic entrepreneurial culture. I could not be more excited about the opportunities ahead."

Commenting on the results for fiscal 2019, Niko Lahanas, CFO of Central Garden & Pet said, "We continue to feel confident about the fundamentals of our underlying businesses. A number of factors unfavorably impacted our performance in fiscal 2019, some of which may continue into 2020. The timing of the 2018 acquisition of the highly-seasonal Bell Nursery business, the underperformance of our animal health businesses, impacted by unfavorable weather and other factors, a higher amount of receivables and inventory write-offs, and a higher number of shares outstanding, all negatively impacted results versus the prior year."

Mr. Lahanas continued, "Our focus on working capital has yielded encouraging results, with our cash from operations increasingly significantly year-over-year."

Fiscal 2019 Summary

Net sales of $2.38 billion increased 7.6% compared to $2.22 billion a year ago, primarily due to acquisitions not present in prior year results. Branded product sales of $1.88 billion increased 6.7%, and sales of other manufacturers' products increased 11.0% to $504.5 million. Organic sales growth for the year increased 1.5%, due to gains in the Garden segment. Gross margin decreased 100 basis points to 29.5% compared to 30.5% in the prior year, due in part to the impact of businesses acquired that were not in the prior year's results, which accounted for half of the gross margin decline. The underperformance in the Company's animal health businesses and unfavorable product mix also contributed to the margin decline. Price increases implemented during the year, as well as cost reductions, partially offset the negative impact of higher labor and freight costs and tariffs.

Fiscal 2019 GAAP Operating Income, Net Earnings and EPS

  • Operating income of $152.1 million decreased 9.1% from $167.3 million in fiscal 2018, primarily impacted by lower results in the Company's animal health businesses, and the inclusion of seasonal losses of Bell Nursery that were not part of the results in the prior year period;
  • Operating margin of 6.4% was down 120 basis points compared to fiscal 2018, impacted by a lower gross margin, as well as higher logistics expenses. Lower marketing expenses as a percent of sales mitigated a portion of the decline;
  • Net income of $92.8 million, decreased 24.9% compared to $123.6 million in fiscal 2018;
  • Earnings per share decreased 30.6% to $1.61 per fully diluted share on an 8.0% increase in the number of shares outstanding compared to the prior year; and
  • Cash flow from operations increased to $205.0 million, up 79.6% or $90.9 million compared to the prior year.

Fiscal 2019 Non-GAAP Operating Income, Net Earnings and EPS

  • Non-GAAP results for fiscal 2019 exclude the second quarter non-cash $3.2 million gain from the write-up of the Company's previous 45% ownership of the Arden Companies as well as a non-cash impairment of $2.5 million of intangible value associated with the Company's live fish business, due to the exit of the category by a large retailer;
  • Non-GAAP results for fiscal 2018 exclude a favorable tax impact of $21.5 million for the revaluation of the Company's deferred tax accounts;
  • Non-GAAP operating income for fiscal 2019 was $151.4 with an operating margin of 6.4%, compared to $167.3 million and 7.6%, respectively, in fiscal 2018;
  • Non-GAAP net income for fiscal 2019 was $92.3 million, a 9.6% decrease compared to $102.1 million in fiscal 2018, negatively impacted by a higher effective tax rate;
  • Non-GAAP earnings per fully diluted share decreased 16.2% to $1.60 from $1.91 in the prior fiscal year on a greater number of shares outstanding;
  • EBITDA decreased 5.4%, or $11.6 million, to $202.9 million compared with fiscal 2018. The decrease was primarily due to the inclusion of two quarters of Bell Nursery results not in the prior year period. This negatively impacted fiscal 2019 EBITDA by $7 million.

Fiscal 2019 Fourth Quarter Financial Results

Net sales increased 7.7% to $540.7 million compared to $502.3 million in the fourth quarter a year ago, while organic sales grew 4.6%, driven by gains in both the Garden and Pet segments. Branded product sales of $415.0 million increased 4.9%, and sales of other manufacturers' products of $125.7 million increased 17.7%. Gross margin decreased 180 basis points compared to the fourth quarter a year ago to 27.5%, with the inventory write-off in the Pet segment and unfavorable mix changes in the Garden segment the primary causes of the decline.

Fourth Quarter GAAP Operating Income, Net Earnings and EPS

  • Operating income of $10.9 million was down $7.3 million or 40.3% compared to $18.2 million in the fourth quarter a year ago. Operating margin of 2.0% decreased 160 basis points compared to the fourth quarter a year ago, due to higher expenses related to writing off of receivables and inventory as well as one-time CEO transition costs;
  • Net income decreased to $2.4 million from $10.6 million in the fourth quarter a year ago, as lower operating income and a higher tax rate compared to the fourth quarter a year ago more than offset a decrease in other expense. The tax rate last year included a favorable impact from the revaluation of the Company's deferred tax accounts. The decrease in other expense resulted principally from the remainder of the Arden business being purchased during the year and residing in the Garden segment during the quarter as opposed to being classified as other income in the fourth quarter a year ago; and
  • Earnings per fully-diluted share decreased to $0.04 from $0.19 in the fourth quarter a year ago.

Fourth Quarter Non-GAAP Operating Income, Net Earnings and EPS

  • Non-GAAP results for the fourth quarter of fiscal 2018 exclude a favorable tax impact of $5.1 million from the revaluation of the Company's deferred tax accounts;
  • Non-GAAP net income decreased to $2.4 million from $5.4 million in the fourth quarter a year ago;
  • Non-GAAP earnings per diluted share decreased to $0.04 from $0.10 in the fourth quarter a year ago; and
  • EBITDA decreased $6.2 million, or 20.2%, to $24.4 million compared to the fourth quarter a year ago.

Pet Segment Fiscal 2019 Fourth Quarter Results

Fourth quarter net sales for the Pet segment increased 4.9% from the same period a year ago, to $355.9 million. The gain was due in part to the inclusion of the C&S acquisition as well as organic growth. The Pet segment's branded product sales were $272.3 million, up 3.9% compared to the fourth quarter a year ago, and sales of other manufacturers' products were $83.6 million, an increase of 8.3%. Pet organic sales grew 2.2%, on higher sales of other manufacturers products, as well as strength in the dog & cat and wild bird businesses. The gains more than offset lower sales in the aquatics and live fish businesses.

The Pet segment's operating income declined 3.8% to $30.9 million and operating margin decreased 80 basis points, to 8.7%, from $32.2 million and 9.5%, respectively, in the fourth quarter a year ago. The declines were primarily due to lower results in the Company's animal health and pet bedding businesses, which included write-offs and expenses taken during the quarter related to receivables and inventory.

Garden Segment Fiscal 2019 Fourth Quarter Results

Net sales for the Garden segment increased 13.4% compared to the fourth quarter a year ago to $184.8 million, aided by the acquisition of Arden but primarily driven by organic growth. The Garden segment's branded product sales were $142.7 million in the quarter, up 7.1% compared to the fourth quarter a year ago. Sales of other manufacturers' products increased 42.2% to $42.1 million. Organic sales rose 9.7%, despite the impact of unfavorable weather during the quarter on controls product sales. Higher sales of other manufacturers' products were the primary driver of the improved organic revenue, with meaningful gains also contributed by the wild bird, grass seed, and live plants businesses.

The Garden segment's operating income in the quarter decreased to $0.3 million compared to $1.6 million in the fourth quarter a year ago, and Garden operating margin decreased 80 basis points to 0.2%. The inclusion of Arden in the Garden segment, which was not in last year's Garden results, negatively impacted both measures. Mix of products sold was also a detractor to margins.

Additional Information

At September 28, 2019, the Company's cash and short-term investment balance was $497.7 million, compared to $482.1 million a year ago. Cash flow from operations for the fourth quarter of fiscal 2019 was $112.2 million, compared to $96.4 million in the fourth quarter of fiscal 2018.

Total debt at September 28, 2019 was $693.2 million compared to $692.2 million at September 29, 2018. Net interest expense was $8.1 million for the fourth quarter of fiscal 2019 compared to $8.9 million in the prior-year period. The Company's leverage ratio at the end of the quarter and year, as defined in the Company's credit agreement, was 3.1x compared to 3.0x in the prior year quarter.

Other expense for the quarter decreased to $0.2 million from $4.4 million in the fourth quarter a year ago due to the absence of Arden in the other expense line.

The Company's effective tax rate for the fourth quarter was 22.8% compared to a tax benefit of 112.9% in the fourth quarter of 2018. For the full fiscal year, the tax rate was 22.3% compared with 2.6% last year. The fiscal 2018 tax rate reflects the revaluation of the Company's deferred tax accounts and a reduction in the U.S. Federal corporate tax rate in fiscal 2018. Excluding the impact of the revaluation of the deferred tax accounts in fiscal 2018, the Company's tax rate for fiscal 2018 was 19.5%. Fiscal 2019 tax rates reflect a higher weighted average tax rate for the year due to a less favorable impact from changes in accounting standards around non-cash equity compensation expense than in the prior fourth quarter and fiscal year periods.

During the fourth quarter, the Company repurchased 1.8 million shares of its stock. As of the end of its fiscal year, the Company had $100 million remaining on its Board authorized share repurchase program, as well as an additional 1.2 million shares remaining on the Board's equity dilution authorization.

Guidance

The Company currently believes diluted EPS for fiscal 2020 will be at or modestly above its fiscal 2019 results. Increased demand creation spending and continuing challenges in its animal health businesses will be headwinds to earnings growth for the year. In addition, the Company's first quarter diluted EPS is currently expected to be a loss of $0.10 to $0.15, principally due to the timing of orders in the first quarter compared to a year ago, continuing challenges in the animal health businesses, and higher corporate expenses. The guidance for the quarter does not take into consideration the effects of a recent fire at one of the Company's facilities, which may impact the first quarter but is currently not expected to materially impact full year results. Updated guidance for the fiscal year is expected to be provided in early February, after the initial assessment and proposed actions of the new CEO can be factored into the Company's expectations.

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 2019 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 #13696804. A replay of the call will be available for three days by dialing (201) 612-7415 and entering confirmation #13696804.

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; outdoor cushions and pillows from ARDEN COMPANIES; 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 5,800 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 increased marketing activities and capital expenditures and their impact on future growth, the expected continuing challenges in the animal health businesses, and earnings guidance for the first quarter and full fiscal 2020 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;
  • our dependence upon our key executives;
  • potential acquisitions;
  • the impact of new accounting regulations on the Company's tax rate;
  • our ability to recover losses and mitigate business interruption caused by the November 2019 fire at our DMC facility in Texas;
  • dependence on a small number of customers for a significant portion of our business;
  • the impact of tariffs or further expansion of the 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)

Unaudited

 

ASSETS

 

September 28, 2019

 

September 29, 2018

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

497,749

 

 

$

482,106

 

Restricted cash

 

12,952

 

 

10,899

 

Accounts receivable, net

 

300,135

 

 

275,908

 

View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com