Central Garden & Pet Company Announces Fiscal 2015 & Fourth Quarter Results

Guía de Regalos

Fiscal 2015 diluted EPS of $0.64 vs. diluted EPS of $0.18 for
fiscal 2014

Fiscal 2015 adjusted diluted EPS of $0.74 vs. adjusted diluted EPS
of $0.33 for fiscal 2014

WALNUT CREEK, Calif.–(BUSINESS WIRE)–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 full year and fourth quarter ended September 26, 2015.

“2015 was a year of major accomplishments for Central. The operational
and financial success we are achieving is now very evident in our
financial results and is validation that the multi-year plan we outlined
in 2013 is working, and we are on plan and the right path, said John
Ranelli, President & CEO of Central Garden & Pet. “In addition to
realizing the positive results from our efforts to put our customers
first, lower our expenses and operate more efficiently, we are now
beginning to see the effects of the initiatives we undertook during 2015
to grow our top line.” Ranelli concluded, “I couldn’t be more pleased
with the progress that we are continuing to make and expect another year
of solid progress in 2016.”

The Company currently expects continued growth in 2016, with adjusted
earnings per fully diluted share expected to increase at least 28% to
$0.95 or higher. This includes the interest savings from its recent
refinancing, but adjusting for a one-time call premium, 30 days of extra
interest expense and unamortized financing costs. While adjusted
earnings for the year are expected to be higher, adjusted earnings for
the first quarter are expected to be relatively flat vs. the prior year
due to revenue timing differences.

Fiscal 2015 Financial Highlights

Fiscal 2015 adjusted operating income and adjusted earnings per share
exclude a Pet non-cash intangible impairment charge of $7.3 million.
Fiscal 2014 adjusted operating income and earnings per share exclude a
$16.9 million Garden charge for the discontinuance of products and a
$4.9 million gain on the sale of plant manufacturing assets.

  • Sales increased 3% to $1.65 billion compared to $1.60 billion a year
    ago. Adjusted sales were $1.61 billion a year-ago;
  • Branded product sales increased 1% to $1.32 billion compared to $1.31
    billion for the same period a year ago. Sales of other manufacturers’
    products increased 12% to $335.7 million compared to $300.0 million a
    year ago;
  • Gross profit increased 7.5% to $488.1 million compared to $454.0
    million a year ago. Gross margin rose 130 basis points to 29.6%
    compared to 28.3% a year ago;
  • SG&A expense as a percentage of sales declined 120 basis points to
    23.6% compared to 24.8% a year ago. Adjusted SG&A as a percentage of
    sales declined 140 basis points to 23.6% compared to 25.0% a year ago;
  • Operating income increased 63% to $91.4 million compared to $56.2
    million a year ago. Adjusted operating income was up 45% to $98.7
    million compared to $68.2 million a year ago;
  • Pet operating income increased 12% to $98.8 million, compared to $88.1
    million a year ago. Adjusted Pet operating income was up 20% to $106.1
    million, compared to $88.1 million (GAAP) a year ago;
  • Garden operating income increased 47% to $60.1 million, compared to
    $41.0 million a year ago, and was up 13% compared to adjusted
    operating income of $53.1 million a year ago;
  • Operating margin increased 200 basis points to 5.5% compared to 3.5% a
    year ago. Adjusted operating margin increased 180 basis points to 6.0%
    compared to 4.2% a year ago;
  • Net income increased 264% to $32.0 million compared to $8.8 million a
    year ago. Adjusted net income increased 123% to $36.6 million compared
    to $16.4 million a year ago; and
  • Earnings per fully-diluted share increased 256% to $0.64 compared to
    $0.18 a year ago. Adjusted earnings per fully-diluted share increased
    124% to $0.74 compared to $0.33 a year ago.

Fiscal 2015 Fourth Quarter Financial Highlights

  • Fourth quarter adjusted earnings per share were positive for the first
    time in recent years;
  • Sales increased 3% to $386.4 million compared to $374.2 million in the
    fourth quarter a year ago;
  • Branded product sales increased 2% to $309.3 million compared to
    $304.4 million in the fourth quarter a year ago. Sales of other
    manufacturers’ products increased 10% to $77.1 million from $69.8
    million in the in the fourth quarter a year ago;
  • Gross profit was flat at $108.0 million compared to $107.6 million in
    the fourth quarter a year ago. Gross margin for the fourth quarter
    declined 80 basis points to 27.9% compared to 28.7% in the fourth
    quarter a year ago;
  • SG&A expense as a percentage of sales for the fourth quarter decreased
    270 basis points to 25.7% compared to 28.4% in the fourth quarter a
    year ago. Adjusted SG&A as a percentage of sales for the fourth
    quarter of 2015 declined 340 basis points to 25.7% compared to 29.1%
    in the fourth quarter a year ago;
  • Operating income decreased 7% to $1.3 million compared to $1.4 million
    in the same period a year ago. Adjusted operating income increased to
    $8.6 million compared to an adjusted operating loss of $1.5 million in
    the fourth quarter a year ago;
  • Operating margin decreased 10 basis points to 0.3% compared to 0.4% in
    the fourth quarter a year ago. Adjusted operating margin for the
    fourth quarter of 2015 increased 260 basis points to 2.2% compared to
    (0.4%) in the fourth quarter a year ago;
  • Net loss increased 7% to $4.4 million compared to a loss of $4.1
    million in the fourth quarter a year ago. Adjusted net income for the
    fourth quarter of 2015 was $0.3 million versus a net loss of $5.9
    million in the fourth quarter a year ago; and
  • Loss per fully-diluted share increased to $0.09 compared to $0.08 in
    the fourth quarter a year ago. Adjusted earnings per fully-diluted
    share were $0.01 compared with a loss of $0.12 in the fourth quarter a
    year ago

Pet Segment Fourth Quarter Details

Fourth quarter sales for the Pet segment increased $18.5 million, or 8.5
percent to $235.6 million, from the same period a year ago. Sales rose
in most pet categories, particularly in the dog and cat and professional
categories, as well as in sales of other manufacturers’ products. The
dog and cat category benefitted from including two months revenue from
the IMS acquisition, which closed during the fourth quarter. The Pet
segment’s branded product sales were $180.9 million in the fourth
quarter of 2015, and sales of other manufacturers’ products were $54.8
million.

The Pet segment’s operating income on a GAAP basis for the fourth
quarter was $18.2 million compared to $21.1 million in the fourth
quarter of 2014. On an adjusted basis, excluding a $7.3 million non-cash
intangibles impairment charge, the Pet segment’s operating income
increased $4.4 million to $25.5 million. The increase in adjusted
operating income was largely due to higher sales during the period as
well as lower SG&A expenses. The Pet segment’s adjusted operating margin
increased 110 basis points, primarily due to lower SG&A expenses in the
Company’s flea & tick, dog and cat, and small animal businesses.

Garden Segment Fourth Quarter Details

Sales for the Garden segment were $150.8 million, a decrease of $6.4
million or 4.1 percent compared to the fourth quarter of 2014. The
decrease in sales was largely due to a decline in grass seed and décor
revenue. Higher wild bird feed sales and sales of other manufacturers’
products moderated the Garden sales decline. The Garden segment’s
branded product sales were $128.5 million in the fourth quarter of 2015,
and sales of other manufacturers’ products were $22.3 million.

The Garden segment’s operating income in the fourth quarter of 2015
decreased by $5.5 million, to $0.9 million, compared to reported
operating income in the fourth quarter of 2014 of $6.4 million. Adjusted
operating income for the fourth quarter of 2014, excluding a $2.9
million gain on the sale of plant manufacturing assets, was $3.6
million. The Garden segment’s operating margin declined to 0.6% compared
to the operating margin in the prior year period of 4.1% on a GAAP basis
and declined to 2.3% on an adjusted basis. The decline in operating
income and margin was primarily due to lower profitability in the décor
category. Partially offsetting the décor decline were higher operating
margins in the grass seed and wild bird feed businesses.

Additional Information

At September 26, 2015, the Company’s cash and short-term investments
balance was $47.6 million, compared to $88.7 million a year ago. For
fiscal year 2015, cash flow from operations was $87.4 million. Cash flow
from operations for the fourth quarter of 2015 was $30.8 million,
compared to $57.6 million in the fourth quarter of 2014. The Company’s
inventory balance rose by $9.6 million from a year ago, due to
increasing sales and a fourth quarter acquisition.

The Company’s long-term debt declined to $400.1 million at September 26,
2015 compared to $450.2 million at September 27, 2014. Net interest
expense for the fourth quarter of fiscal 2015 was $8.6 million for the
period compared to $9.7 million in the prior-year period. The lower debt
and interest expense is reflective of lower average borrowings due to
the redemption of $50 million of the Company’s 8.25% senior subordinated
notes due March 2018 earlier this year.

Subsequent to the end of the fiscal year, the Company issued $400
million of 6.125% senior unsecured notes and redeemed its remaining
outstanding 8.25% senior subordinated notes. This issuance is expected
to result in annualized interest savings of approximately $8.5 million.
The issuance is also expected to result in a charge in our fiscal 2016
first quarter of approximately $8.3 million related to the payment of
the call premium and a $3.2 million non-cash charge for the write-off of
unamortized financing costs in interest expense. The first quarter of
2016 will also include 30 days of overlapping interest payments,
resulting in one-time additional interest expense of approximately $2.8
million.

Depreciation and amortization expense for fiscal year 2015 was $33.7
million, compared with $35.8 million in fiscal year 2014. The Company’s
effective tax rate for the fiscal year 2015 was 36.0 percent, compared
with 29.2 percent for fiscal year 2014. The prior year benefitted from a
release of valuation allowances.

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 full year and fourth 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 # 13623200. A replay of
the call will be available for ten days by dialing (201) 612-7415 and
entering confirmation #13623200.

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™, 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
3,300 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 earnings guidance for fiscal 2016 and
expectations for future favorable results 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;
  • dependence on a small number of customers for a significant portion of
    our business;
  • uncertainty about new product innovations and marketing programs;
  • dependence upon key executives and the ability to execute on our
    succession plan; and
  • competition in our industries
  • failure of acquired businesses to achieve expected results

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

 

CONSOLIDATED BALANCE SHEETS

   
September 26,
2015
September 27,
2014

ASSETS

 

Current assets:

(in thousands)
Cash and cash equivalents $ 47,584 $ 78,676
Restricted cash 13,157 14,283
Short term investments 0 9,990
Accounts receivable, net 207,402 193,729
Inventories 335,946 326,386
Prepaid expenses, deferred income taxes and other   49,731   48,488
Total current assets 653,820 671,552
Plant, property and equipment, net 162,809 166,849
Goodwill 209,089 208,233
Other intangible assets, net 75,460 87,997
Other assets   33,576   14,096
Total $ 1,134,754

$

1,148,727
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 88,889 $ 88,428
Accrued expenses 87,724 84,379
Current portion of long-term debt   291   291
Total current liabilities 176,904 173,098
Long-term debt 399,848 449,948
Deferred income taxes and other long-term obligations 51,622 39,228
 

Equity:

Common stock 119 124
Class A common stock 364 369
Class B stock 16 16
Additional paid-in capital 388,636 396,586
Retained earnings 115,987 86,396
Accumulated other comprehensive income   164   1,232
Total Central Garden & Pet shareholders’ equity 505,286 484,723
Noncontrolling interest   1,094   1,730
Total equity   506,380   486,453
Total $ 1,134,754 $ 1,148,727
 
   

CENTRAL GARDEN & PET COMPANY

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 
Three Months Ended Fiscal Year Ended
September 26,
2015
  September 27,
2014
September 26,
2015
  September 27,
2014
(in thousands, except per share amounts)
Net sales $ 386,369 $ 374,238 $ 1,650,737 $ 1,604,357
Cost of goods sold and occupancy   278,397     266,682     1,162,685     1,150,333  
Gross profit 107,972 107,556 488,052 454,024
Selling, general and administrative expenses

99,367

106,183

389,345 397,811

Intangible asset and goodwill impairment

 

7,272

 

 

0

    7,272     0  
Income from operations 1,333 1,373 91,435 56,213
Interest expense (8,670 ) (9,793 ) (40,027 ) (42,844 )
Interest income 33 51 129 94
Other income (expense)   (83 )   7     13     403  
Income (loss) before income taxes and noncontrolling interest

(7,387

)

(8,362

)

51,550 13,866
Income tax expense (benefit)   (2,992 )   (4,172 )   18,535     4,045  
Net income (loss) including noncontrolling interest

(4,395

)

(4,190

)

33,015 9,821
Net income attributable to noncontrolling interest  

(26

)

 

(120

)

  1,044     1,017  
Net income (loss) attributable to Central Garden & Pet Company

$

(4,369

)

$

(4,070

)

$ 31,971   $ 8,804  
Net income (loss) per share attributable to Central Garden & Pet
Company:
Basic $ (0.09 ) $ (0.08 ) $ 0.66 $ 0.18
Diluted $ (0.09 ) $ (0.08 ) $ 0.64 $ 0.18

Weighted average shares used in the computation of net income per
share:

Basic 48,322 49,324 48,562 48,880
Diluted 48,322 49,324 49,638 49,397
 

Use of Non-GAAP Financial Measures

The Company reports its financial results in accordance with U.S.
generally accepted accounting principles (GAAP). However, management
believes that certain non-GAAP financial measures that exclude the
impact of Pet segment charges related to a non-cash intangible asset
impairment in fiscal 2015 and Garden segment charges in fiscal 2014 and
Garden segment gains recognized during fiscal 2014 related to the sale
of plant assets may be useful in certain instances to provide additional
meaningful comparisons between current results and results in prior
periods that should be considered when assessing our ongoing
performance. The Company believes that these non-GAAP financial measures
provide useful information to investors and other users of its financial
statements, such as lenders. Management also uses these non-GAAP
financial measures in making financial, operating and planning decisions
and in evaluating the Company’s performance. While the Company’s
management believes that non-GAAP measurements are useful supplemental
information, such adjusted results are not intended to replace the
Company’s GAAP financial results and should be read in conjunction with
those GAAP results.

 
CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited, in thousands, except per share amounts)
 

GAAP Fourth
Quarter 2015

 

Intangible
Impairment (A)

 

Adjusted Fourth
Quarter 2015

Net sales $ 386,369 $ $ 386,369
Cost of goods sold and occupancy   278,397       278,397  
Gross profit 107,972 107,972
Selling, general and admin expenses and impairment   106,639     (7,272 )   99,367  
Income (loss) from operations   1,333     7,272     8,605  
Net income (loss) attributable to Central Garden & Pet Company $ (4,369 ) $ 4,654   $ 285  
 
Earnings per share – Diluted $ (0.09 ) $ 0.01
 
Weighted shares outstanding – Diluted 48,322 49,922
Gross margin 27.9 % 27.9 %
Selling, general and administrative expenses as a percentage of sales 25.7 % 25.7 %
Operating margin 0.3 % 2.2 %
 
 
CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited, in thousands, except per share amounts)
 

GAAP Fourth
Quarter 2014

  Garden Charge  

Gain on Plant
Assets Sale (B)

 

Adjusted Fourth
Quarter 2014

Net sales $ 374,238 $ $ $ 374,238
Cost of goods sold and occupancy   266,682         266,682  
Gross profit 107,556 107,556
Selling, general and admin expenses   106,183       2,879     109,062  
Income (loss) from operations   1,373       (2,879 )   (1,506 )
Net loss $ (4,070 ) $ $ (1,814 ) $ (5,884 )
 
Loss per share – Diluted $ (0.08 ) $ (0.12 )
 
Weighted shares outstanding 49,324 49,324
Gross margin 28.7 % 28.7 %
Selling, general and administrative expenses as a percentage of sales 28.4 % 29.1 %
Operating margin 0.4 % (0.4 %)
 
(A) In the fourth quarter of fiscal 2015, we recognized a non-cash
intangible asset impairment charge within our Pet segment.
 
(B) The garden charges reflect the impact of a Garden segment charge
in fiscal 2014 related to the discontinuance of certain products.
 

GAAP to Non-GAAP Reconciliation
(unaudited, in
thousands, except per share amounts)

For the Year Ended September 26, 2015

Fiscal 2015
GAAP

 

Intangible
Impairment (A)

 

Fiscal 2015
As Adjusted

Net sales $ 1,650,737 $ $ 1,650,737
Cost of goods sold and occupancy   1,162,685         1,162,685  
Gross profit 488,052 488,052
Selling, general and administrative expenses and impairment   396,617     (7,272 )   389,345  
Income from operations   91,435     7,272     98,707  
Net income attributable to Central Garden & Pet Company $ 31,971   $ 4,654   $ 36,625  
Earnings per share – Diluted $ 0.64 $ 0.74
Weighted shares outstanding 49,638 49,638
Gross margin 29.6 % 29.6 %
Selling, general and administrative expenses and impairment as a
percentage of sales
24.0 % 23.6 %
Operating margin 5.5 % 6.0 %
 
 

GAAP to Non-GAAP Consolidated Reconciliation
(unaudited,
in thousands, except per share amounts)

For Fiscal Year Ended September 27, 2014
Fiscal 2014
GAAP
 

Garden Charge
(B)

 

Gain on Sale of
Plant Assets (C)

  Fiscal 2014
As Adjusted
 
Net sales $ 1,604,357 $ 7,035 $ $ 1,611,392
Cost of goods sold and occupancy   1,150,333     (9,873 )     1,140,460  
Gross profit 454,024 16,908 470,932
Selling, general and administrative expenses   397,811       4,875     402,686  
Income from operations $ 56,213   $ 16,908   $ (4,875 ) $ 68,246  
Net income (loss) $ 8,804   $ 10,652   $ (3,071 ) $ 16,385  
Net loss per share attributable to Central Garden & Pet Co.
Earnings per share – Diluted $ 0.18 $ 0.33
Weighted shares outstanding 49,397 49,397
Gross margin 28.3 % 29.2 %
Selling, general and administrative expenses as a percentage of sales 24.8 % 25.0 %
Operating margin 3.5 % 4.2 %
(A) In the fourth quarter of fiscal 2015, we recognized a non-cash
intangible asset impairment charge within our Pet segment.
 
(B) The garden charges reflect the impact of a Garden segment charge
in fiscal 2014 related to the discontinuance of certain products.
 
(C) In fiscal 2014, we recognized a gain from the sale of
manufacturing plant assets related to a product the Garden segment
will now purchase rather than produce.
 
 

Non-GAAP Consolidated Comparative Summary

(unaudited, in thousands, except per share amounts)

Three Months
Ended
September 26, 2015

 

Three Months
Ended
September 27, 2014

 

Fiscal Year Ended
September 26, 2015

  Fiscal Year Ended
September 27, 2014
Adjusted net sales $ 386,369 $ 374,238 $ 1,650,737 $ 1,611,392
Adjusted gross profit 107,972 107,556 $ 488,052 $ 470,932
Adjusted gross margin 27.9 % 28.7 % 29.6 % 29.2 %

Adjusted selling, general and administrative expenses

$ 99,367 $ 109,062 $ 389,345 $ 402,686
Adjusted selling, general and administrative as a percentage of sales 25.7 % 29.1 % 23.6 % 25.0 %
Adjusted income from operations $ 8,605 $ (1,506 ) $ 98,707 $ 68,246
Adjusted operating margin 2.2 % (0.4 %) 6.0 % 4.2 %
Adjusted EPS – diluted $ 0.00 ($0.12 ) $ 0.74 $ 0.33
 
Pet Segment:   Fiscal 2015   Fiscal 2014

Income from
Operations

  Operating
Margin
 

Income from
Operations

  Operating
Margin
Fiscal year as reported (GAAP) $ 98,798 11.0% $ 88,077 10.4%
Intangible asset impairment charge (A) 7,272  
Fiscal year as adjusted $ 106,070 11.9% $ 88,077 10.4%
 
Garden Segment

Fiscal 2015
Net Sales

Fiscal 2014
Net Sales

Fiscal year as reported (GAAP) $ 756,188 $ 758,852
Garden charge (B) 7,035
Fiscal year as adjusted $ 756,188 $ 765,887
 

Income from
Operations

Operating
Margin

Income from
Operations

Operating
Margin
Fiscal year as reported (GAAP) $ 60,145 8.0% $ 41,020 5.4%
Garden charge (B) 16,908
Gain on sale of plant assets (C)   (4,875)
Fiscal year as adjusted $ 60,145 8.0% $ 53,053 6.9%
(A) In fiscal 2015, we recognized a non-cash intangible asset
impairment charge within our Pet segment.
 
(B) The garden charges reflect the impact of a Garden segment charge
in fiscal 2014 related to the discontinuance of certain products.
 
(C) In fiscal 2014, we recognized a gain from the sale of
manufacturing plant assets related to a product the Garden segment
will now purchase rather than produce.

Contacts

Central Garden & Pet Company
Contact: Steve Zenker, 925-948-3657
VP
of Investor Relations & Communications