Central Garden & Pet Company Announces Fiscal First Quarter Results

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Central Garden & Pet Company, 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 first quarter ended December 24, 2016.

“The first quarter puts Central well on track to deliver our fiscal year earnings guidance, which will remain unchanged at this time,” said George Roeth, president and CEO of Central Garden & Pet. “While over half of the year-over-year earnings increase in the first quarter was related to acquisitions and timing, we continue to be encouraged by our strong organic sales growth and market share gains. We remain focused on executing with excellence against our strategy and plan.”

Fiscal 2017 First Quarter Financial Results

Net sales increased 16.6 percent to $419.5 million compared to $359.8 million in the first quarter a year ago, in large part due to the company’s recent two acquisitions, a favorable close to the fall garden season and share growth in the company’s pet segment. Branded product sales of $332.9 million increased 20.4 percent and sales of other manufacturers’ products of $86.7 million rose 4.1 percent. Organic sales growth was 7 percent. Gross margin rose 110 basis points compared to the first quarter a year ago to 28.8 percent, with both Garden and Pet showing improvement.

Fiscal 2017 GAAP First Quarter Operating Income, Net Earnings and EPS

• Operating income increased to $19.9 million from $8.8 million in the first quarter a year ago;
• Operating margin of 4.8 percent increased 240 basis points compared to 2.4 percent in the first quarter a year ago;
• Net income was $7.6 million compared to a loss of $8.6 million in the first quarter a year ago; and
• Earnings per diluted share increased to $0.15 from a loss of $(0.18) in the prior year period.

Fiscal 2017 Non-GAAP First Quarter Operating Income, Net Earnings and EPS

Non-GAAP results for the first quarter of 2017 exclude a $2.0 million gain on the sale of a distribution facility. Non-GAAP results for the first quarter of 2016 exclude the impact of $14.3 million of incremental costs from the redemption of the Company’s 2018 Notes and issuance of its 2023 Notes, that are included in the period’s interest expense;

• Non-GAAP operating income increased to $17.9 million from $8.8 million in the first quarter a year ago;
• Non-GAAP operating margin of 4.3 percent increased 190 basis points compared to 2.4 percent in the first quarter a year ago;
• Non-GAAP net income was $6.3 million compared to $0.3 million in the first quarter a year ago; and
• Non-GAAP earnings per diluted share increased $0.11 to $0.12 from $0.01 in the prior year period.

Pet Segment Fiscal 2017 First Quarter Results

First quarter net sales for the Pet segment increased 22.2 percent to $304 million, from the same period a year ago, driven by acquisitions and organic growth. Pet organic sales grew 6.1 percent, driven by share gains in many of the pet businesses, as well as accelerated timing of customer orders. The Pet segment’s branded product sales were $246.4 million, up 30.6 percent compared to the first quarter a year ago and sales of other manufacturers’ products were $57.7 million, a decrease of 4 percent.

The Pet segment’s operating income rose 27.5 percent compared to the first quarter a year ago to $33.4 million. Pet operating margin increased to 11 percent, a gain of 50 basis points compared to the first quarter a year ago. Operating margin benefited from a favorable mix of product sales during the quarter versus the prior year, as well as higher profitability from the Company’s DMC business, which had depressed margins a year ago due to the impact of purchase price accounting adjustments. The impact from these gains more than offset the unfavorable margin impact from the Company’s recent acquisition of Segrest and increased spending on facilities as the Company transitioned several of its dog & cat businesses to a new location. Those activities are expected to continue for the remainder of the year.

Garden Segment Fiscal 2017 First Quarter Results

Net sales for the Garden segment rose 4 percent compared to the first quarter a year ago to $115.5 million, despite a decrease of $5.2 million from the holiday decor business that the Company exited in January 2016. Higher sales of other manufacturers’ products, as well as gains in grass seed and wild bird feed, drove the sales increase. The Garden segment’s branded product sales were $86.5 million in the quarter, down 1.7 percent compared to the first quarter a year ago, due to the exit from the holiday decor business. Sales of other manufacturers’ products were up 25.0 percent to $29 million.

The Garden segment’s operating income in the quarter rose to $2.7 million compared to a loss of $3.3 million in the first quarter a year ago. Included in this quarter’s results is a $2.0 million gain from the sale of a distribution facility. Garden operating margin improved 520 basis points to 2.3 percent. Operating margin benefited from the facility sale, additional volume leveraging fixed operational costs and lower input costs.

2017 Guidance

The Company currently expects non-GAAP earnings per fully-diluted share of $1.34 or higher for fiscal 2017, an increase of 6 percent or more from the prior year. The estimate excludes the gain from the distribution facility sale in the current quarter. Fiscal 2017 will have 53 weeks compared to 52 weeks in fiscal 2016; however, the extra week is expected to only account for just $0.01 per share of 2017 earnings.

“It is important to note that our first quarter is a very small part of the company’s annual earnings, and as such, we are holding our guidance at this time,” Roeth said. “Our business plans are delivering against expectations, and we continue to stay focused on executing our strategies of accelerating our portfolio growth momentum, increasing our innovation output and success rates, and driving cost savings and productivity improvements. We fully expect that these actions and associated investments will drive sustainable profit growth in the years ahead; however quarterly results versus a year ago may be somewhat lumpy due to our size, weather and timing of activity.”