Central garden & pet announces q4 and fiscal 2022 financial results
Walnut creek, calif.--(business wire)--central garden & pet company (nasdaq: cent) (nasdaq: centa) ("central"), a market leader in the garden and pet industries, today announced results for its fourth quarter and fiscal year 2022 ended september 24, 2022. "central delivered solid fiscal 2022 results in a challenging environment characterized by poor weather during the peak garden season, high inflation, evolving consumer behavior and unfavorable retailer inventory dynamics. despite these headwinds, we grew net sales, gross margin, operating income, and eps versus prior year, and we exceeded the guidance we provided in june," said tim cofer, ceo of central garden & pet. "while the near-term economic outlook remains volatile and likely unfavorable, we remain confident in the fundamental trends that support growth in the garden and pet industries, the competitive strength of central and our central to home strategy." fiscal 2022 results net sales were $3.3 billion, an increase of 1% compared to the prior year, driven by the company's recent acquisitions. net sales grew at a 12% three-year cagr from $2.4 billion in fiscal 2019. organic net sales decreased 3%. net sales for the pet segment were $1.9 billion, a decrease of 1% compared to a year ago, unfavorably impacted by sku rationalization and the purposeful decision to exit low-profit private label product lines. net sales for the pet segment grew at a 9% three-year cagr compared to $1.5 billion in fiscal 2019. net sales for the garden segment increased 4% to $1.5 billion compared to $1.4 billion in the prior year and at a 17% three-year cagr compared to $923 million in fiscal 2019. despite significant inflationary headwinds across commodities, freight and labor, gross margin increased 30 basis points to 29.7% compared to 29.4% a year ago. the company was able to offset these headwinds through a combination of pricing actions, favorable product mix and gross productivity efforts. operating income of $260 million increased 2% from $254 million in fiscal 2021. operating margin increased 10 basis points to 7.8% compared to 7.7% a year ago, due to gross margin improvement. other expense was $3.6 million compared to $1.5 million in the prior year. net interest expense was $58 million, in line with the prior year. net income was $152 million, in line with a year ago. diluted earnings per share grew $0.05 to $2.80 compared to $2.75 in the prior year. adjusted ebitda was $367 million, an increase of 4% compared to $352 million in fiscal 2021. the effective tax rate for the fiscal year was 23.2% compared to 21.6% in the prior year. the increased effective income tax rate in fiscal 2022 was due primarily to a reduced tax benefit from stock-based compensation compared to the prior year. fourth quarter fiscal 2022 results net sales decreased 4% to $707 million compared to $739 million in the fourth quarter of fiscal 2021. gross margin decreased 60 basis points to 28.2% as the positive effect of pricing actions was more than offset by substantial inflationary cost pressure and lower sales volume. operating income was $13 million, an increase of 34% compared to $10 million in the fourth quarter of fiscal 2021. operating margin was 1.8%, an increase of 50 basis points compared to 1.3% in the prior year quarter. other expense was $2.3 million compared to $1.9 million in the fourth quarter of fiscal 2021. net interest expense of $14 million for the fourth quarter was in line with the prior-year quarter. this resulted in a net loss of $2.0 million compared to a net loss of $3.0 million in the fourth quarter of fiscal 2021, and a diluted loss per share of $0.04 compared to a diluted loss per share of $0.06 in the prior year quarter. adjusted ebitda was $42 million, up 13% from $38 million in the fourth quarter of fiscal 2021. pet segment fourth quarter fiscal 2022 results net sales for the pet segment were $440 million, a decrease of 4% compared to the prior year, unfavorably impacted by sku rationalization and the purposeful decision to exit low-profit private label product lines. the pet segment’s operating income was $40 million, an increase of 28% compared to $32 million in the prior year quarter. operating margin of 9.2% reflected an increase of 230 basis points compared to 6.9% in the fourth quarter of fiscal 2021, driven primarily by lower commercial expense and variable compensation as well as the favorable impact of pricing actions. garden segment fourth quarter fiscal 2022 results net sales for the garden segment were $268 million, a decrease of 4% compared to the prior year quarter, due to softness across most of the garden portfolio, partially offset by continued strength in wild bird, packet seeds and grass seed. the garden segment’s operating income was $1.8 million compared to $1.1 million in the fourth quarter of fiscal 2021. operating margin was 0.7%, an increase of 30 basis points compared to 0.4% in the prior year quarter, driven by lower variable compensation compared to the prior year. additional information at september 24, 2022, the company’s cash and cash equivalents was $177 million, compared to $426 million a year ago. cash used by operations for fiscal 2022 was $34 million, compared to cash provided by operations of $251 million in the prior year. the increase in cash used by operations was primarily due to changes in working capital driven in part by the higher cost of inventory in this inflationary environment as well as management's decision to increase inventory levels significantly to mitigate the adverse impact of supply chain disruptions on the company's fill rates. total debt at september 24, 2022 and september 25, 2021 was $1.2 billion. the company's leverage ratio, as defined in the company's credit agreement, at the end of the quarter and the fiscal year was 2.9x compared to 3.0x in the prior year. the company repurchased approximately 495 thousand shares or $20 million of its stock during the quarter. outlook for fiscal 2023 the company currently projects fiscal 2023 gaap eps in the range of $2.60 to $2.80. this outlook reflects the macroeconomic uncertainty, further cost inflation, evolving consumer behavior and unfavorable retailer inventory dynamics. the outlook includes anticipated pricing actions and productivity initiatives across the company's portfolio to help mitigate inflationary headwinds. the company expects fiscal 2023 capital spending to be significantly below fiscal 2022 levels. fiscal 2023 will have 53 weeks compared to 52 weeks in fiscal 2022. this outlook does not include the impact of any acquisitions that may close during fiscal 2023. 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 year 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 #13732255. about central garden & pet central garden & pet company (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 2022 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 amdro®, aqueon®, cadet®, farnam®, ferry~morse®, four paws®, kaytee®, k&h®, nylabone® and pennington®, 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. visit www.central.com to learn more. 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 further cost inflation, evolving consumer behavior and unfavorable retailer dynamics, anticipated pricing actions, productivity initiatives and reduced capital spending, and earnings guidance for fiscal year 2023, 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: high inflation, a potential recession and other adverse macro-economic conditions; fluctuations in market prices for seeds and grains and other raw materials; our inability to pass through cost increases in a timely manner; fluctuations in energy prices, fuel and related petrochemical costs; declines in consumer spending and increased inventory risk during economic downturns; 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, including the potential for reduced orders as retailers work through excess inventory; adverse weather conditions; 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; supply chain delays and disruptions resulting in lost sales, reduced fill rates and service levels and delays in expanding capacity and automating processes; 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; consolidation trends in the retail industry; 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; impacts of tariffs or a trade war; 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. central garden & pet company condensed consolidated balance sheets (in thousands) (unaudited) assets september 24, 2022 september 25, 2021 current assets: cash and cash equivalents $ 177,442 $ 426,422 restricted cash 14,742 13,100 accounts receivable, net 376,787 385,384 inventories, net 938,000 685,237 prepaid expenses and other 46,883 33,514 total current assets 1,553,854 1,543,657 plant, property and equipment, net 396,979 328,571 goodwill 546,436 369,391 other intangible assets, net 543,210 134,431 operating lease right-of-use assets 186,344 165,602 other assets 55,179 575,028 total $ 3,282,002 $ 3,116,680 liabilities and equity current liabilities: accounts payable $ 215,681 $ 245,542 accrued expenses 201,783 234,965 current lease liabilities 48,111 40,731 current portion of long-term debt 317 1,081 total current liabilities 465,892 522,319 long-term debt 1,186,245 1,184,683 long-term lease liabilities 147,724 130,125 deferred income taxes and other long-term obligations 147,429 56,012 equity: common stock 113 113 class a common stock 413 423 class b stock 16 16 additional paid-in capital 582,056 576,446 retained earnings 755,253 646,082 accumulated other comprehensive loss (4,145 ) (831 ) total central garden & pet shareholders’ equity 1,333,706 1,222,249 noncontrolling interest 1,006 1,292 total equity 1,334,712 1,223,541 total $ 3,282,002 $ 3,116,680 condensed consolidated statements of operations (in thousands, except per share amounts) (unaudited) three months ended fiscal year ended september 24, 2022 september 25, 2021 september 24, 2022 september 25, 2021 net sales $ 707,442 $ 739,127 $ 3,338,588 $ 3,303,684 cost of goods sold 507,751 526,356 2,346,283 2,332,783 gross profit 199,691 212,771 992,305 970,901 selling, general and administrative expenses 186,793 203,166 732,269 716,405 operating income 12,898 9,605 260,036 254,496 interest expense (14,620 ) (14,269 ) (58,253 ) (58,597 ) interest income 531 93 719 415 other expense, net (2,259 ) (1,876 ) (3,596 ) (1,506 ) income (loss) before income taxes and noncontrolling interest (3,450 ) (6,447 ) 198,906 194,808 income tax (benefit) expense (1,085 ) (3,225 ) 46,234 42,035 net income (loss) including noncontrolling interest (2,365 ) (3,222 ) 152,672 152,773 net income (loss) attributable to noncontrolling interest (375 ) (215 ) 520 1,027 net income (loss) attributable to central garden & pet company $ (1,990 ) $ (3,007 ) $ 152,152 $ 151,746 net income (loss) per share attributable to central garden & pet company: basic $ (0.04 ) $ (0.06 ) $ 2.86 $ 2.81 diluted $ (0.04 ) $ (0.06 ) $ 2.80 $ 2.75 weighted average shares used in the computation of net income per share: basic 52,718 53,926 53,220 53,914 diluted 52,718 53,926 54,425 55,248 consolidated statements of cash flows fiscal year ended september 24, 2022 september 25, 2021 september 26, 2020 (in thousands) cash flows from operating activities: net income $ 152,672 $ 152,773 $ 121,520 adjustments to reconcile net income to net cash provided by operating activities: depreciation and amortization 80,948 74,727 55,359 amortization of deferred financing costs 2,657 2,208 1,873 non-cash lease expense 48,656 41,044 35,025 stock-based compensation 25,817 23,127 18,982 debt extinguishment costs 169 8,577 — loss on sale of business — 2,611 — deferred income taxes 28,128 (14,744 ) (6,615 ) loss (gain) on disposal of property, plant and equipment 131 (256 ) 1,171 asset impairments — — 3,566 other (779 ) 4,716 4,675 changes in assets and liabilities (excluding businesses acquired): receivables 7,004 69,135 (91,470 ) inventories (256,443 ) (132,170 ) 27,351 prepaid expenses and other assets (6,031 ) 13,370 4,683 accounts payable (31,209 ) 24,583 52,047 accrued expenses (33,495 ) 6,734 72,278 other long-term obligations (7,728 ) 14,731 (83 ) operating lease liabilities (44,527 ) (40,322 ) (36,089 ) net cash (used in) provided by operating activities (34,030 ) 250,844 264,273 cash flows from investing activities: additions to property, plant and equipment (115,205 ) (80,333 ) (43,055 ) businesses acquired, net of cash acquired — (820,453 ) — proceeds from sale of business — 2,400 — payments for investments (27,818 ) (500 ) (4,439 ) other investing activities 40 (473 ) (612 ) net cash used in investing activities (142,983 ) (899,359 ) (48,106 ) cash flows from financing activities: repayments on revolving line of credit — (858,000 ) (200,000 ) borrowings on revolving line of credit — 858,000 200,000 premium paid on extinguishment of debt — (6,124 ) — repayments of long-term debt (1,096 ) (430,401 ) (113 ) issuance of long-term debt — 900,000 — repurchase of common stock, including shares surrendered for tax withholding (62,287 ) (27,892 ) (59,129 ) payments of contingent consideration (216 ) (373 ) (227 ) distribution to noncontrolling interest (806 ) (606 ) (143 ) payment of financing costs (2,410 ) (14,129 ) (948 ) net cash (used in) provided by financing activities (66,815 ) 420,475 (60,560 ) effect of exchange rate changes on cash and equivalents (3,510 ) 1,165 89 net (decrease) increase in cash, cash equivalents and restricted cash (247,338 ) (226,875 ) 155,696 cash, cash equivalents and restricted cash at beginning of year 439,522 666,397 510,701 cash, cash equivalents and restricted cash at end of year $ 192,184 $ 439,522 $ 666,397 supplemental information: cash paid for interest $ 57,928 $ 42,762 $ 43,892 cash paid for income taxes – net of refunds 34,964 70,831 25,537 non-cash investing and financing activities: capital expenditures incurred but not paid 8,016 6,150 6,260 liability for contingent performance based payments (847 ) 610 227 shares of common stock repurchased but not settled 911 2,112 — operating lease right of use assets recognized at asc 842 transition — — 111,298 operating lease liabilities recognized at asc 842 transition — — 115,376 operating lease right of use assets recognized after asc 842 transition 70,794 90,799 39,605 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 adjusted ebitda, organic sales, 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. adjusted ebitda is defined by us as income before income tax, net other expense, net interest expense and depreciation and amortization and stock-based compensation expense (or operating income plus depreciation and amortization expense 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 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 made reflect the following: (1) during the first quarter of fiscal 2021, we issued $500 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 in interest expense. these amounts are included in interest expense in the 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 fiscal year ended (in thousands, except per share amounts) net income and diluted net income per share reconciliation september 24, 2022 september 25, 2021 gaap net income attributable to central garden & pet company $ 152,152 $ 151,746 incremental expenses from note redemption and issuance (1) 9,952 loss on sale of business (2) 2,611 tax effect of incremental redemption expenses and loss on sale (2,711 ) non-gaap net income attributable to central garden & pet company $ 152,152 $ 161,598 gaap diluted net income per share $ 2.80 $ 2.75 non-gaap diluted net income per share $ 2.80 $ 2.92 shares used in gaap and non-gaap diluted net income per share calculation 54,425 55,248 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 the fiscal year ended september 24, 2022 net sales (gaap) effect of acquisitions & divestitures on net sales net sales organic (in millions) reported net sales fy 2022 $ 3,338.6 $ 146.9 $ 3,191.7 reported net sales fy 2021 3,303.7 3.9 3,299.8 $ increase (decrease) $ 34.9 $ 143.0 $ (108.1 ) % increase (decrease) 1.1 % (3.3 )% pet gaap to non-gaap reconciliation for the fiscal year ended september 24, 2022 net sales (gaap) effect of acquisitions & divestitures on net sales net sales organic (in millions) reported net sales fy 2022 $ 1,878.1 $ — $ 1,878.1 reported net sales fy 2021 1,894.9 3.9 1,891.0 $ decrease $ (16.8 ) $ (3.9 ) $ (12.9 ) % decrease (0.9 )% (0.7 )% gaap to non-gaap reconciliation for the fiscal year ended september 24, 2022 net sales (gaap) effect of acquisitions & divestitures on net sales net sales organic (in millions) reported net sales fy 2022 $ 1,460.5 $ 146.9 $ 1,313.6 reported net sales fy 2021 1,408.8 — 1,408.8 $ increase (decrease) $ 51.7 $ 146.9 $ (95.2 ) % increase (decrease) 3.7 % (6.8 )% adjusted ebitda reconciliation the following is a reconciliation of net income to adjusted ebitda: gaap to non-gaap reconciliation fiscal year ended september 24, 2022 (in thousands) adjusted ebitda reconciliation garden pet corp total net income attributable to central garden & pet $ — $ — $ — $ 152,152 interest expense, net — — — 57,534 other expense — — — 3,596 income tax expense — — — 46,234 net income attributable to noncontrolling interest — — — 520 sum of items below operating income — — — 107,884 income (loss) from operations 153,956 208,924 (102,844 ) 260,036 depreciation & amortization 36,583 38,960 5,405 80,948 noncash stock-based compensation 25,817 25,817 adjusted ebitda $ 190,539 $ 247,884 $ (71,622 ) $ 366,801 gaap to non-gaap reconciliation fiscal year ended september 25, 2021 (in thousands) adjusted ebitda reconciliation garden pet corp total net income attributable to central garden & pet $ — $ — $ — $ 151,746 interest expense, net — — — 58,182 other expense — — — 1,506 income tax expense — — — 42,035 net income attributable to noncontrolling interest — — — 1,027 sum of items below operating income — — — 102,750 income (loss) from operations 138,755 208,201 (92,460 ) 254,496 depreciation & amortization 33,050 36,952 4,725 74,727 noncash stock-based compensation 23,127 23,127 adjusted ebitda $ 171,805 $ 245,153 $ (64,608 ) $ 352,350 gaap to non-gaap reconciliation quarter ended september 24, 2022 (in thousands) adjusted ebitda reconciliation garden pet corp total net loss attributable to central garden & pet $ — $ — $ — $ (1,990 ) interest expense, net — — — 14,089 other expense — — — 2,259 income tax benefit — — — (1,085 ) net loss attributable to noncontrolling interest — — — (375 ) sum of items below operating income — — — 14,888 income (loss) from operations 1,824 40,412 (29,338 ) 12,898 depreciation & amortization 10,127 10,081 2,407 22,615 noncash stock-based compensation 6,938 6,938 adjusted ebitda $ 11,951 $ 50,493 $ (19,993 ) $ 42,451 gaap to non-gaap reconciliation quarter ended september 25, 2021 (in thousands) adjusted ebitda reconciliation garden pet corp total net loss attributable to central garden & pet $ — $ — $ — $ (3,007 ) interest expense, net — — — 14,176 other expense — — — 1,876 income tax benefit — — — (3,225 ) net loss attributable to noncontrolling interest — — — (215 ) sum of items below operating income — — — 12,612 income (loss) from operations 1,105 31,597 (23,097 ) 9,605 depreciation & amortization 10,800 10,025 1,143 21,968 noncash stock-based compensation 6,087 6,087 adjusted ebitda $ 11,905 $ 41,622 $ (15,867 ) $ 37,660
