Central garden & pet announces q3 2020 results
Walnut creek, calif.--(business wire)--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 record financial results for its fiscal 2020 third quarter ended june 27, 2020. "thanks to the hard work and dedication of our employees and our relentless focus on meeting the needs of our customers and consumers, we are proud to report that central garden & pet delivered the strongest quarter in the company’s history. i am very pleased with how we continue to navigate the challenging external landscape, while prioritizing the health and safety of our people and executing against our evolving strategy and goals" said tim cofer, ceo of central garden & pet. cofer continued, “we will be holding a virtual investor day in conjunction with the announcement of our year end and fourth quarter results. attendees can expect to hear more about our vision2025 strategy, engage with our top leaders and learn about how central garden & pet is poised for growth in the future.” fiscal 2020 third quarter financial results total net sales increased 18.0% to $833.5 million compared to $706.6 million in the third quarter a year ago, principally driven by organic strength in both the garden and pet segments as well as the inorganic contribution of the company's c&s acquisition. total company organic sales increased 16.5% for the quarter. third quarter gross margin increased 40 basis points to 31.4%, due to a favorable mix of product sales and pricing. operating income increased to $104.6 million from $68.9 million in the third quarter a year ago. operating margin increased 290 basis points to 12.6% compared to 9.7%, due to gross margin gains, improved overhead leverage, as well as pandemic-related reductions in promotional activity. other expense was $3.5 million compared to other income of $0.2 million in the third quarter a year ago. the difference was primarily due to a non-cash impairment charge of $3.6 million related to the company's investment in two joint ventures impacted by the covid-19 global pandemic. the company's net income was $68.8 million for the quarter compared to $46.2 million in the third quarter a year ago. diluted earnings per share for the quarter was $1.27 compared to $0.80 in the prior year quarter. ebitda for the quarter was $117.9 million versus $82.0 million in the third quarter a year ago. garden segment fiscal 2020 third quarter results third quarter net sales for the garden segment rose 17.9% to $420.2 million, driven by broad-based strength across the portfolio, including gains in garden distribution, controls and fertilizers, wild bird feed, and grass seed. organic sales also rose 17.9% over the prior year period. the garden segment's operating income increased to $77.8 million in the quarter from $53.1 million in the third quarter of fiscal 2019, and operating margin rose 360 basis points to 18.5%. garden ebitda of $81.3 million was up from $56.6 million in the third quarter of fiscal 2019, primarily due to stronger sales volume coupled with reduced administrative spending. pet segment fiscal 2020 third quarter results third quarter net sales for the pet segment rose 18.0% to $413.3 million compared to the same period a year ago, aided by the company's c&s acquisition. organic pet sales increased by 15.0%, with notable strength in pet distribution, dog treats and chews, animal health, and small animal food and supplies. these gains were partially offset by a decline in live fish sales due to a major retailer exiting the category during fiscal 2019 and covid-19 related live animal shipment and supply limitations. the pet segment’s operating income increased to $50.8 million, up 44.8% compared to the third quarter of fiscal 2019, and operating margin rose 230 basis points to 12.3%. pet's organic operating margin improved 220 basis points to 12.2%. pet ebitda of $59.1 million increased from $43.1 million in the third quarter a year ago, primarily driven by volume strength, favorable mix, and overhead efficiencies. fiscal year-to-date 2020 financial results year-to-date net sales of $2,019.5 million increased 9.6% compared to $1,842.3 million a year ago. organic sales increased 6.4%, driven by strength in both segments with the most significant contributions coming from distribution, dog treats and chews, wild bird feed, and controls and fertilizers. these gains were partially offset by lower year-to-date sales of pet beds, live fish, and grass seed as well as the impact of our exit of the fashion decor pottery product line. gross margin decreased 50 basis points to 29.7% compared to 30.2% in the first nine months of fiscal 2019, principally due to unfavorable mix of product sales and the impact of lower volumes in certain businesses. for the nine months ended june 27, 2020, the company reported operating income of $172.8 million, an increase of 22.4% from $141.2 million in the first nine months of 2019. operating margin of 8.6% increased 90 basis points from 7.7% driven by efficiencies in selling, general and administrative expense partially offset by gross margin pressure. net income increased 18.5% to $107.1 million from $90.3 million a year ago and diluted earnings per share of $1.95 increased 25.0% from $1.56 per share a year ago. year-to-date ebitda was $212.4 million versus $178.5 million a year ago. non-gaap results for fiscal 2020 exclude a non-cash impairment of $3.6 million for two private company investments. the non-gaap results for the 2019 fiscal year-to-date period exclude the non-cash impairment of $2.5 million of intangible value associated with the company's live fish business, and a $3.2 million gain from the write-up of the company's arden acquisition, both of which occurred in the second fiscal quarter of the prior year. additional information the company's cash balance at the end of the quarter increased to $495.3 million compared to $445.6 million in the third quarter a year ago. cash provided by operations during the quarter was $181.6 million compared to $172.1 million a year ago due primarily to increased ebitda partially offset by changes in working capital largely related to strong demand trends in the current year quarter (receivables, payables and liabilities were up while inventory was down). total debt at june 27, 2020 was $694.0 million compared to $693.1 million at june 29, 2019. net interest expense of $11.5 million for the third quarter increased $3.0 from $8.5 million in the prior-year period, mainly due to lower interest income resulting from lower market interest rates. the company's leverage ratio at the end of the third quarter, as defined in the company's credit agreement, was 2.4x compared to 3.0x at the end of the prior year quarter. the company’s effective tax rate for the third quarter of 2020 was 22.6%, compared with 23.5% for the third quarter of 2019. during the third quarter, the company repurchased approximately 194,000 shares, or $5.1 million, of its common stock. as of the end of the quarter, the company had $100 million available under the board’s previously authorized share repurchase program and an additional 600,000 shares available under the board's equity dilution authorization. 2020 guidance and virtual investor day given performance year-to-date and planned incremental investment levels in the fourth quarter, the company currently projects full year 2020 eps to be at or above $1.90, representing strong growth over prior year eps of $1.61. as a reminder, the company's fiscal fourth quarter is generally a smaller earnings quarter and this, coupled with heightened investment spending, lead the company to anticipate a slight loss in the final quarter of fiscal 2020. the company will unveil its new, long-term strategy, named vision2025, at a virtual investor day that will be coordinated with fiscal 2020 earnings release in late november 2020. this virtual event will include an overview of the new strategy, commentary from key leaders and a live q&a session. the exact date and registration details will be communicated at a later date. 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 third 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 #13706151. a replay of the call will be available for three days by dialing (201) 612-7415 and entering confirmation #13706151. 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 over 6,000 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 future financial results, earnings guidance for fiscal 2020 and expectations for investment spending in the fourth fiscal quarter, 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: the impact of the covid-19 pandemic on our business, including but not limited to, the impact on our workforce, operations, supply chain, demand for our products and services, and our financial results and condition; our ability to successfully manage the challenges associated with the covid-19 pandemic; 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 inability 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 and the u.s. tax cuts and jobs act on the company's tax rate; dependence on a small number of customers for a significant portion of our business; the impacts of tariffs or a potential 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. the company has not filed its form 10-q for the fiscal quarter ended june 27, 2020, so all financial results are preliminary and subject to change. (tables follow) central garden & pet company condensed consolidated balance sheets (in thousands, except share and per share amounts) (unaudited) assets june 27, 2020 june 29, 2019 september 28, 2019 current assets: cash and cash equivalents $ 495,339 $ 445,632 $ 497,749 restricted cash 13,536 10,924 12,952 short term investments — 119 — accounts receivable (less allowance for doubtful accounts of $24,034, $15,875 and $21,128) 503,288 395,581 300,135 inventories, net 425,919 464,917 466,197 prepaid expenses and other 29,211 32,453 30,160 total current assets 1,467,293 1,349,626 1,307,193 plant, property and equipment, net 239,240 238,948 245,405 goodwill 289,854 281,177 286,077 other intangible assets, net 138,305 139,406 146,137 operating lease right-of-use assets 99,111 — — other assets 30,166 55,761 40,208 total $ 2,263,969 $ 2,064,918 $ 2,025,020 liabilities and equity current liabilities: accounts payable $ 178,728 $ 137,668 $ 149,246 accrued expenses 174,776 141,029 129,166 current lease liabilities 31,648 — — current portion of long-term debt 98 116 113 total current liabilities 385,250 278,813 278,525 long-term debt 693,915 692,948 693,037 long-term lease liabilities 71,458 — — deferred income taxes and other long-term obligations 52,994 58,834 57,281 equity: common stock, $0.01 par value: 11,300,810, 12,145,135 and 11,543,969 shares outstanding at june 27, 2020, june 29, 2019 and september 28, 2019 113 121 115 class a common stock, $0.01 par value: 41,747,928, 44,081,467 and 42,968,493 shares outstanding at june 27, 2020, june 29, 2019 and september 28, 2019 417 440 430 class b stock, $0.01 par value: 1,647,922 shares outstanding at june 27, 2020 and 1,652,262 at june 29, 2019 and september 28, 2019 16 16 16 additional paid-in capital 563,371 589,849 575,380 retained earnings 497,192 444,645 421,742 accumulated other comprehensive loss (1,684 ) (1,426 ) (1,676 ) total central garden & pet company shareholders’ equity 1,059,425 1,033,645 996,007 noncontrolling interest 927 678 170 total equity 1,060,352 1,034,323 996,177 total $ 2,263,969 $ 2,064,918 $ 2,025,020 central garden & pet company condensed consolidated statements of operations (in thousands, except per share amounts) (unaudited) three months ended nine months ended june 27, 2020 june 29, 2019 june 27, 2020 june 29, 2019 net sales $ 833,483 $ 706,575 $ 2,019,540 $ 1,842,266 cost of goods sold and occupancy 571,423 487,291 1,419,097 1,286,749 gross profit 262,060 219,284 600,443 555,517 selling, general and administrative expenses 157,420 150,413 427,633 414,312 operating income 104,640 68,871 172,810 141,205 interest expense (11,829 ) (10,676 ) (33,223 ) (31,930 ) interest income 358 2,178 3,779 6,970 other income (expense) (3,541 ) 180 (4,215 ) 488 income before income taxes and noncontrolling interest 89,628 60,553 139,151 116,733 income tax expense 20,291 14,212 31,211 26,031 income including noncontrolling interest 69,337 46,341 107,940 90,702 net income attributable to noncontrolling interest 537 189 853 356 net income attributable to central garden & pet company $ 68,800 $ 46,152 $ 107,087 $ 90,346 net income per share attributable to central garden & pet company: basic $ 1.29 $ 0.81 $ 1.97 $ 1.58 diluted $ 1.27 $ 0.80 $ 1.95 $ 1.56 weighted average shares used in the computation of net income per share: basic 53,441 57,319 54,261 57,021 diluted 54,168 57,985 54,984 57,937 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 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. ebitda is defined by us as income before income tax, net other expense, net interest expense and depreciation and amortization (or operating income plus depreciation and amortization expense). we present ebitda because we believe that 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. ebitda is used by our management to perform such evaluation. 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 ebitda is frequently used by investors, securities analysts and other interested parties in their evaluation of companies, many of which present ebitda when reporting their results. other companies may calculate 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: gains from the fair value remeasurement of previously held investment interests: we have excluded the impact of the fair value remeasurement of a previously held investment interest as it represents an infrequent transaction that occurs in limited circumstances that impacts the comparability between operating periods. we believe the adjustment of these gains supplements the gaap information with a measure that may be used to assess the sustainability of our operating performance. asset impairment charges: we have excluded the impact of asset impairments on intangible assets as such non-cash amounts are inconsistent in amount and frequency. we believe that the adjustment of these charges supplements the gaap information with a measure that can 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 second quarter of fiscal 2019, we recorded a preliminary, pending the finalization of the related purchase accounting, non-cash $3.2 million gain in our garden segment from the fair value remeasurement of our previously held 45% interest in arden upon our acquisition of the remaining 55% interest. the gain was recorded as part of selling, general and administrative costs in the condensed consolidated statements of operations. (2) during the second quarter of fiscal 2019, we recognized a non-cash impairment charge in our pet segment of $2.5 million related to the impairment of intangible assets caused by a retail customer exiting the live fish business. the adjustment was recorded as part of selling, general and administrative costs. (3) during the third quarter of fiscal 2020, we recorded a non-cash impairment charge for two private company investments. the impairment was recorded as part of other income (expense). operating income reconciliation gaap to non-gaap reconciliation (in thousands) for the nine months ended consolidated june 27, 2020 june 29, 2019 gaap operating income $ 172,810 $ 141,205 previously held investment interest fair value remeasurement (1) — (3,215 ) intangible asset impairment (2) — 2,540 non-gaap operating income $ 172,810 $ 140,530 pet segment operating income reconciliation gaap to non-gaap reconciliation (in thousands) for the nine months ended pet june 27, 2020 june 29, 2019 gaap operating income $ 114,599 $ 91,805 intangible asset impairment (2) — 2,540 non-gaap operating income $ 114,599 $ 94,345 garden segment operating income reconciliation gaap to non-gaap reconciliation (in thousands) for the nine months ended garden june 27, 2020 june 29, 2019 gaap operating income $ 122,439 $ 101,821 previously held investment interest fair value remeasurement (1) — (3,215 ) non-gaap operating income $ 122,439 $ 98,606 gaap to non-gaap reconciliation (in thousands, except per share amounts) for the three months ended gaap to non-gaap reconciliation (in thousands, except per share amounts) for the nine months ended net income and diluted net income per share reconciliation june 27, 2020 june 29, 2019 june 27, 2020 june 29, 2019 gaap net income attributable to central garden & pet $ 68,800 $ 46,152 $ 107,087 $ 90,346 previously held investment interest fair value remeasurement (1) — — (1) — (3,215 ) intangible asset impairment (2) — — (2) — 2,540 investment impairments (3) $ 3,566 $ — (3) 3,566 — tax effect of remeasurement and impairment $ (807 ) $ — (800 ) 151 non-gaap net income attributable to central garden & pet $ 71,559 $ 46,152 $ 109,853 $ 89,822 gaap diluted net income per share $ 1.27 $ 0.80 $ 1.95 $ 1.56 non-gaap diluted net income per share $ 1.32 $ 0.80 $ 2.00 $ 1.55 shares used in gaap and non-gaap diluted net earnings per share calculation 54,168 57,985 54,984 57,937 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. gaap to non-gaap reconciliation (in millions) for the three months ended june 27, 2020 consolidated pet segment garden segment percent change percent change percent change reported net sales - q3 fy20 (gaap) $ 833.5 $ 413.3 $ 420.2 reported net sales - q3 fy19 (gaap) 706.6 350.2 356.4 increase in net sales 126.9 18.0 % 63.1 18.0 % 63.8 17.9 % effect of acquisition and divestitures on increase in net sales 10.4 10.4 — increase in organic net sales - q3 fy20 $ 116.5 16.5 % $ 52.7 15.0 % $ 63.8 17.9 % gaap to non-gaap reconciliation (in millions) for the nine months ended june 27, 2020 consolidated pet segment garden segment percent change percent change percent change reported net sales - q3 fy20 ytd (gaap) $ 2,019.5 $ 1128.1 $ 891.4 reported net sales - q3 fy19 ytd (gaap) 1,842.3 1028.8 813.5 increase in net sales 177.2 9.6 % 99.3 9.7 % 77.9 9.6 % effect of acquisition and divestitures on increase in net sales 58.4 29.6 28.8 increase in organic net sales - q3 fy20 ytd $ 118.8 6.4 % $ 69.7 6.8 % $ 49.1 6.0 % ebitda reconciliation gaap to non-gaap reconciliation (in thousands, except per share amounts) for the three months ended june 27, 2020 garden pet corp total net income attributable to central garden & pet — — — $ 68,800 interest expense, net — — — 11,471 other expense — — — 3,541 income tax expense — — — 20,291 net income attributable to noncontrolling interest — — — 537 sum of items below operating income — — — 35,840 income (loss) from operations $ 77,787 $ 50,760 $ (23,907) $ 104,640 depreciation & amortization 3,538 8,374 1,371 13,283 ebitda $ 81,325 $ 59,134 $ (22,536) $ 117,923 gaap to non-gaap reconciliation (in thousands, except per share amounts) for the three months ended june 29, 2019 garden pet corp total net income attributable to central garden & pet — — — $ 46,152 interest expense, net — — — 8,498 other income — — — (180 ) income tax expense — — — 14,212 net income attributable to noncontrolling interest — — — 189 sum of items below operating income — — — 22,719 income (loss) from operations $ 53,103 $ 35,066 $ (19,298 ) $ 68,871 depreciation & amortization 3,497 8,083 1,502 13,082 ebitda $ 56,600 $ 43,149 $ (17,796 ) $ 81,953 ebitda reconciliation gaap to non-gaap reconciliation (in thousands, except per share amounts) for the nine months ended june 27, 2020 garden pet corp total net income attributable to central garden & pet — — — $ 107,087 interest expense, net — — — 29,444 other expense — — — 4,215 income tax expense — — — 31,211 net income attributable to noncontrolling interest — — — 853 sum of items below operating income — — — 65,723 income (loss) from operations $ 122,439 $ 114,599 $ (64,228 ) $ 172,810 depreciation & amortization 10,157 25,305 4,136 39,598 ebitda $ 132,596 $ 139,904 $ (60,092 ) $ 212,408 ebitda reconciliation gaap to non-gaap reconciliation (in thousands, except per share amounts) for the nine months ended june 29, 2019 garden pet corp total net income attributable to central garden & pet — — — $ 90,346 interest expense, net — — — 24,960 other income — — — (488 ) income tax expense — — — 26,031 net income attributable to noncontrolling interest — — — 356 sum of items below operating income — — — 50,859 income (loss) from operations $ 101,821 $ 91,805 $ (52,421 ) $ 141,205 depreciation & amortization 8,635 24,178 4,498 37,311 ebitda $ 110,456 $ 115,983 $ (47,923 ) $ 178,516
