Central garden & pet company announces fiscal first quarter revenues and profits
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 financial results for its fiscal 2020 first quarter ended december 28, 2019. “our first quarter performance was in line with our expectations, reflecting several headwinds we anticipated and discussed on our last earnings call,” said tim cofer, ceo of central garden & pet. “importantly, the first quarter is historically the smallest of the year, and we continue to be confident in our full year guidance.” cofer continued, “as we move through the balance of the year, we will invest in numerous growth initiatives. we have identified several opportunities that we believe will yield attractive returns over time. while these investments may negatively impact our results in the short term, we expect they will help pave the way for sustainable profitable growth in the years ahead. we have also been evaluating and fortifying our long-term strategy and look forward to sharing details with investors this summer.” fiscal 2020 first quarter financial results total net sales increased 4.5% to $482.8 million compared to $462.0 million in the first quarter a year ago, driven in large part by recent acquisitions. total company organic sales were relatively flat, negatively impacted by the timing of customer purchases compared to the prior year's first quarter, the company's exit from the fashion decor pottery product line, a major retailer's exit from the live fish category and the impact of a fire at its pet bedding business. first quarter gross margin declined 100 basis points to 27.2%, due to an unfavorable mix of product sales and the impact of lower volumes in certain businesses. operating income decreased to $2.1 million from $10.2 million in the first quarter a year ago. operating margin decreased 180 basis points to 0.4% compared to 2.2%, due in part to the lower gross margin, higher corporate expenses and increased third-party expenses. the company's net loss was $4.4 million for the quarter compared to net income of $1.8 million in the first quarter a year ago. the loss per share for the quarter was $0.08 compared to income of $0.03 in the first quarter a year ago. ebitda for the quarter was $15.2 million versus $22.5 million in the first quarter a year ago. garden segment fiscal 2020 first quarter results first quarter net sales for the garden segment rose 5.9% to $128.8 million, driven by the arden acquisition. organic sales decreased 4.4% over the prior year period, negatively impacted by the company's exit from the fashion decor pottery product line. lower revenues in the company's grass seed and controls businesses were also factors in the decline. the garden segment's operating loss increased to $8.3 million in the quarter from $4.6 million in the first quarter of fiscal 2019, and operating margin declined 270 basis points to 6.5%. both the operating income and margin decreases were driven by the pottery category, and the inclusion of the arden business, which was not in the garden segment's results in the first quarter a year ago. these businesses accounted for the majority of the operating margin decline during the quarter. garden ebitda of $(5.1) million was down from $(1.8) million in the first quarter a year ago. pet segment fiscal 2020 first quarter results first quarter net sales for the pet segment increased 4.0% to $354.0 million compared to the same period a year ago, aided by the company's c&s acquisition. organic pet sales also rose, by 1.3%, with notable strength in dog treats and chews, aquatics and wild bird feed. these gains more than offset the negative impact of lower bedding sales, in part due to a fire at one of the company's facilities during the quarter, as well as a decline in live fish sales due to a major retailer exiting the category during fiscal 2019. the pet segment’s operating income increased 1.6% compared to the first quarter a year ago to $30.2 million, aided by the c&s acquisition. pet operating margin decreased to 8.5%, a decline of 20 basis points, due to the lingering effects of supply constraints in the aquatics business experienced in the fourth quarter of fiscal 2019. pet ebitda of $38.7 million increased from $37.8 million in the first quarter a year ago. additional information the company's cash balance at the end of the quarter decreased to $445.8 compared to $478.7 million in the first quarter a year ago. cash used by operations during the quarter was $18.0 million compared to cash generated of $6.8 million a year ago due primarily to higher inventory levels. total debt at december 28, 2019 was $693.4 million compared to $692.4 million at december 29, 2018. net interest expense of $8.6 million for the first quarter increased $0.5 million from $8.1 million in the prior-year period, mainly due to lower interest earned on the company's cash balances during the quarter. the company's leverage ratio at the end of the first quarter, as defined in the company's credit agreement, was 3.0x compared to 3.2x at the end of the prior year quarter. the company’s effective tax rate for the first quarter of 2020 was 27.6%, compared with 14.3% for the first quarter of 2019. during the quarter, the company repurchased approximately 829 thousand shares, or $22.1 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 under the board's equity dilution authorization. 2020 guidance the company continues to expect fiscal 2020 earnings per diluted share to be at, or modestly above, the $1.61 earned in the prior year. the guidance is inclusive of significant incremental investment intended to support sustainable organic growth in the years ahead. 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 first 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 #13698383. a replay of the call will be available for three days by dialing (201) 612-7415 and entering confirmation #13698383. 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 5,900 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 new product offerings, 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 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 december 28, 2019, so all financial results are preliminary and subject to change. central garden & pet company condensed consolidated balance sheets (in thousands, except share and per share amounts) (unaudited) assets december 28, 2019 december 29, 2018 september 28, 2019 current assets: cash and cash equivalents $ 445,813 $ 478,737 $ 497,749 restricted cash 12,990 10,921 12,952 short term investments — — — accounts receivable (less allowance for doubtful accounts of $21,257, $18,030 and $21,127) 268,229 250,223 300,135 inventories, net 556,479 493,745 466,197 prepaid expenses and other 37,569 38,398 30,160 total current assets 1,321,080 1,272,024 1,307,193 plant, property and equipment, net 241,795 211,560 245,405 goodwill 289,854 281,177 286,077 other intangible assets, net 145,153 148,782 146,137 operating lease right-of-use assets 105,277 — — other assets 31,998 37,303 40,208 total $ 2,135,157 $ 1,950,846 $ 2,025,020 liabilities and equity current liabilities: accounts payable $ 184,659 $ 141,186 $ 149,246 accrued expenses 124,774 108,245 129,166 current lease liabilities 34,320 — — current portion of long-term debt 107 117 113 total current liabilities 343,860 249,548 278,525 long-term debt 693,329 692,332 693,037 long-term lease liabilities 75,283 — — deferred income taxes and other long-term obligations 49,513 52,482 57,281 equity: common stock, $0.01 par value: 11,484,297, 12,145,135 and 11,543,969 shares outstanding at december 28, 2019, december 29, 2018 and september 28, 2019 115 121 115 class a common stock, $0.01 par value: 42,289,882, 44,059,803 and 42,968,493 shares outstanding at december 28, 2019, december 29, 2018 and september 28, 2019 423 441 430 class b stock, $0.01 par value: 1,647,922 shares outstanding at december 28, 2019 and 1,652,262 at december 29, 2018 and september 28, 2019 16 16 16 additional paid-in capital 570,117 592,451 575,380 retained earnings 403,693 364,726 421,742 accumulated other comprehensive loss (1,240 ) (1,492 ) (1,676 ) total central garden & pet company shareholders’ equity 973,124 956,263 996,007 noncontrolling interest 48 221 170 total equity 973,172 956,484 996,177 total $ 2,135,157 $ 1,950,846 $ 2,025,020 central garden & pet company condensed consolidated statements of operations (in thousands, except per share amounts) (unaudited) three months ended december 28, 2019 december 29, 2018 net sales $ 482,828 $ 461,990 cost of goods sold and occupancy 351,562 331,808 gross profit 131,266 130,182 selling, general and administrative expenses 129,201 120,001 operating income 2,065 10,181 interest expense (10,641 ) (10,614 ) interest income 2,004 2,537 other income (expense) 305 (192 ) income (loss) before income taxes and noncontrolling interest (6,267 ) 1,912 income tax expense (benefit) (1,728 ) 273 income (loss) including noncontrolling interest (4,539 ) 1,639 net loss attributable to noncontrolling interest (122 ) (164 ) net income (loss) attributable to central garden & pet company $ (4,417 ) $ 1,803 net income (loss) per share attributable to central garden & pet company: basic $ (0.08 ) $ 0.03 diluted $ (0.08 ) $ 0.03 weighted average shares used in the computation of net income (loss) per share: basic 54,755 56,903 diluted 54,755 58,001 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. 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 december 28, 2019 consolidated pet segment garden segment percent change percent change percent change reported net sales - q1 fy20 (gaap) $ 482.8 $ 354.0 $ 128.8 reported net sales - q1 fy19 (gaap) 462.0 340.4 121.6 increase in net sales 20.8 4.5 % 13.6 4.0 % 7.2 5.9 % effect of acquisition and divestitures on increase in net sales 21.7 9.1 12.6 increase in organic net sales - q1 2020 $ (0.9 ) (0.2 )% $ 4.5 1.3 % $ (5.4 ) (4.4 )% ebitda reconciliation gaap to non-gaap reconciliation (in thousands, except per share amounts) for the three months ended december 28, 2019 garden pet corp total net income attributable to central garden & pet — — — $ (4,417 ) interest expense, net — — — 8,637 other income — — — (305 ) income tax expense — — — (1,728 ) net income attributable to noncontrolling interest — — — (122 ) sum of items below operating income — — — 6,482 income (loss) from operations $ (8,368 ) $ 30,222 $ (19,789 ) $ 2,065 depreciation & amortization 3,295 8,490 1,355 13,140 ebitda $ (5,073 ) $ 38,712 $ (18,434 ) $ 15,205 gaap to non-gaap reconciliation (in thousands, except per share amounts) for the three months ended december 29, 2018 garden pet corp total net income attributable to central garden & pet — — — $ 1,803 interest expense, net — — — 8,077 other income — — — 192 income tax expense — — — 273 net income attributable to noncontrolling interest — — — (164 ) sum of items below operating income — — — 8,378 income (loss) from operations $ (4,637 ) $ 29,755 $ (14,937 ) $ 10,181 depreciation & amortization 2,826 8,056 1,470 12,352 ebitda $ (1,811 ) $ 37,811 $ (13,467 ) $ 22,533
