Central garden & pet announces q3 fiscal 2022 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 financial results for its fiscal 2022 third quarter ended june 25, 2022. “in the face of a challenging environment, central delivered third quarter eps two cents above the prior year quarter,” said tim cofer, ceo of central garden & pet. “despite softness in the garden segment due to unfavorable weather, evolving consumer behavior, reduced foot traffic and changing retailer inventory expectations, our team continued to execute well during the quarter. we remain confident in our central to home strategy and will make purposeful investments to capture opportunities in the pet and garden industries that will drive profitable long-term growth.” third quarter fiscal 2022 financial results net sales decreased 2% to $1,015 million compared to $1,037 million a year ago primarily due to softness in the garden segment. organic net sales decreased 5% compared to the prior year quarter. gross margin of 30.3% was 60 basis points below prior year, as pricing and productivity improvements were more than offset by cost inflation in commodities, freight and labor, and unfavorable product mix. operating income of $114 million grew 1% compared to $113 million in the prior year. operating margin increased 30 basis points to 11.2% despite continued inflation and heightened investment spending. net interest expense was $14 million compared to $13 million a year ago. the company's net income was $75 million, a decrease of 1% from $76 million a year ago. diluted gaap earnings per share for the quarter increased $0.02 to $1.39 from $1.37 in the prior year quarter. adjusted ebitda of $141 million was in line with $141 million a year ago. the company’s effective tax rate was 23.7% compared to 22.5% in the prior year quarter. garden segment third quarter fiscal 2022 results net sales for the garden segment decreased 4% to $511 million from $529 million a year ago as contributions from the company's fourth quarter 2021 d&d acquisition were more than offset by a decline in organic sales of 8%. unfavorable weather impacted the majority of the company's garden business other than wild bird. on a two-year compound annualized growth rate basis, organic garden segment sales increased 14% in the third quarter. garden segment operating income increased 13% to $76 million driven by the strong performance of recent acquisitions. operating margin grew 210 basis points to 14.8%, mainly driven by contributions from recent acquisitions and improved pricing, partially offset by inflationary pressures and heightened investment spending. garden segment adjusted ebitda increased 9% to $85 million from $78 million in the prior year quarter. pet segment third quarter fiscal 2022 results net sales for the pet segment of $505 million were largely in line with prior year sales of $508 million, with notable contributions from the company's dog & cat treats and toys and outdoor cushion businesses, offset by reduced sales of pet beds primarily due to sku rationalization. pet segment operating income decreased 12% to $63 million, and operating margin declined 160 basis points to 12.4%. pet segment adjusted ebitda decreased 9% to $72 million from $80 million a year ago, largely driven by inflationary headwinds and heightened investment spending, partially offset by improved pricing. additional information the company's cash balance at the end of the quarter was $196 million compared to $517 million a year ago. cash provided by operations during the quarter was $190 million compared to $299 million a year ago. the decrease in cash provided by operations was primarily due to changes in working capital driven in part by management's decision to maintain adequate inventory levels to combat a challenged supply chain as well as higher cost of inventory in this inflationary environment. total debt was $1.2 billion as of june 25, 2022 and june 26, 2021. the company's leverage ratio(1) was 2.9x at the end of the third quarter and at the end of the prior year quarter. the company repurchased approximately 542 thousand shares or $22.1 million of its stock during the quarter. fiscal 2022 guidance as indicated in our press release dated june 22, 2022, the company expects fiscal 2022 gaap eps to be at or above prior year. the outlook takes into account increasing costs for commodities and freight, exacerbated by the current geopolitical environment, labor and a return to more normalized consumer demand patterns following extraordinary demand spanning two fiscal years. this guidance further includes anticipated pricing actions across the company's portfolio as well as investments in capacity expansion, brand building, consumer insights, innovation and ecommerce to drive sustainable growth. this outlook does not include the impact of acquisitions that may close during fiscal 2022. conference call the company's senior management will host a conference call today at 4:30 p.m. eastern time | 1:30 p.m. pacific time to discuss the company's third quarter fiscal 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). (1) calculated using adjusted ebitda as per the company’s credit agreement, filed with the sec on december 21, 2021. about central garden & pet central garden & pet (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 2021 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 pennington, nylabone, kaytee, amdro and aqueon, 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. for additional information about central, please visit www.central.com. 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 expectations for increased levels of investment to drive capacity expansion, brand building and ecommerce, increases in labor and freight cost as well as key commodities, the accretive expectations for recent acquisitions, a return to more normalized consumer demand patterns, in addition to resuming more normal levels of travel, and their impact on future growth, and earnings guidance for fiscal 2022, 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: rising 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. the company has not filed its form 10-q for the fiscal quarter ended june 25, 2022, 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 june 25, 2022 june 26, 2021 september 25, 2021 current assets: cash and cash equivalents $ 195,791 $ 517,052 $ 426,422 restricted cash 12,676 11,679 13,100 accounts receivable (less allowances of $28,106, $30,506 and $29,219) 505,896 494,432 385,384 inventories, net 882,522 626,635 685,237 prepaid expenses and other 36,359 32,955 33,514 total current assets 1,633,244 1,682,753 1,543,657 plant, property and equipment, net 390,326 306,229 328,571 goodwill 511,973 289,955 369,391 other intangible assets, net 490,959 125,069 134,431 operating lease right-of-use assets 193,627 149,628 165,602 other assets 125,797 569,870 575,028 total $ 3,345,926 $ 3,123,504 $ 3,116,680 liabilities and equity current liabilities: accounts payable $ 241,093 $ 237,050 $ 245,542 accrued expenses 228,882 234,314 234,965 current lease liabilities 45,860 39,557 40,731 current portion of long-term debt 352 86 1,081 total current liabilities 516,187 511,007 522,319 long-term debt 1,185,842 1,183,591 1,184,683 long-term lease liabilities 155,002 115,178 130,125 deferred income taxes and other long-term obligations 136,490 71,783 56,012 equity: common stock, $0.01 par value: 11,322,012, 11,336,358 and 11,335,658 shares outstanding at june 25, 2022, june 26, 2021 and september 25, 2021 113 113 113 class a common stock, $0.01 par value: 41,745,551, 42,726,118 and 42,282,922 shares outstanding at june 25, 2022, june 26, 2021 and september 25, 2021 417 427 423 class b stock, $0.01 par value: 1,612,374, 1,612,374 and 1,612,374 at june 25, 2022, june 26, 2021 and september 25, 2021 16 16 16 additional paid-in capital 581,060 576,104 576,446 retained earnings 771,341 665,534 646,082 accumulated other comprehensive loss (1,924 ) (1,831 ) (831 ) total central garden & pet company shareholders’ equity 1,351,023 1,240,363 1,222,249 noncontrolling interest 1,382 1,582 1,292 total equity 1,352,405 1,241,945 1,223,541 total $ 3,345,926 $ 3,123,504 $ 3,116,680 condensed consolidated statements of operations (in thousands, except per share amounts, unaudited) three months ended nine months ended june 25, 2022 june 26, 2021 june 25, 2022 june 26, 2021 net sales $ 1,015,378 $ 1,037,075 $ 2,631,146 $ 2,564,557 cost of goods sold 707,752 716,765 1,838,532 1,806,427 gross profit 307,626 320,310 792,614 758,130 selling, general and administrative expenses 193,547 207,069 545,476 513,239 operating income 114,079 113,241 247,138 244,891 interest expense (14,422 ) (13,131 ) (43,633 ) (44,328 ) interest income 87 45 188 322 other (expense) income (759 ) (1,086 ) (1,337 ) 370 income before income taxes and noncontrolling interest 98,985 99,069 202,356 201,255 income tax expense 23,430 22,315 47,319 45,260 income including noncontrolling interest 75,555 76,754 155,037 155,995 net income attributable to noncontrolling interest 135 568 895 1,242 net income attributable to central garden & pet company $ 75,420 $ 76,186 $ 154,142 $ 154,753 net income per share attributable to central garden & pet company: basic $ 1.42 $ 1.41 $ 2.89 $ 2.87 diluted $ 1.39 $ 1.37 $ 2.82 $ 2.80 weighted average shares used in the computation of net income per share: basic 53,237 53,976 53,392 53,882 diluted 54,329 55,658 54,658 55,236 central garden & pet company condensed consolidated statements of cash flows (in thousands, unaudited) nine months ended june 25, 2022 june 26, 2021 cash flows from operating activities: net income $ 155,037 $ 155,995 adjustments to reconcile net income to net cash (used) provided by operating activities: depreciation and amortization 58,333 52,759 amortization of deferred financing costs 1,982 1,577 non-cash lease expense 36,042 29,914 stock-based compensation 18,879 17,040 debt extinguishment costs 169 8,577 loss on sale of business — 2,611 deferred income taxes 8,199 6,992 (gain) loss on sale of property and equipment (53 ) 62 other 7 2,083 change in assets and liabilities (excluding businesses acquired): accounts receivable (121,392 ) (49,099 ) inventories (198,360 ) (85,382 ) prepaid expenses and other assets 1,383 33,571 accounts payable (1,679 ) 21,862 accrued expenses (7,072 ) 10,102 other long-term obligations 236 (640 ) operating lease liabilities (34,108 ) (29,402 ) net cash (used) provided by operating activities (82,397 ) 178,622 cash flows from investing activities: additions to plant, property and equipment (98,553 ) (57,047 ) payments to acquire companies, net of cash acquired — (733,614 ) proceeds from the sale of business — 2,400 investments (2,318 ) — other investing activities 40 (633 ) net cash used in investing activities (100,831 ) (788,894 ) cash flows from financing activities: repayments of long-term debt (992 ) (400,072 ) proceeds from issuance of long-term debt — 900,000 borrowings under revolving line of credit — 858,000 repayments under revolving line of credit — (858,000 ) premium paid on extinguishment of debt — (6,124 ) repurchase of common stock, including shares surrendered for tax withholding (41,834 ) (7,811 ) payment of contingent consideration liability (196 ) (254 ) distribution to noncontrolling interest (806 ) (531 ) payment of financing costs (2,410 ) (14,109 ) net cash (used) provided by financing activities (46,238 ) 471,099 effect of exchange rate changes on cash, cash equivalents and restricted cash (1,589 ) 1,507 net decrease in cash, cash equivalents and restricted cash (231,055 ) (137,666 ) cash, cash equivalents and restricted cash at beginning of period 439,522 666,397 cash, cash equivalents and restricted cash at end of period $ 208,467 $ 528,731 supplemental information: cash paid for interest $ 48,902 $ 33,933 cash paid for taxes $ 31,406 $ 52,162 new operating lease right of use assets $ 64,504 $ 63,503 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 non-gaap net income and diluted net income per share, adjusted 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. adjusted ebitda is defined by us as income before income tax, net other expense, net interest expense, depreciation and amortization and stock-based compensation (or operating income plus depreciation and amortization 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 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: 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 reflect the following: gaap to non-gaap reconciliation for the three months ended for the nine months ended net income and diluted net income per share reconciliation june 25, 2022 june 26, 2021 june 25, 2022 june 26, 2021 (in thousands, except per share amounts) gaap net income attributable to central garden & pet company $ 75,420 $ 76,186 $ 154,142 $ 154,753 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 — — — (2,825 ) non-gaap net income attributable to central garden & pet company $ 75,420 $ 76,186 $ 154,142 $ 164,491 gaap diluted net income per share $ 1.39 $ 1.37 $ 2.82 $ 2.80 non-gaap diluted net income per share $ 1.39 $ 1.37 $ 2.82 $ 2.98 shares used in gaap and non-gaap diluted net earnings per share calculation 54,329 55,658 54,658 55,236 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 three months ended june 25, 2022 for the nine months ended june 25, 2022 net sales (gaap) effect of acquisition & divestitures on increase in net sales net sales organic net sales (gaap) effect of acquisition & divestitures on increase in net sales net sales organic (in millions) q3 fy 22 $ 1,015.4 $ 25.1 $ 990.3 $ 2,631.1 $ 146.9 $ 2,484.2 q3 fy 21 1,037.1 — 1,037.1 2,564.6 3.9 2,560.7 $ increase (decrease) $ (21.7 ) $ (46.8 ) $ 66.5 $ (76.5 ) % increase (decrease) (2.1 ) % (4.5 ) % 2.6 % (3.0 ) % pet gaap to non-gaap reconciliation for three months ended june 25, 2022 for the nine months ended june 25, 2022 net sales (gaap) effect of acquisition & divestitures on increase in net sales net sales organic net sales (gaap) effect of acquisition & divestitures on increase in net sales net sales organic (in millions) q3 fy 22 $ 504.8 $ — $ 504.8 $ 1,438.4 $ — $ 1,438.4 q3 fy 21 507.8 — 507.8 1,436.2 3.9 1,432.3 $ increase $ (3.0 ) $ (3.0 ) $ 2.2 $ 6.1 % increase (0.6 ) % (0.6 ) % 0.2 % 0.4 % garden gaap to non-gaap reconciliation for three months ended june 25, 2022 for the nine months ended june 25, 2022 net sales (gaap) effect of acquisition & divestitures on increase in net sales net sales organic net sales (gaap) effect of acquisition & divestitures on increase in net sales net sales organic (in millions) q3 fy 22 $ 510.6 $ 25.1 $ 485.5 $ 1,192.7 $ 146.9 $ 1,045.8 q3 fy 21 529.3 — 529.3 1,128.4 — 1,128.4 $ increase (decrease) $ (18.7 ) $ (43.8 ) $ 64.3 $ (82.6 ) % increase (decrease) (3.5 ) % (8.3 ) % 5.7 % (7.3 ) % adjusted ebitda reconciliation gaap to non-gaap reconciliation for the three months ended june 25, 2022 garden pet corp total (in thousands) net income attributable to central garden & pet company $ — $ — $ — $ 75,420 interest expense, net — — — 14,335 other expense — — — 759 income tax expense — — — 23,430 net income attributable to noncontrolling interest — — — 135 sum of items below operating income — — — 38,659 income (loss) from operations $ 75,564 $ 62,616 $ (24,101 ) $ 114,079 depreciation & amortization 9,118 9,791 975 19,884 noncash stock-based compensation — — 7,400 7,400 adjusted ebitda $ 84,682 $ 72,407 $ (15,726 ) $ 141,363 adjusted ebitda reconciliation gaap to non-gaap reconciliation for the three months ended june 26, 2021 garden pet corp total (in thousands) net income attributable to central garden & pet company $ — $ — $ — $ 76,186 interest expense, net — — — 13,086 other expense — — — 1,086 income tax expense — — — 22,315 net income attributable to noncontrolling interest — — — 568 sum of items below operating income — — — 37,055 income (loss) from operations $ 67,037 $ 71,021 $ (24,817 ) $ 113,241 depreciation & amortization 10,808 8,960 1,222 20,990 noncash stock-based compensation — — 6,646 6,646 adjusted ebitda $ 77,845 $ 79,981 $ (16,949 ) $ 140,877 adjusted ebitda reconciliation gaap to non-gaap reconciliation for the nine months ended june 25, 2022 garden pet corp total (in thousands) net income attributable to central garden & pet company $ — $ — $ — $ 154,142 interest expense, net — — — 43,445 other expense — — — 1,337 income tax expense — — — 47,319 net income attributable to noncontrolling interest — — — 895 sum of items below operating income — — — 92,996 income (loss) from operations $ 152,132 $ 168,512 $ (73,506 ) $ 247,138 depreciation & amortization 26,457 28,879 2,997 58,333 noncash stock-based compensation — — 18,879 18,879 adjusted ebitda $ 178,589 $ 197,391 $ (51,630 ) $ 324,350 adjusted ebitda reconciliation gaap to non-gaap reconciliation for the nine months ended june 26, 2021 garden pet corp total (in thousands) net income attributable to central garden & pet company $ — $ — $ — $ 154,753 interest expense, net — — — 44,006 other income — — — (370 ) income tax expense — — — 45,260 net income attributable to noncontrolling interest — — — 1,242 sum of items below operating income — — — 90,138 income (loss) from operations $ 137,650 $ 176,604 $ (69,363 ) $ 244,891 depreciation & amortization 22,250 26,927 3,582 52,759 noncash stock-based compensation — — 17,040 17,040 adjusted ebitda $ 159,900 $ 203,531 $ (48,741 ) $ 314,690
