Central garden & pet announces q2 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 second quarter ended march 26, 2022. “central delivered another solid quarter thanks to strong execution by our team in this challenging inflationary environment,” said tim cofer, ceo of central garden & pet. “despite the ongoing headwinds, we grew sales and operating income, and importantly, expanded gross margin, and remain on track to deliver our fiscal 2022 financial targets. we continue to make purposeful investments to drive profitable long-term growth.” fiscal 2022 second quarter financial results net sales increased 2% to $954 million compared to $935 million a year ago, driven by recent acquisitions, which contributed $52 million to the quarter. organic net sales decreased 3.5% compared to the prior year quarter. gross margin was 30.1%, an increase of 100 basis points compared to a year ago, driven primarily by pricing as well as favorable product mix and productivity improvements, partially offset by cost inflation in commodities, freight and labor. operating income increased 2% to $107 million from $105 million a year ago. operating margin of 11.2% was in line with the prior year despite continued inflation and heightened investment spending. net interest expense was $15 million compared to $10 million a year ago primarily due to higher debt outstanding. the company's net income was $70 million, a decrease of 4% from $73 million a year ago. diluted gaap earnings per share for the quarter was $1.27, a decrease of $0.05 compared to the prior year quarter. adjusted ebitda increased 2% to $131 million from $129 million a year ago. the company’s effective tax rate was 23.4% compared to 22.7% in the prior year quarter. garden segment fiscal 2022 second quarter results net sales for the garden segment increased 3% to $457 million driven by contributions from recent acquisitions offsetting a decline in organic sales of 9%. organic strength in wild bird was more than offset by declines in chemicals & fertilizer, garden distribution, controls and grass seed, driven by unfavorable weather causing a late start to the garden season. on a two-year compound annualized growth rate basis, organic garden segment sales increased 17% in the second quarter. garden segment operating income increased 7% to $71 million driven by the strong performance of recent acquisitions. operating margin grew 50 basis points to 15.4%, mainly driven by contributions from recent acquisitions and improved pricing, partially offset by inflationary pressures and heightened investment spending. garden segment adjusted ebitda increased 5% to $78 million from $75 million in the prior year quarter. pet segment fiscal 2022 second quarter results net sales for the pet segment increased 1% to $498 million, with notable contributions from the company's dog and cat, outdoor cushions, professional and pet distribution businesses, offset by softness in pet beds. pet segment operating income decreased 2% to $61 million, and operating margin declined 40 basis points to 12.2%. pet segment adjusted ebitda decreased 1% to $70 million from $71 million a year ago, largely driven by inflationary headwinds and heightened investment spending, partially offset by improved pricing and favorable product mix. additional information the company's cash balance at the end of the quarter was $54 million compared to $40 million a year ago. cash used by operations during the quarter was $180 million compared to $84 million a year ago. the increase in cash used by operations was due primarily to changes in working capital, predominantly an increase in inventory resulting from an intentional build-up in inventory due to increased demand for the company's products amid the continuing global supply chain issues, as well as increased input costs. total debt as of march 26, 2022 was $1.2 billion compared to $1 billion at march 27, 2021. the company's leverage ratio(1) at the end of the second quarter was 2.9x compared to 2.5x at the end of the prior year quarter. the company repurchased approximately 227 thousand shares or $9.4 million of its stock during the quarter. fiscal 2022 guidance the company continues to expect fiscal 2022 gaap eps to be $3.10 or better. the outlook takes into account increasing costs for commodities and freight, exacerbated by the current geopolitical environment, labor, a return to more normalized consumer demand patterns following extraordinary demand spanning two fiscal years and resuming more historical levels of promotional activity. 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 second 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 promotional activity 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: 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; 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; inflation and other adverse macro-economic conditions; fluctuations in market prices for seeds and grains and other raw materials; fluctuations in energy prices, fuel and related petrochemical costs; our inability to pass through cost increases in a timely manner; supply chain delays and disruptions resulting in lost sales, reduced fill rates and service levels and delays in expanding capacity and automating processes; adverse weather conditions; 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; impacts of tariffs or a trade war; consolidation trends in the retail industry; declines in consumer spending during economic downturns; 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; 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 march 26, 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 march 26, 2022 march 27, 2021 september 25, 2021 current assets: cash and cash equivalents $ 54,082 $ 39,869 $ 426,422 restricted cash 12,676 12,612 13,100 accounts receivable (less allowances of $28,234, $29,784 and $29,219) 619,629 636,466 385,384 inventories, net 888,051 672,901 685,237 prepaid expenses and other 49,449 45,339 33,514 total current assets 1,623,887 1,407,187 1,543,657 plant, property and equipment, net 384,940 295,769 328,571 goodwill 511,973 289,955 369,391 other intangible assets, net 499,251 128,229 134,431 operating lease right-of-use assets 204,148 135,552 165,602 other assets 125,059 590,410 575,028 total $ 3,349,258 $ 2,847,102 $ 3,116,680 liabilities and equity current liabilities: accounts payable $ 297,194 $ 278,969 $ 245,542 accrued expenses 228,412 217,117 234,965 current lease liabilities 44,765 40,586 40,731 current portion of long-term debt 378 91 1,081 total current liabilities 570,749 536,763 522,319 long-term debt 1,185,456 978,887 1,184,683 long-term lease liabilities 165,446 99,840 130,125 deferred income taxes and other long-term obligations 133,274 70,033 56,012 equity: common stock, $0.01 par value: 11,335,658, 11,336,358 and 11,335,658 shares outstanding at march 26, 2022, march 27, 2021 and september 25, 2021 113 113 113 class a common stock, $0.01 par value: 42,228,533, 42,643,315 and 42,282,922 shares outstanding at march 26, 2022, march 27, 2021 and september 25, 2021 422 427 423 class b stock, $0.01 par value: 1,612,374, 1,612,374 and 1,612,374 at march 26, 2022, march 27, 2021 and september 25, 2021 16 16 16 additional paid-in capital 580,555 572,815 576,446 retained earnings 712,683 589,348 646,082 accumulated other comprehensive loss (703 ) (2,153 ) (831 ) total central garden & pet company shareholders’ equity 1,293,086 1,160,566 1,222,249 noncontrolling interest 1,247 1,013 1,292 total equity 1,294,333 1,161,579 1,223,541 total $ 3,349,258 $ 2,847,102 $ 3,116,680 condensed consolidated statements of operations (in thousands, except per share amounts, unaudited) three months ended six months ended march 26, 2022 march 27, 2021 march 26, 2022 march 27, 2021 net sales $ 954,370 $ 935,252 $ 1,615,768 $ 1,527,482 cost of goods sold 667,578 662,851 1,130,780 1,089,662 gross profit 286,792 272,401 484,988 437,820 selling, general and administrative expenses 179,947 167,791 351,929 306,170 operating income 106,845 104,610 133,059 131,650 interest expense (14,729 ) (10,222 ) (29,211 ) (31,197 ) interest income 27 71 101 277 other income (expense) (369 ) 704 (578 ) 1,456 income before income taxes and noncontrolling interest 91,774 95,163 103,371 102,186 income tax expense 21,488 21,564 23,889 22,945 income including noncontrolling interest 70,286 73,599 79,482 79,241 net income attributable to noncontrolling interest 573 645 760 674 net income attributable to central garden & pet company $ 69,713 $ 72,954 $ 78,722 $ 78,567 net income per share attributable to central garden & pet company: basic $ 1.30 $ 1.35 $ 1.47 $ 1.46 diluted $ 1.27 $ 1.32 $ 1.44 $ 1.43 weighted average shares used in the computation of net income per share: basic 53,458 53,851 53,475 53,805 diluted 54,722 55,156 54,818 54,930 condensed consolidated statements of cash flows (in thousands, unaudited) six months ended march 26, 2022 march 27, 2021 cash flows from operating activities: net income $ 79,482 $ 79,241 adjustments to reconcile net income to net cash used by operating activities: depreciation and amortization 38,449 31,769 amortization of deferred financing costs 1,316 952 non-cash lease expense 23,532 19,120 stock-based compensation 11,479 10,394 debt extinguishment costs 169 8,577 loss on sale of business — 2,611 deferred income taxes 77,416 4,196 gain on sale of property and equipment (69 ) (662 ) other (55 ) 221 change in assets and liabilities (excluding businesses acquired): accounts receivable (234,146 ) (191,332 ) inventories (202,996 ) (131,887 ) prepaid expenses and other assets (84,983 ) 8,585 accounts payable 51,195 62,393 accrued expenses (10,038 ) (6,119 ) other long-term obligations (64 ) 371 operating lease liabilities (22,768 ) (18,606 ) net cash used by operating activities (272,081 ) (120,176 ) cash flows from investing activities: additions to plant, property and equipment (75,419 ) (33,647 ) payments to acquire companies, net of cash acquired — (733,692 ) proceeds from the sale of business — 2,400 investments (1,918 ) — other investing activities 100 (473 ) net cash used in investing activities (77,237 ) (765,412 ) cash flows from financing activities: repayments of long-term debt (889 ) (400,048 ) proceeds from issuance of long-term debt — 500,000 borrowings under revolving line of credit — 830,000 repayments under revolving line of credit — (640,000 ) premium paid on extinguishment of debt — (6,124 ) repurchase of common stock, including shares surrendered for tax withholding (18,752 ) (4,454 ) payment of contingent consideration liability (125 ) (157 ) distribution to noncontrolling interest (806 ) (532 ) payment of financing costs (2,442 ) (8,235 ) net cash (used) provided by financing activities (23,014 ) 270,450 effect of exchange rate changes on cash, cash equivalents and restricted cash (432 ) 1,222 net decrease in cash, cash equivalents and restricted cash (372,764 ) (613,916 ) cash, cash equivalents and restricted cash at beginning of period 439,522 666,397 cash, cash equivalents and restricted cash at end of period $ 66,758 $ 52,481 supplemental information: cash paid for interest $ 29,042 $ 21,857 cash paid for taxes $ 24,603 $ 37,837 new operating lease right of use assets $ 62,251 $ 38,667 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 six months ended net income and diluted net income per share reconciliation march 26, 2022 march 27, 2021 march 26, 2022 march 27, 2021 (in thousands, except per share amounts) gaap net income attributable to central garden & pet company $ 69,713 $ 72,954 $ 78,722 $ 78,567 incremental expenses from note redemption and issuance (1) — — — 9,952 loss on sale of business (2) — — — 2,611 tax effect of incremental expenses, loss on sale and impairment — — — (2,821 ) non-gaap net income attributable to central garden & pet company $ 69,713 $ 72,954 $ 78,722 $ 88,309 gaap diluted net income per share $ 1.27 $ 1.32 $ 1.44 $ 1.43 non-gaap diluted net income per share $ 1.27 $ 1.32 $ 1.44 $ 1.61 shares used in gaap and non-gaap diluted net earnings per share calculation 54,722 55,156 54,818 54,930 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 march 26, 2022 for the six months ended march 26, 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) q2 fy 22 $ 954.4 $ 51.8 $ 902.6 $ 1,615.8 $ 121.8 $ 1,494.0 q2 fy 21 935.3 — 935.3 1,527.5 $ 3.9 1,523.6 $ increase (decrease) $ 19.1 $ (32.7 ) $ 88.3 $ (29.6 ) % increase (decrease) 2.0 % (3.5 ) % 5.8 % (1.9 ) % pet gaap to non-gaap reconciliation for three months ended march 26, 2022 for the six months ended march 26, 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) q2 fy 22 $ 497.7 $ — $ 497.7 $ 933.7 $ — $ 933.7 q2 fy 21 492.0 — 492.0 928.4 $ 3.9 924.5 $ increase $ 5.7 $ — $ 5.7 $ 5.3 $ 9.2 % increase 1.2 % 1.2 % 0.6 % 1.0 % gaap to non-gaap reconciliation for three months ended march 26, 2022 for the six months ended march 26, 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) q2 fy 22 $ 456.7 $ 51.8 $ 404.9 $ 682.1 $ 121.8 $ 560.3 q2 fy 21 443.3 — 443.3 599.1 $ — 599.1 $ increase (decrease) $ 13.4 $ (38.4 ) $ 83.0 $ (38.8 ) % increase (decrease) 3.0 % (8.7 ) % 13.9 % (6.5 ) % adjusted ebitda reconciliation gaap to non-gaap reconciliation for the three months ended march 26, 2022 garden pet corp total (in thousands) net income attributable to central garden & pet company $ — $ — $ — $ 69,713 interest expense, net — — — 14,702 other expense — — — 369 income tax expense — — — 21,488 net income attributable to noncontrolling interest — — — 573 sum of items below operating income — — — 37,132 income (loss) from operations $ 70,511 $ 60,645 $ (24,311 ) $ 106,845 depreciation & amortization 7,719 9,539 989 18,247 noncash stock-based compensation — — 6,292 6,292 adjusted ebitda $ 78,230 $ 70,184 $ (17,030 ) $ 131,384 adjusted ebitda reconciliation gaap to non-gaap reconciliation for the three months ended march 27, 2021 garden pet corp total (in thousands) net income attributable to central garden & pet company $ — $ — $ — $ 72,954 interest expense, net — — — 10,151 other income — — — (704 ) income tax expense — — — 21,564 net income attributable to noncontrolling interest — — — 645 sum of items below operating income — — — 31,656 income (loss) from operations $ 65,962 $ 62,058 $ (23,410 ) $ 104,610 depreciation & amortization 8,804 8,882 1,168 18,854 noncash stock-based compensation — — 5,725 5,725 adjusted ebitda $ 74,766 $ 70,940 $ (16,517 ) $ 129,189 gaap to non-gaap reconciliation for the six months ended march 26, 2022 garden pet corp total (in thousands) net income attributable to central garden & pet company $ — $ — $ — $ 78,722 interest expense, net — — — 29,110 other expense — — — 578 income tax expense — — — 23,889 net income attributable to noncontrolling interest — — — 760 sum of items below operating income — — — 54,337 income (loss) from operations $ 76,568 $ 105,896 $ (49,405 ) $ 133,059 depreciation & amortization 17,339 19,088 2,022 38,449 noncash stock-based compensation — — 11,479 11,479 adjusted ebitda $ 93,907 $ 124,984 $ (35,904 ) $ 182,987 adjusted ebitda reconciliation gaap to non-gaap reconciliation for the six months ended march 27, 2021 garden pet corp total (in thousands) net income attributable to central garden & pet company $ — $ — $ — $ 78,567 interest expense, net — — — 30,920 other income — — — (1,456 ) income tax expense — — — 22,945 net income attributable to noncontrolling interest — — — 674 sum of items below operating income — — — 53,083 income (loss) from operations $ 70,613 $ 105,583 $ (44,546 ) $ 131,650 depreciation & amortization 11,442 17,967 2,360 31,769 noncash stock-based compensation — — 10,394 10,394 adjusted ebitda $ 82,055 $ 123,550 $ (31,792 ) $ 173,813
