Central garden & pet announces q1 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 first quarter ended december 25, 2021. “we delivered another solid quarter thanks to continued demand for our pet and garden brands and the perseverance of our employees,” said tim cofer, ceo of central garden & pet. “our recent acquisitions exceeded our expectations for the quarter, and we remain encouraged by the fundamentals of our organic business in light of the extraordinary growth in the prior year. we are confident in our team's ability to perform as we face the ongoing challenges associated with the pandemic.” fiscal 2022 first quarter financial results net sales increased 12% to $661 million compared to $592 million a year ago, driven by recent acquisitions, which contributed $70 million to the quarter. organic sales were in line with the prior year quarter. gross margin was 30.0%, an increase of 210 basis points compared to a year ago, driven primarily by pricing and favorable product mix, partially offset by cost inflation in key commodities, freight and labor. operating income decreased 3% to $26 million from $27 million a year ago. operating margin was 4.0% compared to 4.6% in the prior year. the margin decline was largely due to continued inflation and heightened investment spending. net interest expense was $14 million compared to $21 million a year ago primarily due to incremental interest expense related to recognizing the impacts of the call premium, unamortized debt issuance cost and double interest on the debt retired during the first quarter a year ago partially offset by higher debt outstanding. the company's net income increased 61% to $9 million from $6 million a year ago. diluted gaap earnings per share for the quarter was $0.16, an increase of $0.06 compared to the prior year quarter. adjusted ebitda increased 16% to $52 million from $45 million a year ago. the company’s effective tax rate was 20.7% compared to 19.7% in the prior year quarter. garden segment fiscal 2022 first quarter results net sales for the garden segment increased 45% to $225 million driven by a $70 million contribution from recent acquisitions offsetting a modest decline in organic sales of 0.3%. strength in wild bird, chemicals & fertilizer as well as live plants was more than offset by declines in garden distribution and grass seed. garden segment operating income increased 30% to $6 million driven by the strong performance of recent acquisitions. operating margin declined 30 basis points to 2.7%, mainly driven by inflationary pressures and heightened investment spending partially offset by contributions from acquisitions and improved pricing. garden segment adjusted ebitda increased 115% to $16 million from $7 million in the prior year quarter. pet segment fiscal 2022 first quarter results net sales for the pet segment were $436 million, in line with the prior year with notable contributions from animal health, dog and cat and the company's pet distribution businesses offset by declines in pet beds and small animal and aquatic supplies. pet segment operating income increased 4% to $45 million, and operating margin grew 40 basis points to 10.4%. pet segment adjusted ebitda increased 4% to $55 million from $53 million a year ago, largely driven by improved pricing and favorable product mix partially offset by inflationary headwinds and heightened investment spending. additional information the company's cash balance at the end of the quarter was $296 million compared to $608 million a year ago. cash used by operations during the quarter was $92 million compared to $36 million a year ago. the increase in cash used by operations was driven primarily by working capital requirements. total debt as of december 25, 2021 was $1.2 billion compared to $789 million at december 26, 2020. the company's leverage ratio1) at the end of the first quarter was 2.9x compared to 2.3x at the end of the prior year quarter. the company repurchased approximately 153,000 shares or $6.7 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, freight and labor, headwinds associated with 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 its first 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) using confirmation #13726329. 1) calculated using adjusted ebitda as per the company's abl 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 december 25, 2021, 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 25, 2021 december 26, 2020 september 25, 2021 current assets: cash and cash equivalents $ 296,038 $ 608,285 $ 426,422 restricted cash 12,913 13,670 13,100 accounts receivable (less allowances of $27,937, $30,951 and $29,219) 343,659 322,806 385,384 inventories, net 844,899 574,878 685,237 prepaid expenses and other 34,213 28,074 33,514 total current assets 1,531,722 1,547,713 1,543,657 plant, property and equipment, net 340,133 252,157 328,571 goodwill 369,391 289,955 369,391 other intangible assets, net 130,190 131,557 134,431 operating lease right-of-use assets 169,709 115,833 165,602 other assets 576,896 108,884 575,028 total $ 3,118,041 $ 2,446,099 $ 3,116,680 liabilities and equity current liabilities: accounts payable $ 244,826 $ 216,991 $ 245,542 accrued expenses 225,062 189,290 234,965 current lease liabilities 43,051 34,834 40,731 current portion of long-term debt 411 97 1,081 total current liabilities 513,350 441,212 522,319 long-term debt 1,185,057 788,921 1,184,683 long-term lease liabilities 132,174 85,729 130,125 deferred income taxes and other long-term obligations 58,560 43,224 56,012 equity: common stock, $0.01 par value: 11,335,658, 11,336,358 and 11,335,658 shares outstanding at december 25, 2021, december 26, 2020 and september 25, 2021 113 113 113 class a common stock, $0.01 par value: 42,205,761, 42,171,329 and 42,282,922 shares outstanding at december 25, 2021, december 26, 2020 and september 25, 2021 422 422 423 class b stock, $0.01 par value: 1,612,374, 1,612,374 and 1,612,374 at december 25, 2021, december 26, 2020 and september 25, 2021 16 16 16 additional paid-in capital 578,917 570,678 576,446 retained earnings 650,032 516,394 646,082 accumulated other comprehensive loss (1,273 ) (1,032 ) (831 ) total central garden & pet company shareholders’ equity 1,228,227 1,086,591 1,222,249 noncontrolling interest 673 422 1,292 total equity 1,228,900 1,087,013 1,223,541 total $ 3,118,041 $ 2,446,099 $ 3,116,680 central garden & pet company condensed consolidated statements of operations (in thousands, except per share amounts, unaudited) three months ended december 25, 2021 december 26, 2020 net sales $ 661,398 $ 592,230 cost of goods sold 463,202 426,811 gross profit 198,196 165,419 selling, general and administrative expenses 171,982 138,379 operating income 26,214 27,040 interest expense (14,484 ) (20,975 ) interest income 76 206 other income (expense) (209 ) 752 income before income taxes and noncontrolling interest 11,597 7,023 income tax expense 2,401 1,381 income including noncontrolling interest 9,196 5,642 net income attributable to noncontrolling interest 187 29 net income attributable to central garden & pet company $ 9,009 $ 5,613 net income per share attributable to central garden & pet company: basic $ 0.17 $ 0.10 diluted $ 0.16 $ 0.10 weighted average shares used in the computation of net income per share: basic 53,491 53,734 diluted 54,909 54,686 central garden & pet company condensed consolidated statements of cash flows (in thousands, unaudited) three months ended december 25, 2021 december 26, 2020 cash flows from operating activities: net income $ 9,196 $ 5,642 adjustments to reconcile net income to net cash used by operating activities: depreciation and amortization 20,202 12,915 amortization of deferred financing costs 640 475 non-cash lease expense 11,405 9,087 stock-based compensation 5,187 4,669 debt extinguishment costs 169 8,577 loss on sale of business — 2,611 deferred income taxes 2,737 973 gain on sale of property and equipment (88 ) (664 ) other 18 210 change in assets and liabilities (excluding businesses acquired): accounts receivable 41,508 68,929 inventories (159,932 ) (137,635 ) prepaid expenses and other assets (3,635 ) (1,362 ) accounts payable 1,150 10,134 accrued expenses (9,790 ) (13,393 ) other long-term obligations (53 ) 1,437 operating lease liabilities (11,172 ) (8,720 ) net cash used by operating activities (92,458 ) (36,115 ) cash flows from investing activities: additions to plant, property and equipment (24,210 ) (14,661 ) payments to acquire companies, net of cash acquired — (80,887 ) proceeds from the sale of business — 2,400 investments (1,918 ) — other investing activities — (223 ) net cash used in investing activities (26,128 ) (93,371 ) cash flows from financing activities: repayments of long-term debt (767 ) (400,024 ) proceeds from issuance of long-term debt — 500,000 premium paid on extinguishment of debt — (6,124 ) repurchase of common stock, including shares surrendered for tax withholding (7,775 ) (871 ) payment of contingent consideration liability (89 ) (110 ) distribution to noncontrolling interest (806 ) (478 ) payment of financing costs (2,153 ) (8,031 ) net cash (used) provided by financing activities (11,590 ) 84,362 effect of exchange rate changes on cash, cash equivalents and restricted cash (395 ) 682 net decrease in cash, cash equivalents and restricted cash (130,571 ) (44,442 ) cash, cash equivalents and restricted cash at beginning of period 439,522 666,397 cash, cash equivalents and restricted cash at end of period $ 308,951 $ 621,955 supplemental information: cash paid for interest $ 19,750 $ 13,180 new operating lease right of use assets $ 15,616 $ 9,281 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: (1) during the first quarter of fiscal 2021, we issued $500 million aggregate principal amount of 4.125% senior notes due october 2030. we used a portion of the proceeds to redeem all of our outstanding 6.125% senior notes due 2023. as a result of our redemption of the 2023 notes, we incurred incremental expenses of approximately $10.0 million, comprised of a call premium payment of $6.1 million, overlapping interest expense of approximately $1.4 million and a $2.5 million non-cash charge for the write-off of unamortized financing costs. these amounts are included in interest expense in the condensed consolidated statements of operations. (2) during the first quarter of fiscal 2021, we recognized a loss of $2.6 million, included in selling, general and administrative expense in the consolidated statement of operations, from the sale of our breeder’s choice business unit after concluding it was not a strategic business for our pet segment. gaap to non-gaap reconciliation for the three months ended net income and diluted net income per share reconciliation december 25, 2021 december 26, 2020 (in thousands, except per share amounts) gaap net income attributable to central garden & pet company $ 9,009 $ 5,613 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 — (2,470 ) non-gaap net income attributable to central garden & pet company $ 9,009 $ 15,706 gaap diluted net income per share $ 0.16 $ 0.10 non-gaap diluted net income per share $ 0.16 $ 0.29 shares used in gaap and non-gaap diluted net earnings per share calculation 54,909 54,686 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 december 25, 2021 net sales (gaap) effect of acquisition & divestitures on increase in net sales net sales organic (in millions) q1 fy 22 $ 661.4 $ 70.0 $ 591.4 q1 fy 21 592.2 3.9 588.3 $ increase $ 69.2 $ 66.1 $ 3.1 % increase 11.7 % 0.5 % pet gaap to non-gaap reconciliation for three months ended december 25, 2021 net sales (gaap) effect of acquisition & divestitures on increase in net sales net sales organic (in millions) q1 fy 22 $ 436.0 $ — $ 436.0 q1 fy 21 436.4 3.9 432.5 $ increase (decrease) $ (0.4 ) $ (3.9 ) $ 3.5 % increase (decrease) (0.1 ) % 0.8 % garden gaap to non-gaap reconciliation for three months ended december 25, 2021 net sales (gaap) effect of acquisition & divestitures on increase in net sales net sales organic (in millions) q1 fy 22 $ 225.4 $ 70.0 $ 155.4 q1 fy 21 155.8 — 155.8 $ increase (decrease) $ 69.6 $ 70.0 $ (0.4 ) % increase (decrease) 44.7 % (0.3 ) % adjusted ebitda reconciliation gaap to non-gaap reconciliation for the three months ended december 25, 2021 garden pet corp total (in thousands) net income attributable to central garden & pet company $ — $ — $ — $ 9,009 interest expense, net — — — 14,408 other expense — — — 209 income tax expense — — — 2,401 net income attributable to noncontrolling interest — — — 187 sum of items below operating income — — — 17,205 income (loss) from operations $ 6,057 $ 45,251 $ (25,094 ) $ 26,214 depreciation & amortization 9,620 9,549 1,033 20,202 noncash stock-based compensation — — 5,187 5,187 adjusted ebitda $ 15,677 $ 54,800 $ (18,874 ) $ 51,603 adjusted ebitda reconciliation gaap to non-gaap reconciliation for the three months ended december 26, 2020 garden pet corp total (in thousands) net income attributable to central garden & pet company $ — $ — $ — $ 5,613 interest expense, net — — — 20,769 other expense — — — (752 ) income tax expense — — — 1,381 net income attributable to noncontrolling interest — — — 29 sum of items below operating income — — — 21,427 income (loss) from operations $ 4,651 $ 43,525 $ (21,136 ) $ 27,040 depreciation & amortization 2,638 9,085 1,192 12,915 noncash stock-based compensation 4,669 4,669 adjusted ebitda $ 7,289 $ 52,610 $ (15,275 ) $ 44,624
