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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Central Garden and Pet Co | NASDAQ:CENT | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.81 | 2.13% | 38.87 | 38.84 | 39.01 | 39.19 | 38.17 | 38.17 | 10,730 | 15:43:31 |
Fiscal 2016 diluted EPS of $0.87 vs. diluted EPS of $0.64 for fiscal 2015
Fiscal 2016 non-GAAP diluted EPS of $1.26 vs. non-GAAP diluted EPS of $0.74 for fiscal 2015
Central Garden & Pet Company (NASDAQ: CENT) (NASDAQ: CENTA), a leading innovator, marketer and producer of quality branded products for the lawn and garden and pet supplies markets, today announced financial results for its fiscal year and fourth quarter ended September 24, 2016.
Fiscal 2016 Summary
Net sales increased 10.8% to $1.83 billion compared to $1.65 billion a year ago. Branded product sales of $1.44 billion increased 9.7% and sales of other manufacturers’ products of $386.2 million rose 15.0%. Organic sales growth, adjusting for businesses purchased or exited that impacted the year, rose 4.2%. The Pet and Garden segments both experienced organic growth. Gross margin improved 60 basis points to 30.2% compared to 29.6% in the prior year despite the dilutive effects of the Company's recent acquisitions, which negatively impacted fiscal 2016 gross margin by 100 basis points. The Company's gross margin benefited from a favorable mix of product sales, reduced raw material input costs, as well as its exit from the holiday decor business.
Fiscal 2016 GAAP Operating Income, Net Earnings and EPS
Fiscal 2016 Non-GAAP Operating Income, Net Earnings and EPS
Fiscal 2016 Fourth Quarter Financial Results
Net sales increased 7.0% to $413.4 million compared to $386.4 million in the fourth quarter a year ago. Branded product sales of $330.0 million increased 6.7% and sales of other manufacturers’ products of $83.5 million rose 8.3%. Organic sales growth, adjusting for businesses purchased or exited that impacted the year, rose 2.6%. The Pet and Garden segments both experienced organic growth; Gross margin improved 120 basis points compared to the fourth quarter a year ago to 29.1%, benefiting primarily from the Company's exit from the holiday decor business.
Fourth Quarter GAAP Operating Income, Net Earnings and EPS
Fourth Quarter Non-GAAP Operating Income, Net Earnings and EPS
"Central's results this quarter and year reflect continued disciplined execution of our initiatives to grow revenues and profits," said George Roeth, President & CEO of Central Garden & Pet. "Our efforts to grow organically have led to successful new products, expanded distribution and vendor relationships, and ultimately, market share gains. In addition, our recent acquisitions are performing at or above expectations."
Pet Segment Fiscal 2016 Fourth Quarter Results
Fourth quarter net sales for the Pet segment increased 14.9% to $270.7 million, from the same period a year ago, driven in large part by acquisitions. The Pet segment’s branded product sales were $214.6 million, up 18.7% compared to the fourth quarter a year ago, and sales of other manufacturers’ products were $56.0 million, an increase of 2.3%. Pet organic sales grew 2.6%, on strength in most of the segment's categories.
The Pet segment’s operating income rose 23.8% compared to the fourth quarter a year ago to $22.6 million and included a $1.8 million non-cash impairment charge. In the prior year, there was a non-cash charge of $7.3 million for intangible impairments. Pet operating margin, aided by the lower impairment charges compared to the prior year, rose to 8.3%, an increase of 60 basis points compared to the fourth quarter a year ago. Excluding the intangible charges in both years, non-GAAP operating margin declined from the fourth quarter of 2015, primarily due to the Company's investments for future growth. The Company expects more favorable operating margin comparisons in the year ahead.
Garden Segment Fiscal 2016 Fourth Quarter Results
Net sales for the Garden segment declined 5.3% compared to the fourth quarter a year ago to $142.8 million, due primarily to a decrease of $13.6 million from the holiday decor business that the Company exited earlier in the year. The Garden segment’s branded product sales were $115.3 million in the quarter, down 10.2% compared to the fourth quarter a year ago. Sales of other manufacturers’ products were up 23.0% to $27.4 million. Garden organic sales, excluding the holiday decor business, rose 2.7%, driven by higher sales of grass seed and other manufacturers' products.
The Garden segment’s operating income in the quarter rose to $2.7 million compared to $0.9 million in the fourth quarter a year ago. Garden operating margin improved 130 basis points to 1.9%, aided by the absence of the holiday decor business in the current quarter.
2017 Guidance
The Company currently expects earnings per fully-diluted share of $1.34 or higher for fiscal 2017, an increase of 6% or more from the prior year. Fiscal 2017 will have 53 weeks compared to 52 weeks in fiscal 2016. The extra week is expected to account for approximately $0.01 per share of 2017 earnings. Capital expenditures are expected to be approximately $40 million to $45 million on an increase in investment to drive future growth.
Mr. Roeth said, "Delivering sustainable, profitable growth is a key strategic goal for our team. To that end, we are increasing our investment and developing a three-year line of sight to our ability to deliver improved innovation output and success rates, as well as cost savings and productivity improvements. At the same time, we are continuing to take steps to create greater portfolio momentum, by making strategic acquisitions and divestitures and managing each of our businesses differentially based on their profit characteristics and growth potential.” Roeth continued, “The costs of these initiatives will slow down 2017 earnings growth but are expected to generate meaningful top and bottom-line growth going forward.” Roeth concluded, "We enter the new year as financially sound as we have ever been, and I am energized by the passion of our employees and the opportunities in front of us as we move forward."
Additional Information
At September 24, 2016, the Company’s cash and short-term investments balance was $93.0 million, compared to $47.6 million a year ago. Cash flow from operations for the fourth quarter of fiscal 2016 was $61.8 million, compared to $30.8 million in the fourth quarter of fiscal 2015.
Total debt at September 24, 2016 was $395.3 million compared to $397.0 million at September 26, 2015. Net interest expense was $6.6 million for the fourth quarter compared to $8.6 million in the prior-year period. The decline in interest expense was due to the Company's debt refinancing in its fiscal first quarter. During the quarter, the Company did not repurchase any shares of its common stock. Approximately $35 million remains available under the Board approved share repurchase program.
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 fourth quarter and fiscal 2016 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 #13650358. A replay of the call will be available for ten days by dialing (201) 612-7415 and entering confirmation #13650358.
About Central Garden & Pet
Central Garden & Pet Company is a leading innovator, marketer and producer of quality branded 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®, IRONITE® and OVER-N-OUT®; 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™ and ZODIAC®; aquatics and reptile and the brands AQUEON®, CORALIFE® and ZILLA®; bird & small animal and the brands KAYTEE®, Forti-Diet® and CRITTER TRAIL®; dog & cat and the brands TFH™, NYLABONE®, FOUR PAWS®, IMS™, CADET®, PINNACLE® and AVODERM®; and equine and the brands FARNAM®, HORSE HEALTH™ and VITAFLEX®. 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 4,100 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 favorable results and cost reductions, operating margin expansion, and earnings guidance for fiscal 2017 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:
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.
CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
Unaudited
ASSETS September 24, 2016 September 26, 2015 Current assets: Cash and cash equivalents $ 92,982 $ 47,584 Restricted cash 10,910 13,157 Accounts receivable, net 201,151 207,402 Inventories 362,004 335,946 Prepaid expenses, deferred income taxes and other 47,759 49,731 Total current assets 714,806 653,820 Plant, property and equipment, net 158,224 162,809 Goodwill 231,385 209,089 Other intangible assets, net 95,865 75,460 Other assets 11,913 30,419 Total $ 1,212,193 $ 1,131,597 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 102,413 $ 88,889 Accrued expenses 99,343 87,724 Current portion of long-term debt 463 291 Total current liabilities 202,219 176,904 Long-term debt 394,806 396,691 Deferred income taxes and other long-term obligations 60,581 51,622 Equity: Common stock 120 119 Class A common stock 374 364 Class B stock 16 16 Additional paid-in capital 393,297 388,636 Retained earnings 160,501 115,987 Accumulated other comprehensive income (loss) (1,294 ) 164 Total Central Garden & Pet shareholders’ equity 553,014 505,286 Noncontrolling interest 1,573 1,094 Total equity 554,587 506,380 Total $ 1,212,193 $ 1,131,597
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Fiscal Year EndedSeptember 24,2016
September 26,2015
September 24,2016
September 26,2015
Net sales $ 413,412 $ 386,369 $ 1,829,017 $ 1,650,737 Cost of goods sold and occupancy 293,232 278,397 1,275,967 1,162,685 Gross profit 120,180 107,972 553,050 488,052 Selling, general and administrative expenses 105,355 99,367 421,864 389,345 Intangible asset impairment 1,828 7,272 1,828 7,272 Operating income 12,997 1,333 129,358 91,435 Interest expense (6,642 ) (8,670 ) (42,847 ) (40,027 ) Interest income 66 33 140 129 Other income (expense) (16,770 ) (83 ) (17,013 ) 13 Income (loss) before income taxes and noncontrolling interest (10,349 ) (7,387 ) 69,638 51,550 Income tax expense (benefit) (4,456 ) (2,992 ) 24,053 18,535 Net income (loss) including noncontrolling interest (5,893 ) (4,395 ) 45,585 33,015 Net income (loss) attributable to noncontrolling interest (282 ) (26 ) 1,071 1,044 Net income (loss) attributable to Central Garden & Pet Company $ (5,611 ) $ (4,369 ) $ 44,514 $ 31,971 Net income (loss) per share attributable to Central Garden & Pet Company: Basic $ (0.11 ) $ (0.09 ) $ 0.91 $ 0.66 Diluted $ (0.11 ) $ (0.09 ) $ 0.87 $ 0.64 Weighted average shares used in the computation of net income per share: Basic 49,453 48,322 48,964 48,562 Diluted 49,453 48,322 51,075 49,638
Use of Non-GAAP Financial Measures
We report our financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, to supplement the financial results prepared in accordance with GAAP, we use non-GAAP financial measures including non-GAAP net sales on a consolidated and segment basis, non-GAAP selling, general and administrative (SG&A) expense, non-GAAP operating income on a consolidated and segment basis, non-GAAP interest expense, non-GAAP other income (expense) and non-GAAP net income and diluted net income per share. 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.
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 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:
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 made reflect the following:
(1) During the fourth quarter of fiscal 2016 and fiscal 2015, we recognized non-cash impairment charges in our Pet segment of $1.8 million and $7.3 million, respectively, related to the impairment of intangible assets caused by increased competition and declining volume of sales. These impairments are included within Intangible asset impairment. (2) During fiscal 2016, we recorded a $2.4 million gain in our Pet segment from the sale of a manufacturing plant resulting from rationalizing our facilities to reduce excess capacity. This adjustment was recorded as part of Selling, general and administrative costs. (3) During the first quarter of fiscal 2016, we redeemed our 2018 Notes and issued senior notes due November 2023. As a result of the bond redemption, we incurred incremental expenses of $14.3 million, comprised of a call premium payment of $8.3 million, a $2.7 million payment of overlapping interest expense for 30 days and a $3.3 million non-cash charge for the write off of unamortized deferred financing costs and discount related to the 2018 Notes. These amounts are included in interest expense in the consolidated statements of operations. (4) During the fourth quarter of 2016, we recognized a non-cash impairment charge of $16.6 million related to our investment in two joint ventures as a result of changes in marketplace conditions, which impacted the expected cash flows and recoverability of the investment. The impairment is included within Other income (expense).
GAAP to Non-GAAP Reconciliation(in thousands) For the Year Ended September
Non-GAAP Adjustments 2016 2015 Impairments of intangible assets (1) $ 1,828 $ 7,272 (Gain)/loss on disposal of plant assets (2) (2,363 ) Incremental expenses from note redemption and issuance (3) 14,339 Impairment of equity method investments (4) 16,572 Total non-GAAP adjustments 30,376 7,272 Tax effects of non-GAAP adjustments (10,492 ) (2,618 ) Total net income impact from non-GAAP adjustments $ 19,884 $ 4,654 SG&A Expense Reconciliation GAAP SG&A expense $ 423,692 $ 396,617 SG&A expense impact from non-GAAP adjustments (1) (2) 535 (7,272 ) Non-GAAP SG&A expense $ 424,227 $ 389,345 GAAP SG&A expense as a percentage of net sales 23.1 % 24.0 % Non-GAAP SG&A expense as a percentage of net sales 23.2 % 23.6 % Operating Income Reconciliation GAAP operating income $ 129,358 $ 91,435 Total operating income impact from non-GAAP adjustments (1)(2) (535 ) 7,272 Non-GAAP operating income $ 128,823 $ 98,707 GAAP operating margin 7.1 % 5.5 % Non-GAAP operating margin 7.0 % 6.0 % Pet Segment Operating Income Reconciliation GAAP Pet segment operating income $ 119,930 $ 98,798 Total operating income impact from non-GAAP adjustments (1)(2) (535 ) 7,272 Non-GAAP Pet segment operating income $ 119,395 $ 106,070 GAAP Pet segment operating margin 11.1 % 11.0 % Non-GAAP Pet operating margin 11.0 % 11.9 % Interest Expense Reconciliation GAAP interest expense $ (42,847 ) N/A Impact from non-GAAP adjustment (3) 14,339 Non-GAAP interest expense $ (28,508 )GAAP to Non-GAAP Reconciliation(in thousands) For the Year Ended September
Net Income and Diluted Net Income Per Share Reconciliation 2016 2015 GAAP net income attributable to Central Garden & Pet $ 44,514$
31,971 Total non-GAAP adjustments (1)(2) (3)(4) 30,376 7,272 Tax effects of non-GAAP adjustments (10,492 ) (2,618 ) Non-GAAP net income attributable to Central Garden & Pet $ 64,398$
36,625 GAAP diluted net income per share $ 0.87$
0.64 Non-GAAP diluted net income per share $ 1.26$
0.74 Shares used in GAAP and non-GAAP diluted net earnings per share calculation 51,075 49,638
GAAP to Non-GAAP Reconciliation(in thousands) For the Quarter Ended September 24, 2016
Net income and diluted net income per share September 24, 2016 September 26, 2015 GAAP net income (loss) $ (5,611 ) $ (4,369 ) Total non-GAAP Adjustments (1)(2) (3)(4) 18,400 7,272 Tax effect(6,224
) (2,618 ) Net income impact12,176
4,654 Non-GAAP net income $6,565
$ 285 GAAP diluted loss per share $ (0.11 ) $ (0.09 ) Non-GAAP diluted income per share $ 0.13 $ 0.01 Basic 49,453 48,322 Diluted 51,645 49,922 GAAP to Non-GAAP Reconciliation(in thousands) For the Quarter Ended September 24, 2016 Operating income reconciliation September 24, 2016 September 26, 2015 GAAP operating income$
12,997$
1,333 Total operating income impact from non-GAAP (1) 1,828 7,272 Non-GAAP operating income 14,825 8,605 GAAP operating margin 3.1 % 0.3 % Non-GAAP operating margin 3.6 % 2.2 % Net sales$
413,412$
386,369Organic Net Sales Reconciliation
We have provided organic net sales, a non-GAAP measure that excludes the impact of 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 ReconciliationFor the Year Ended September 24, 2016 Consolidated Pet Segment Garden Segment Reported net sales - GAAP 10.8 % 20.9 % (1.2 )% Impact of acquisitions and divestitures 6.6 % 14.9 % (3.2 )% Organic net sales 4.2 % 6.0 % 2.0 % GAAP to Non-GAAP ReconciliationFor the Quarter Ended September 24, 2016 Consolidated Pet Segment Garden Segment Reported net sales - GAAP 7.0 % 14.9 % (5.3 )% Impact of acquisitions and divestitures4.4
%12.3
%(8.0
)% Organic net sales2.6
%2.6
%2.7
%
View source version on businesswire.com: http://www.businesswire.com/news/home/20161201006359/en/
Central Garden & Pet CompanySteve Zenker, 925-948-3657VP of Investor Relations & Communications
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