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Press release from Business Wire

Central Garden & Pet Company Announces Fiscal 2013 Third Quarter Results

<p class='bwalignc'> <i><b>Third quarter sales decreased 7% to $494.1 million; Diluted EPS of $0.28 per share</b></i> </p>

Wednesday, August 07, 2013

Central Garden & Pet Company Announces Fiscal 2013 Third Quarter Results

16:05 EDT Wednesday, August 07, 2013

WALNUT CREEK, Calif. (Business Wire) -- 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 reported financial results for the third quarter ended June 29, 2013.

The Company reported net sales of $494.1 million, a 7 percent decrease from the comparable fiscal 2012 period. Revenues declined in both the Company's Pet and Garden segments. The Company's third quarter operating income was $32.9 million, compared to operating income of $49.0 million in the third quarter of 2012. Net income was $13.7 million, or $0.28 per fully diluted share, compared with net income of $22.7 million or $0.47 per fully diluted share in the third quarter of 2012.

“We anticipated lower results this quarter compared to strong sales and earnings gains a year ago; and although Pet performed in-line with our expectations, our Garden business did not,” said John Ranelli, President and CEO of Central Garden & Pet. “While our results for the quarter were disappointing, we are taking the right steps to strengthen our business for the future, including improving customer service and innovation, and identifying additional ways to take costs out of the business. In addition, we are leveraging a new matrix operating structure to bring decision making closer to the customer.” Mr. Ranelli continued, “There is much work to be done. Much of the recent progress we have made is not yet visible in our financial statements. Our business remains fundamentally strong with many opportunities ahead.”

Third Quarter and Year-to-Date Details

Net sales for the Garden segment for the quarter were $256.3 million, a decline of 2 percent from the third quarter of 2012, due in part to lower sales of controls products. In the prior year quarter, controls and fertilizers benefitted from the shipment of delayed orders. The Garden segment's branded product sales for the quarter decreased $5.8 million, or 3 percent, to $215.5 million while sales of other manufacturers' products decreased $0.4 million, to $40.8 million, a decrease of 1 percent compared with the third quarter of 2012. The Garden segment's operating margin declined during the quarter, reflecting lower profitability in the company's controls, fertilizer and decor businesses, due in part to higher promotion and marketing expenses. For the third quarter, the Garden segment's operating income was $13.7 million, down from $22.6 million in the third quarter of 2012.

Net sales for the Pet segment for the quarter were $237.8 million, a decline of 12 percent from the third quarter of 2012, which included the benefit of the initial sell-in of high-margin flea and tick products to a new channel. The Pet segment's branded product sales for the quarter decreased $34.4 million, or 15 percent, to $194.5 million while sales of other manufacturers' products were $43.3 million, an increase of 2 percent compared with the third quarter of 2012. The Pet segment's operating margin fell during the quarter due in part to lower flea & tick sales than a year ago partially offset by lower selling, general and administrative expenses. For the third quarter, the Pet segment's operating income was $33.1 million, down from $40.4 million in the prior year period.

For the nine months ending June 29, 2013, the Company reported net sales of $1.28 billion, down from $1.30 billion in the comparable 2012 period. Branded products sales were $1.07 billion, down 2 percent from the comparable 2012 period. Sales of other manufacturers' products decreased 1 percent to $213.1 million. Operating income for the period was $66.5 million compared to $82.9 million in the prior year. Net income for the nine months ended June 29, 2013 was $20.7 million compared to $31.2 million in the comparable 2012 period. Earnings per fully diluted share were $0.42 compared to $0.65 per fully diluted share in the year ago period.

At June 29, 2013, the Company's cash and short term investments balance totaled $38.3 million. Net interest expense was $11.3 million for the quarter and $10.7 million in the prior year period. Depreciation and amortization expense was $7.8 million, a decrease from $8.0 million in the third quarter of 2012. The Company's effective tax rate for the third quarter was 34 percent compared to 38 percent in the prior year period.

Total debt at June 29, 2013 was $509.6 million compared to $449.9 million at June 23, 2012. The quarter ending total leverage ratio, as defined in the Company's senior credit facility, was 4.9x. The Company was in compliance with all debt covenants at June 29, 2013. On August 1, 2013, the Company amended its Credit Facility to reduce the Minimum Interest Coverage ratio from 2.50x to 2.25x, and to add a minimum asset coverage ratio at 1.10x. Both covenant modifications are effectitive through the fiscal quarter ending March 29, 2014.

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 fiscal third quarter results. The conference call will be accessible via the internet through Central's website, http://ir.central.com.

Alternatively, to listen to the call by telephone, dial 412-317-6062. A replay of the call will be available for three weeks by dialing 858-384-5517 and entering passcode 105408.

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®, SMART SEED® 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 and the brands NORCAL POTTERY®, NEW ENGLAND POTTERY® and MATTHEWS FOUR SEASONS™. 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 OCEANIC SYSTEMS®, AQUEON® and ZILLA®; bird & small animal and the brands KAYTEE®, SUPER PET® and CRITTER TRAIL®; dog & cat and the brands TFH™, NYLABONE®, FOUR PAWS®, PINNACLE® and AVODERM®; and equine and the brands FARNAM®, VITA FLEX® and HORSE HEALTHTM PRODUCTS. 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 3,500 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 growth and cost reduction opportunities, 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:

  • the success of and costs and expenses associated with the Company's transformational change initiatives;
  • seasonality and fluctuations in the Company's operating results and cash flow;
  • fluctuations in market prices for seeds and grains and other raw materials and the Company's ability to pass through cost increases in a timely manner;
  • adverse weather conditions;
  • dependence on a small number of customers for a significant portion of our business;
  • uncertainty about new product innovations and marketing programs; and
  • implementation of a new enterprise resource planning information technology system.

These risks and others are described in Central's Securities and Exchange Commission filings. Central 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, except share and per share amounts)

Unaudited

     

   June 29,   

   June 23,   

September 29,
ASSETS 2013 2012 2012
Current assets:
Cash and cash equivalents $ 20,482 $ 40,699 $ 48,475
Short term investments 17,820 17,820 22,705
Accounts receivable (less allowance for doubtful accounts of $23,355, $18,297 and $18,574) 243,650 245,780 202,422
Inventories 413,070 334,796 330,032
Prepaid expenses and other   53,751   46,107   48,149
Total current assets 748,773 685,202 651,783
 
Land, buildings, improvements and equipment—net 190,921 185,225 191,163
Goodwill 210,223 210,223 210,223
Other intangible assets—net 75,670 80,529 78,853
Deferred income taxes and other assets   19,049   18,539   17,525
Total $ 1,244,636 $ 1,179,718 $ 1,149,547
 
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 112,313 $ 125,111 $ 126,662
Accrued expenses 93,213 106,818 79,491
Current portion of long-term debt   205   347   331
Total current liabilities 205,731 232,276 206,484
 
Long-term debt 509,430 449,530 449,483
Other long-term obligations 37,845 23,478 28,697
 
Equity:
Common stock, $.01 par value: 12,246,751, 12,247,571, and 12,247,571 shares outstanding at June 29, 2013, June 23, 2012 and September 29, 2012 122 122 122
Class A common stock, $.01 par value: 35,240,576, 34,506,329 and 34,706,902 shares outstanding at June 29, 2013, June 23, 2012 and September 29, 2012 352 345 347
Class B stock, $.01 par value: 1,652,262 shares outstanding 16 16 16
Additional paid-in capital 388,443 381,751 382,195
Retained earnings 100,173 89,777 79,718
Accumulated other comprehensive income   840   1,127   1,539
Total Central Garden & Pet Company shareholders' equity 489,946 473,138 463,937
Noncontrolling interest   1,684   1,296   946
Total equity   491,630   474,434   464,883
Total $ 1,244,636 $ 1,179,718 $ 1,149,547
 

CENTRAL GARDEN & PET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

   
Three Months Ended Nine Months Ended

   June 29,   
2013

 

   June 23,   
2012

   June 29,   
2013

 

   June 23,   
2012

Net sales $ 494,130 $ 533,808 $ 1,284,796 $ 1,302,777
Cost of goods sold and occupancy   341,664     353,156     902,201     893,691  
Gross profit 152,466 180,652 382,595 409,086
Selling, general and administrative expenses   119,574     131,683     316,051     326,175  
Income from operations 32,892 48,969 66,544 82,911
Interest expense (11,347 ) (10,723 ) (32,599 ) (30,738 )
Interest income 28 28 120 84
Other income (expense)   353     102     (676 )   (19 )
Income before income taxes and noncontrolling interest 21,926 38,376 33,389 52,238
Income taxes   7,520     14,554     11,370     19,716  
Income including noncontrolling interest 14,406 23,822 22,019 32,522
Net income attributable to noncontrolling interest   681     1,123     1,367     1,290  
Net income attributable to Central Garden & Pet Company $ 13,725   $ 22,699   $ 20,652   $ 31,232  
 
Net income per share attributable to Central Garden & Pet Company:
Basic $ 0.28   $ 0.48   $ 0.43   $ 0.66  
Diluted $ 0.28   $ 0.47   $ 0.42   $ 0.65  
 
Weighted average shares used in the computation of net income per share:
Basic 48,173 47,661 48,037 47,580
Diluted 48,822 48,388 48,766 48,253

Central Garden & Pet Company
Steve Zenker, 925-948-3657
Investor Relations

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