WALNUT CREEK, Calif.--(BUSINESS WIRE)--August 2, 2016--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 third quarter ended June 25, 2016.

"Central's strong showing this quarter continues its trend of revenue and profit growth," said George Roeth, President & CEO of Central Garden & Pet. "The areas where we have been focused are the main drivers of our success. Organic sales growth was driven by our customer first orientation, our gross margin expansion was enabled by executing on key cost savings initiatives, and our bottom line was enhanced by the effective on-going integration of our recent acquisitions and exiting an unprofitable business."

Third quarter net sales for the Pet segment increased 20.6% to $287.2 million, from the same period a year ago. Pet organic sales grew 4.3%, driven by higher sales of other manufacturers' products as well as strength in the professional and wild bird feed categories. The Pet segment’s branded product sales were $227.8 million, up 24.3% compared to the third quarter a year ago and sales of other manufacturers’ products were $59.4 million, an increase of 8.4%.

The Pet segment’s operating income rose 17.7% compared to the third quarter a year ago to $38.7 million and included a gain of $2.4 million from the sale of a manufacturing plant during the quarter. Pet operating margin decreased slightly to 13.5%, a decline of 30 basis points compared to the third quarter a year ago.

Net sales for the Garden segment rose 2.7% compared to the third quarter a year ago to $227.3 million, despite a decrease of $7.7 million from the seasonal decor business that the Company exited earlier in the year. Higher sales of other manufacturers' products, as well as gains in wild bird feed and controls revenues, drove the sales increase. The Garden segment’s branded product sales were $175.9 million in the quarter, down 2.5% compared to the third quarter a year ago, reflecting the exit from the seasonal decor business. Sales of other manufacturers’ products were up 25.7% to $51.4 million.

The Garden segment’s operating income in the quarter rose 12.8% compared to the third quarter a year ago to $26.5 million. Garden operating margin improved 100 basis points to 11.6%. The increase in operating margin was driven by the absence of the seasonal decor business, which the Company exited earlier in the year, as well as a favorable mix of product sales, lower raw material costs, and manufacturing efficiency improvements, somewhat offset by increased marketing expenditures.

Roeth said, "Going forward, we will be even more aggressive in executing on the initiatives we believe are important to the Company's long-term success. These include continuing to focus on our customers' needs, increasing our innovation output and success rate, and lowering our costs to invest in growth. While there is a near-term cost to some of these actions, we believe we will have the financial flexibility to fund incremental investment while continuing to drive meaningful sales and profit growth." Roeth concluded, "We will have more to say on our longer-term strategy and goals later this calendar year. In the meantime, we will stay focused on executing on our current plan."

The Company currently expects adjusted earnings per fully-diluted share of $1.18 or higher for fiscal 2016, an increase of over 59% from the prior year.

Total debt at June 25, 2016 was $395.1 million compared to $396.7 million at June 27, 2015. Net interest expense was $6.9 million for the third quarter compared to $9.0 million in the prior-year period. The decline in interest expense was due to the Company's debt refinancing in its fiscal first quarter.

The Company’s effective tax rate for the third quarter of 2016 was 35.9%, compared with 37.5% for the third quarter of 2015. The decline in the tax rate was due primarily to projected additional tax credits in the current year quarter. During the quarter, the Company did not repurchase any shares of its common stock. Approximately $35.0 million remains available under the Board approved share repurchase program.

The Company will host a conference call today at 4:30 p.m. Eastern Time / 1:30 p.m. Pacific Time to discuss its 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 (201) 689-8345 (domestic and international) using confirmation #13639789. A replay of the call will be available for ten days by dialing (201) 612-7415 and entering confirmation #13639789.

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 3,700 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 and earnings guidance for fiscal 2016 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, except share and per share amounts) Unaudited

ASSETS	June 25, 2016			June 27, 2015		September 26, 2015
Current assets:
Cash and cash equivalents	$	40,000		$	43,841	$	47,584
Restricted cash	12,029			12,590		13,157
Accounts receivable (less allowance for doubtful accounts of $25,429, $18,573 and $19,296)	241,954			223,149		207,402
Inventories	361,813			340,233		335,946
Prepaid expenses and other	45,075			54,558		49,731
Total current assets	700,871			674,371		653,820

Land, buildings, improvements and equipment—net	159,430			162,969		162,809
Goodwill	233,011			209,089		209,089
Other intangible assets—net	95,070			83,841		75,460
Other assets	28,525			25,467		30,419
Total	$	1,216,907		$	1,155,737	$	1,131,597

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	96,906		$	90,423	$	88,889
Accrued expenses	102,953			110,070		87,724
Current portion of long-term debt	530			290		291
Total current liabilities	200,389			200,783		176,904

Long-term debt	394,603			396,395		396,691
Other long-term obligations	63,975			47,147		51,622

Equity:
Common stock, $0.01 par value: 11,998,472, 11,908,317, and 11,908,317 shares outstanding at June 25, 2016, June 27, 2015 and September 26, 2015	120			119		119
Class A common stock, $0.01 par value: 37,197,569, 35,970,174 and 36,462,299 shares outstanding at June 25, 2016, June 27, 2015 and September 26, 2015	371			360		364
Class B stock, $0.01 par value: 1,652,262 shares outstanding	16			16		16
Additional paid-in capital	390,270			388,762		388,636
Accumulated earnings	166,112			120,356		115,987
Accumulated other comprehensive income (loss)	(805		)	679		164
Total Central Garden & Pet Company shareholders’ equity	556,084			510,292		505,286
Noncontrolling interest	1,856			1,120		1,094
Total equity	557,940			511,412		506,380
Total	$	1,216,907		$	1,155,737	$	1,131,597



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)

	Three Months Ended						Nine Months Ended
	June 25, 2016			June 27, 2015			June 25, 2016			June 27, 2015
Net sales	$	514,544		$	459,446		$	1,415,605		$	1,264,368
Cost of goods sold and occupancy	350,799			317,409			982,735			884,288
Gross profit	163,745			142,037			432,870			380,080
Selling, general and administrative expenses	115,560			103,044			316,509			289,978
Income from operations	48,185			38,993			116,361			90,102
Interest expense	(6,964		)	(8,978		)	(36,205		)	(31,357		)
Interest income	43			7			74			96
Other income (expense)	318			585			(243		)	96
Income before income taxes and noncontrolling interest	41,582			30,607			79,987			58,937
Income taxes	14,916			11,484			28,509			21,527
Income including noncontrolling interest	26,666			19,123			51,478			37,410
Net income attributable to noncontrolling interest	636			323			1,353			1,070
Net income attributable to Central Garden & Pet Company	$	26,030		$	18,800		$	50,125		$	36,340

Net income per share attributable to Central Garden & Pet Company:
Basic	$	0.53		$	0.39		$	1.03		$	0.75
Diluted	$	0.51		$	0.38		$	0.99		$	0.73

Weighted average shares used in the computation of net income per share:
Basic	49,120			48,167			48,801			48,642
Diluted	51,063			49,290			50,743			49,496

We report our financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, management believes that certain non-GAAP financial measures that exclude the $14.3 million impact of the redemption of our 2018 Notes and the issuance of our 2023 Notes recognized during the quarter ended December 26, 2015 and the $2.4 million gain from the sale of a manufacturing plant during the quarter ended June 25, 2016 may be useful in certain instances to provide additional meaningful comparisons between current results and results in prior operating periods that should be considered when assessing our ongoing performance and providing consistency with our prior year disclosure. The $14.3 million impact of the redemption of our 2018 Notes and issuance of our 2023 Notes is included in interest expense in the condensed consolidated statements of operations. The $2.4 million gain from the sale of a manufacturing plant is included in selling, general and administrative expenses in the condensed consolidated statements of operations. We believe that the non-GAAP financial measures provide useful information to investors and other users of our financial statements, such as lenders. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our performance. 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.



GAAP to Non-GAAP Reconciliation (unaudited, in thousands, except per share amounts) For the Three months ended June 25, 2016
	June 25, 2016					June 25, 2016		June 27, 2015
	GAAP		Adjustment (A)			As Adjusted		GAAP
Gross profit	163,745		—			163,745		142,037
Selling, general and administrative expenses	115,560		2,363			117,923		103,044
Income from operations	48,185		(2,363		)	45,822		38,993
Income tax expense	14,916		(848		)	14,068		11,484
Net income	$	26,030	$	(1,515	)	$	24,515	$	18,800
Earnings per share – diluted	$	0.51				$	0.48	$	0.38
Weighted shares outstanding	51,063					51,063		49,290



GAAP to Non-GAAP Reconciliation (unaudited, in thousands, except per share amounts) For the Nine months ended June 25, 2016
	June 25, 2016		Adjustments			June 25, 2016		June 27, 2015
	GAAP		(A)(B)			As Adjusted		GAAP
Gross profit	$	432,870	$	—		432,870		$	380,080
Selling, general and administrative expenses	316,509		2,363			318,872		289,978
Income from operations	116,361		(2,363		)	113,998		90,102
Interest expense	36,205		14,339			21,866		31,357
Income tax expense	28,509		4,268			32,777		21,527
Net income	$	50,125	$	7,708		$	57,833	$	36,340
Earnings per share – diluted	$	0.99				$	1.14	$	0.73
Weighted shares outstanding	50,743					50,743		49,496

(A) During the third quarter of 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.

(B) The Non-GAAP financial information excludes the impact of the redemption of our 2018 Notes and issuance of our 2023 Notes. 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 condensed consolidated statements of operations.

Organic net sales is a non-GAAP measure that excludes the impact of acquisitions and dispositions in the comparable periods. We have provided this measure because we believe it permits investors to better understand the performance of our historical business without the impacts from acquisitions and dispositions. The following tables provide a reconciliation for our reported net sales under GAAP to our organic net sales for our consolidated operations and Pet segment.



GAAP to Non-GAAP Reconciliation (unaudited, in thousands) For the Three months ended June 25, 2016
	June 25, 2016			June 27, 2015			Percentage change
Consolidated
Reported Net Sales - GAAP	$	514.5		$	459.4		12.0%
Effect of acquisitions	(40.1		)	—
Effect of divestitures	(0.3		)	(8.0		)

Organic net sales	$	474.1		$	451.4		5.0%



GAAP to Non-GAAP Reconciliation (unaudited, in thousands) For the Three months ended June 25, 2016
	June 25, 2016			June 27, 2015		Percentage change
Pet Segment
Reported Net Sales - GAAP	$	287.2		$	238.1	20.6%
Effect of acquisitions	(38.8		)	—
Effect of divestitures	—			—

Organic net sales	$	248.4		$	238.1	4.3%

The company currently expects adjusted earnings per fully-diluted share (a non-GAAP measure) of $1.18 or higher for fiscal 2016. We have not provided GAAP estimates of expected earnings per fully diluted share or a reconciliation to expected adjusted earnings per fully-diluted share as the adjusted earnings per share guidance excludes the impact of any potential acquisitions, non-operational charges or impairments that may occur prior to fiscal year end, and are not known or contemplated at this time. Any such adjustments could have a significant impact on our fiscal 2016 GAAP results.

CONTACT:
Central Garden & Pet Company
Steve Zenker, 925-948-3657
VP of Investor Relations & Communications