UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
______________
FORM 8-K
CURRENT
REPORT
Pursuant
To Section 13 of 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) |
February 7, 2018 |
Central Garden & Pet Company |
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(Exact name of registrant as specified in its charter) |
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Delaware |
001-33268 |
68-0275553 |
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
1340 Treat Boulevard, Suite 600, Walnut Creek, California |
94597 |
|
(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone number, including area code |
(925) 948-4000 |
(Former name or former address if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
⃞
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
⃞
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
⃞
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
⃞
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth
company as defined in Rule 405 of the Securities Act of 1933 (§230.405
of this chapter) or Rule 12b-2 of the Securities Exchange act of 1934
(§240.12b-2 of this chapter).
Emerging growth company ⃞
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ⃞
Item 2.02 Results of Operations and Financial Condition.
On February 7, 2018, Central Garden & Pet Company issued a press release
announcing its financial results for the first fiscal quarter ended
December 30, 2017. A copy of the press release is attached as
Exhibit 99.1.
Item 9.01 Financial Statements and Exhibits.
Exhibit 99.1 Press release dated February 7, 2018.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CENTRAL GARDEN & PET COMPANY |
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By: |
/s/ Nicholas Lahanas |
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Nicholas Lahanas |
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Chief Financial Officer |
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(Principal Financial Officer) |
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Dated: |
February 7, 2018 |
Exhibit 99.1
Central Garden & Pet Company Announces Record Fiscal First Quarter Revenues and Profits
Fiscal
1Q 2018 sales increased 5.4% to $442.0 million;
Fiscal
1Q 2018 diluted EPS increased to $0.50 vs. $0.15 in Fiscal 1Q 2017
Fiscal
1Q 2018 non-GAAP diluted EPS increased to $0.19 vs. $0.12 in Fiscal 1Q
2017
WALNUT CREEK, Calif.--(BUSINESS WIRE)--February 7, 2018--Central Garden & Pet Company (NASDAQ: CENT) (NASDAQ: CENTA), a leading innovator, producer and distributor of branded and private label products for the lawn & garden and pet supplies markets, today announced record first quarter financial results for its fiscal 2018 first quarter ended December 30, 2017.
Fiscal 2018 First Quarter Financial Results
Total net sales increased 5.4% to $442.0 million compared to $419.5 million in the first quarter a year ago, primarily driven by acquisitions. Organic sales increased 1.1%, contributed almost equally from the Garden and Pet segments despite difficult comparisons with 1Q 2017, when sales grew 7.0% over the prior year. Branded product sales of $349.9 million increased 5.1%, and sales of other manufacturers’ products of $92.1 million rose 6.3%. First quarter gross margin rose 100 basis points to 29.8% compared to the first quarter a year ago.
First Quarter GAAP Operating Income, Net Earnings and EPS
First Quarter Non-GAAP Operating Income, Net Earnings and EPS
Pet Segment Fiscal 2018 First Quarter Results
First quarter net sales for the Pet segment increased 6.9% to $325.1 million, from the same period a year ago, driven primarily by the Segrest and K&H acquisitions. Pet organic sales grew 1.1%, as strength in the e-commerce channel more than offset lower sales at certain pet specialty retailers. In addition, comparisons versus the prior year were challenging, as the Pet segment organic growth in last year's first quarter increased 6.1%. The Pet segment’s first quarter branded product sales were $262.9 million, up 6.7% compared to a year ago and sales of other manufacturers’ products were $62.2 million, an increase of 7.7%.
The Pet segment’s operating income increased 8.3% compared to the first quarter a year ago to $36.2 million. Pet operating margin increased to 11.1%, an improvement of 10 basis points compared to the first quarter a year ago. A higher gross margin, partially offset by higher logistics costs to ramp up for expected volume gains in the Pet Distribution business, was a key factor in the change.
Garden Segment Fiscal 2018 First Quarter Results
Net sales for the Garden segment, all organic, rose 1.3% compared to the first quarter a year ago to $116.9 million. The first quarter is seasonally the lowest quarter for the Garden segment. Revenues were aided by strength in the controls and fertilizers category, which benefited from shipments of new products and expanded distribution. Wild bird feed results were a drag on growth, negatively impacted by unfavorable weather. The Garden segment’s branded product sales were $87.0 million in the quarter, up 0.6% compared to the first quarter a year ago. Sales of other manufacturers’ products were up 3.3% to $29.9 million.
The Garden segment’s GAAP operating income in the quarter declined $0.4 million to $2.3 million compared to $2.7 million in the first quarter a year ago and operating margin decreased 30 basis points to 2.0%. The decline in both were due to the inclusion of a $2.0 million gain on the sale of a distribution facility in the first quarter of last year. Excluding the distribution facility sale, Garden operating income rose $1.7 million and operating margin increased 150 basis points compared to the same period a year ago, driven by a higher gross margin that benefited from cost savings initiatives.
"Our Company continues to execute well against our growth objectives, as our increased investments in demand creation and cost reduction efforts are continuing to drive organic growth and higher profitability," said George Roeth, President & CEO of Central Garden and Pet. "As we adapt to a changing retail environment, especially in the pet industry, we are pleased by our progress in e-commerce. At the same time, in brick & mortar, we are taking meaningful actions with our product offerings and our Segrest acquisition, to develop programs in partnership with key customers, to drive store traffic and higher market baskets in the near-term."
Additional Information
Other expense increased from $1.0 million to $3.1 million, impacted principally by two joint ventures. It is expected that this line item may vary greatly from quarter to quarter, in part due to the seasonal nature of one of the larger joint ventures and due to the early stages of some of the other investments.
Total debt at December 30, 2017 was $691.3 million compared to $395.4 million at December 24, 2016. Net interest expense was $7.2 million for the first quarter compared to $6.8 million in the prior-year period. Both rose due to the Company's issuance of $300 million of fixed income securities in December 2017. The vast majority of the proceeds is currently reflected in the Company's cash balance at the end of the quarter, which increased to $283 million compared to $7 million in the first quarter a year ago. The Company's leverage ratio at the end of the first quarter, as defined in the Company's credit agreement, was 3.3x compared to 2.1x in the prior year quarter.
The Company’s effective tax rate for the first quarter of 2018 was negative, compared with 35.8% for the first quarter of 2017. The tax rate this year reflects the revaluation of the Company's deferred tax accounts, favorably impacted by a recent reduction in the U.S. Federal corporate tax rate. On a Non-GAAP basis, removing the impact of the revaluation of the deferred tax accounts, the Company's tax rate was 17.3%. This non-GAAP rate reflects a lower weighted average tax rate for the year as well as a favorable impact from recent changes in accounting standards around non-cash equity compensation expense, which is expected to continue for the entire fiscal year.
2018 Guidance
The Company is raising its annual guidance and now expects non-GAAP earnings per fully-diluted share of $1.85 or higher for fiscal 2018, an increase of 23.3% or more from the prior year and up from the previous guidance of $1.62 or higher. Favorable tailwinds from the lower tax rate is the driver for the increase over prior guidance. The lower Federal tax rate and the change in the recording of non-cash compensation are expected to substantially lower the Company's tax rate for the year compared to prior years. The guidance excludes the impact of the one-time revaluation of tax deferred accounts, which is one-time in nature and reflected in the Company's 1Q 2018 GAAP results.
Roeth concluded, "We feel great about our start to the fiscal year and have confidence that our businesses will continue to grow as expected in the year ahead."
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 first 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 #13675498. A replay of the call will be available for three days by dialing (201) 612-7415 and entering confirmation #13675498.
About Central Garden & Pet
Central Garden & Pet Company is a leading innovator, producer and distributor of branded and private label 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®, and OVER-N-OUT®; fertilizer and the brands PENNINGTON® and IRONITE®; 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™, COMFORT ZONE®, FARNAM®, HORSE HEALTH™ and VITAFLEX®; aquatics and reptile and the brands AQUEON®, CORALIFE®, SEGREST™ and ZILLA®; bird & small animal and the brands KAYTEE®, Forti-Diet® and CRITTER TRAIL®; and dog & cat and the brands TFH™, NYLABONE®, FOUR PAWS®, IMS™, CADET®, DMC™, K&H Pet Products®, PINNACLE® and AVODERM®. 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 4,200 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 the expected impact of tax reform, expectations for future financial results and earnings guidance for fiscal 2018 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) |
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ASSETS |
December 30, |
December 24, |
September 30, |
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Current assets: | ||||||||||||
Cash and cash equivalents | $ | 283,466 | $ | 6,581 | $ | 32,397 | ||||||
Restricted cash | 12,419 | 10,981 | 12,645 | |||||||||
Accounts receivable (less allowance for doubtful accounts of $20,481, $22,157 and $21,436) | 235,075 | 192,224 | 237,868 | |||||||||
Inventories | 440,421 | 430,171 | 382,101 | |||||||||
Prepaid expenses and other | 22,519 | 22,399 | 18,045 | |||||||||
Total current assets | 993,900 | 662,356 | 683,056 | |||||||||
Land, buildings, improvements and equipment—net | 179,230 | 169,836 | 180,913 | |||||||||
Goodwill | 256,275 | 230,385 | 256,275 | |||||||||
Other intangible assets—net | 113,726 | 92,851 | 116,067 | |||||||||
Other assets | 74,221 | 61,326 | 70,595 | |||||||||
Total | $ | 1,617,352 | $ | 1,216,754 | $ | 1,306,906 | ||||||
LIABILITIES AND EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 124,583 | $ | 135,237 | $ | 103,283 | ||||||
Accrued expenses | 100,004 | 94,494 | 116,549 | |||||||||
Current portion of long-term debt | 372 | 397 | 375 | |||||||||
Total current liabilities | 224,959 | 230,128 | 220,207 | |||||||||
Long-term debt | 690,964 | 395,011 | 395,278 | |||||||||
Deferred taxes and other long-term obligations | 39,478 | 31,659 | 54,279 | |||||||||
Equity: | ||||||||||||
Common stock, 12,160,023, 11,998,472, and 12,160,023 shares outstanding at December 30, 2017, December 24, 2016 and September 30, 2017 | 122 | 120 | 122 | |||||||||
Class A common stock, $0.01 par value: 38,029,367, 37,558,042 and 38,019,736 shares outstanding at December 30, 2017, December 24, 2016 and September 30, 2017 | 380 | 375 | 380 | |||||||||
Class B stock, $0.01 par value: 1,652,262 shares outstanding | 16 | 16 | 16 | |||||||||
Additional paid-in capital | 396,702 | 392,402 | 396,790 | |||||||||
Accumulated earnings | 265,576 | 168,138 | 239,329 | |||||||||
Accumulated other comprehensive loss | (907 | ) | (1,802 | ) | (951 | ) | ||||||
Total Central Garden & Pet Company shareholders’ equity | 661,889 | 559,249 | 635,686 | |||||||||
Noncontrolling interest | 62 | 707 | 1,456 | |||||||||
Total equity | 661,951 | 559,956 | 637,142 | |||||||||
Total | $ | 1,617,352 | $ | 1,216,754 | $ | 1,306,906 |
CENTRAL GARDEN & PET COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (Unaudited) |
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Three Months Ended | ||||||||
December 30, |
December 24, |
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Net sales | $ | 442,011 | $ | 419,498 | ||||
Cost of goods sold and occupancy | 310,174 | 298,820 | ||||||
Gross profit | 131,837 | 120,678 | ||||||
Selling, general and administrative expenses | 109,316 | 100,740 | ||||||
Operating income | 22,521 | 19,938 | ||||||
Interest expense | (7,405 | ) | (6,873 | ) | ||||
Interest income | 187 | 38 | ||||||
Other expense | (3,089 | ) | (967 | ) | ||||
Income before income taxes and noncontrolling interest | 12,214 | 12,136 | ||||||
Income tax (benefit) expense | (14,236 | ) | 4,347 | |||||
Income including noncontrolling interest | 26,450 | 7,789 | ||||||
Net income attributable to noncontrolling interest | 203 | 152 | ||||||
Net income attributable to Central Garden & Pet Company | $ | 26,247 | $ | 7,637 | ||||
Net income per share attributable to Central Garden & Pet Company: | ||||||||
Basic | $ | 0.52 | $ | 0.15 | ||||
Diluted | $ | 0.50 | $ | 0.15 | ||||
Weighted average shares used in the computation of net income per share: | ||||||||
Basic | 50,730 | 49,665 | ||||||
Diluted | 52,695 | 51,810 |
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 operating income on a consolidated and segment basis 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. We have not provided a reconciliation of non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis, because such reconciliation cannot be done without unreasonable efforts due to the potential significant variability and limited visibility of the excluded items discussed below.
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 reflect the following:
(1) | Transitional impact of U.S. Tax Reform: As a result of the Tax Reform Act, the Company recorded a provisional tax benefit of $16.3 million due to the remeasurement of its deferred tax assets and liabilities. We have excluded only this transitional impact and have not included in the adjustment the ongoing impact of the lower U.S. statutory rate on our current year earnings. | |
(2) | During the first quarter of fiscal 2017, we recorded a $2.0 million gain in our Garden segment from the sale of a distribution facility resulting from rationalizing our facilities to reduce excess capacity. This adjustment was recorded as part of selling, general and administrative costs in the condensed consolidated statements of operations. |
Operating Income Reconciliation |
GAAP to Non-GAAP Reconciliation (in thousands) For the Three Months Ended |
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Consolidated | Garden | ||||||||||||||||
December 30, 2017 | December 24, 2016 | December 30, 2017 | December 24, 2016 | ||||||||||||||
GAAP operating income | $ | 22,521 | $ | 19,938 | $ | 2,300 | $ | 2,676 | |||||||||
Gain on sale of distribution facility |
(2) |
— | (2,050 | ) | — | (2,050 | ) | ||||||||||
Non-GAAP operating income | $ | 22,521 | $ | 17,888 | $ | 2,300 | $ | 626 | |||||||||
GAAP operating margin | 5.1 | % | 4.8 | % | 2.0 | % | 2.3 |
% |
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Non-GAAP operating margin | 5.1 | % | 4.3 | % | 2.0 | % | 0.5 |
% |
GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) For the Three Months Ended |
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Net Income and Diluted Net Income Per Share Reconciliation | December 30, 2017 | December 24, 2016 | ||||||
GAAP net income attributable to Central Garden & Pet | $ | 26,247 | $ | 7,637 | ||||
Gain on sale of distribution facility | (2) | — | (2,050 | ) | ||||
Tax effect of sale of distribution facility adjustment | — | 734 | ||||||
Tax effect of revaluation of deferred assets | (1) | 16,343 | — | |||||
Total impact on net income from non-GAAP adjustments | $ | 16,343 | $ | (1,316 | ) | |||
Non-GAAP net income attributable to Central Garden & Pet | $ | 9,904 | $ | 6,321 | ||||
GAAP diluted net income per share | $ | 0.50 | $ | 0.15 | ||||
Non-GAAP diluted net income per share | $ | 0.19 | $ | 0.12 | ||||
Shares used in GAAP and non-GAAP diluted net earnings per share calculation | 52,695 | 51,810 |
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.
GAAP to Non-GAAP Reconciliation (in millions) For the Three Months Ended December 30, 2017 |
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Consolidated | Pet Segment | |||||||||||
Percentage |
Percentage |
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Reported net sales - Q1 FY18 (GAAP) | $ | 442.0 | $ | 325.1 | ||||||||
Reported net sales - Q1 FY17 (GAAP) | 419.5 | 304.0 | ||||||||||
Increase in net sales | 22.5 | 5.4% | 21.1 | 6.9% | ||||||||
Effect of acquisition and divestitures on increase in net sales | 17.7 | 4.3% | 17.7 | 5.8% | ||||||||
Increase in organic net sales - Q1 2018 | $ | 4.8 | 1.1% | $ | 3.4 | 1.1% |
GAAP to Non-GAAP Reconciliation (in millions) For the Three Months Ended |
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Consolidated | December 24, 2016 | December 26, 2015 | Percentage change | |||||||
Reported Net Sales - GAAP | $ | 419.5 | $ | 359.8 | 16.6% | |||||
Effect of acquisitions and divestitures | 41.8 | 6.7 | ||||||||
Organic net sales | $ | 377.7 | $ | 353.1 | 7.0% |
GAAP to Non-GAAP Reconciliation (in millions) For the Three Months Ended |
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Pet Segment | December 24, 2016 | December 26, 2015 | Percentage change | ||||||||
Reported Net Sales - GAAP | $ | 304.0 | $ | 248.7 | 22.2 | % | |||||
Effect of acquisitions and divestitures | 41.8 | 1.6 | |||||||||
Organic net sales | $ | 262.2 | $ | 247.1 | 6.1 | % |
CONTACT:
Central Garden & Pet Company
Steve Zenker,
925-948-3657
VP Finance - Investor Relations, FP&A, & Corporate
Communications