Central Garden & Pet Company (NASDAQ: CENT) (NASDAQ: CENTA)

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, recentlystatedfinancial results for its financial year and 4th-quarter finished September 28, 2k19.

Financial2k19 Summary

Net sales of $2.380Binclined 7.60 percent compared to $2.220B a year ago, primarily due to acquisitions not present in previous year results. Branded product sales of $1.880Binclined 6.70 percent, and sales of other manufacturers’ products inclined 11.00 percent to $504.50M. Organic sales growth for the year inclined 1.50 percent, due to gains in the Garden segment. Gross margin declined 100.0 basis points to 29.50 percent compared to 30.50 percent in the previous year, due in part to the impact of businesses acquired that were not in the previous year’s results, which accounted for half of the gross margin decline. The underperformance in the Company’s animal health businesses and unfavourable product mix also contributed to the margin decline. Price inclines implemented throughout the year, as well as cost reductions, partially offset the negative impact of higher labor and freight costs and tariffs.

Financial2k19 GAAP Operating Income, Net Earnings and EPS

  • Operating income of $152.10Mdeclined 9.10 percent from $167.30M in financial2k18, primarily impacted by lower results in the Company’s animal health businesses, and the inclusion of seasonal losses of Bell Nursery that were not part of the results in the previous year duration;
  • Operating margin of 6.40 percent was down 120.0 basis points compared to financial2k18, impacted by a lower gross margian, as well as higher logistics costs. Lower marketing costs as a percent of sales mitigated a portion of the decline;
  • Net income of $92.80M, declined 24.90 percent compared to $123.60M in financial2k18;
  • Earnings for each share declined 30.60 percent to $1.610 for each fully diluted share on an 8.00 percentincline in the number of shares outstanding compared to the previous year; and
  • Cash flow from operations inclined to $205.00M, up 79.60 percent or $90.90M compared to the previous year.

Financial2k19 Non-GAAP Operating Income, Net Earnings and EPS

  • Non-GAAP results for financial2k19 exclude the 2nd-quarter non-cash $3.20M gain from the write-up of the Company’s previous 45.00 percent ownership of the Arden Companies as well as a non-cash impairment of $2.50M of intangible value associated with the Company’s live fish business, due to the exit of the category by a large retailer;
  • Non-GAAP results for financial2k18 exclude a favourable tax impact of $21.50M for the revaluation of the Company’s deferred tax accounts;
  • Non-GAAP operating income for financial2k19 was $151.40 with an operating margin of 6.40 percent, compared to $167.30M and 7.60 percent, respectively, in financial2k18;
  • Non-GAAP net income for financial2k19 was $92.30M, a 9.60 percentdecline compared to $102.10M in financial2k18, negatively impacted by a higher effective tax rate;
  • Non-GAAP earnings for each fully diluted share declined 16.20 percent to $1.600 from $1.910 in the previousfinancial year on a greater number of shares outstanding;
  • EBITDA declined 5.40 percent, or $11.60M, to $202.90M compared with financial2k18. The decline was primarily due to the inclusion of two quarters of Bell Nursery results not in the previous year duration. This negatively impacted financial2k19 EBITDA by $7.00M.

Financial2k194th-Quarter Financial Results

Net sales inclined 7.70 percent to $540.70M compared to $502.30M in the 4th-quarter a year ago, while organic sales grew 4.60 percent, driven by gains in both the Garden and Pet segments. Branded product sales of $415.00Minclined 4.90 percent, and sales of other manufacturers’ products of $125.70Minclined 17.70 percent. Gross margin declined 180.0 basis points compared to the 4th-quarter a year ago to 27.50 percent, with the inventory write-off in the Pet segment and unfavourable mix changes in the Garden segment the primary causes of the decline.

4th-Quarter GAAP Operating Income, Net Earnings and EPS

  • Operating income of $10.9M was down $7.30M or 40.30 percent compared to $18.20M in the 4th-quarter a year ago. Operating margin of 2.00 percentdeclined 160.0 basis points compared to the 4th-quarter a year ago, due to higher costs related to writing off of receivables and inventory as well as one-time CEO transition costs;
  • Net income declined to $2.40M from $10.60M in the 4th-quarter a year ago, as lower operating income and a higher tax rate compared to the 4th-quarter a year ago more than offset a decline in other cost. The tax rate last year included a favourable impact from the revaluation of the Company’s deferred tax accounts. The decline in other cost resulted principally from the remainder of the Arden business being purchased throughout the year and residing in the Garden segment throughout the quarter as opposed to being classified as other income in the 4th-quarter a year ago; and
  • Earnings for each fully-diluted share declined to $0.040 from $0.190 in the 4th-quarter a year ago.

4th-Quarter Non-GAAP Operating Income, Net Earnings and EPS

  • Non-GAAP results for the 4th-quarter of financial2k18 exclude a favourable tax impact of $5.10M from the revaluation of the Company’s deferred tax accounts;
  • Non-GAAP net income declined to $2.40M from $5.40M in the 4th-quarter a year ago;
  • Non-GAAP earnings for each diluted share declined to $0.040 from $0.100 in the 4th-quarter a year ago; and
  • EBITDA declined $6.20M, or 20.20 percent, to $24.40M compared to the 4th-quarter a year ago.

Pet Segment Financial2k194th-Quarter Results

4th-quarter net sales for the Pet segment inclined 4.90 percent from the similarduration a year ago, to $355.90M. The gain was due in part to the inclusion of the C&S acquisition as well as organic growth. The Pet segment’s branded product sales were $272.30M, up 3.90 percent compared to the 4th-quarter a year ago, and sales of other manufacturers’ products were $83.60M, an incline of 8.30 percent. Pet organic sales grew 2.20 percent, on higher sales of other manufacturers products, as well as strength in the dog & cat and wild bird businesses. The gains more than offset lower sales in the aquatics and live fish businesses.

The Pet segment’s operating income declined 3.80 percent to $30.90M and operating margin declined 80 basis points, to 8.70 percent, from $32.20M and 9.50 percent, respectively, in the 4th-quarter a year ago. The declines were primarily due to lower results in the Company’s animal health and pet bedding businesses, which included write-offs and costs taken throughout the quarter related to receivables and inventory.

Garden Segment Financial2k194th-Quarter Results

Net sales for the Garden segment inclined 13.40 percent compared to the 4th-quarter a year ago to $184.80M, aided by the acquisition of Arden but primarily driven by organic growth. The Garden segment’s branded product sales were $142.70M in the quarter, up 7.10 percent compared to the 4th-quarter a year ago. Sales of other manufacturers’ products inclined 42.20 percent to $42.10M. Organic sales rose 9.70 percent, despite the impact of unfavourable weather throughout the quarter on controls product sales. Higher sales of other manufacturers’ products were the primary driver of the improved organic revenue, with meaningful gains also contributed by the wild bird, grass seed, and live plants businesses.

The Garden segment’s operating income in the quarter declined to $0.30M compared to $1.60M in the 4th-quarter a year ago, and Garden operating margin declined 80.0 basis points to 0.20 percent. The inclusion of Arden in the Garden segment, which was not in last year’s Garden results, negatively impacted both measures. Mix of products sold was also a detractor to margins.

Additional Information

At September 28, 2k19, the Company’s cash and short-term investment balance was $497.70M, compared to $482.10M a year ago. Cash flow from operations for the 4th-quarter of financial2k19 was $112.20M, compared to $96.40M in the 4th-quarter of financial2k18.

Total debt at September 28, 2k19 was $693.20M compared to $692.20M at September 29, 2k18. Net interest cost was $8.10M for the 4th-quarter of financial2k19 compared to $8.90M in the previous-year duration. The Company’s leverage ratio at the end of the quarter and year, as defined in the Company’s credit agreement, was 3.10x compared to 3.00x in the previous year quarter.

Other cost for the quarter declined to $0.20M from $4.40M in the 4th-quarter a year ago due to the absence of Arden in the other cost line.

The Company’s effective tax rate for the 4th-quarter was 22.80 percent compared to a tax benefit of 112.90 percent in the 4th-quarter of 2k18. For the full financial year, the tax rate was 22.30 percent compared with 2.60 percentprevious year. The financial2k18 tax rate reflects the revaluation of the Company’s deferred tax accounts and a reduction in the U.S. Federal corporate tax rate in financial2k18. Excluding the impact of the revaluation of the deferred tax accounts in financial2k18, the Company’s tax rate for financial2k18 was 19.50 percent. Financial2k19 tax rates reflect a higher weighted average tax rate for the year due to a less favourable impact from changes in accounting standards around non-cash equity compensation cost than in the previous4th-quarter and financial year durations.

Throughout the 4th-quarter, the Company repurchased 1.80M shares of its stock. As of the end of its financial year, the Company had $100.00M remaining on its Board authorized share repurchase program, as well as an additional 1.20M shares remaining on the Board’s equity dilution authorization.