WALNUT CREEK, Calif.–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 financial results for its fiscal 2020 first quarter ended December 28, 2019.
“Our first quarter performance was in line with our expectations, reflecting several headwinds we anticipated and discussed on our last earnings call,” said Tim Cofer, CEO of Central Garden & Pet. “Importantly, the first quarter is historically the smallest of the year, and we continue to be confident in our full year guidance.”
Cofer continued, “As we move through the balance of the year, we will invest in numerous growth initiatives. We have identified several opportunities that we believe will yield attractive returns over time. While these investments may negatively impact our results in the short term, we expect they will help pave the way for sustainable profitable growth in the years ahead. We have also been evaluating and fortifying our long-term strategy and look forward to sharing details with investors this summer.”
Fiscal 2020 First Quarter Financial Results
Total net sales increased 4.5% to $482.8 million compared to $462.0 million in the first quarter a year ago, driven in large part by recent acquisitions. Total Company organic sales were relatively flat, negatively impacted by the timing of customer purchases compared to the prior year’s first quarter, the Company’s exit from the fashion decor pottery product line, a major retailer’s exit from the live fish category and the impact of a fire at its pet bedding business.
First quarter gross margin declined 100 basis points to 27.2%, due to an unfavorable mix of product sales and the impact of lower volumes in certain businesses. Operating income decreased to $2.1 million from $10.2 million in the first quarter a year ago. Operating margin decreased 180 basis points to 0.4% compared to 2.2%, due in part to the lower gross margin, higher corporate expenses and increased third-party expenses.
The Company’s net loss was $4.4 million for the quarter compared to net income of $1.8 million in the first quarter a year ago. The loss per share for the quarter was $0.08 compared to income of $0.03 in the first quarter a year ago. EBITDA for the quarter was $15.2 million versus $22.5 million in the first quarter a year ago.
Garden Segment Fiscal 2020 First Quarter Results
First quarter net sales for the Garden segment rose 5.9% to $128.8 million, driven by the Arden acquisition. Organic sales decreased 4.4% over the prior year period, negatively impacted by the Company’s exit from the fashion decor pottery product line. Lower revenues in the Company’s grass seed and controls businesses were also factors in the decline.
The Garden segment’s operating loss increased to $8.3 million in the quarter from $4.6 million in the first quarter of fiscal 2019, and operating margin declined 270 basis points to 6.5%. Both the operating income and margin decreases were driven by the pottery category, and the inclusion of the Arden business, which was not in the Garden segment’s results in the first quarter a year ago. These businesses accounted for the majority of the operating margin decline during the quarter. Garden EBITDA of $(5.1) million was down from $(1.8) million in the first quarter a year ago.
Pet Segment Fiscal 2020 First Quarter Results
First quarter net sales for the Pet segment increased 4.0% to $354.0 million compared to the same period a year ago, aided by the Company’s C&S acquisition. Organic Pet sales also rose, by 1.3%, with notable strength in dog treats and chews, aquatics and wild bird feed. These gains more than offset the negative impact of lower bedding sales, in part due to a fire at one of the Company’s facilities during the quarter, as well as a decline in live fish sales due to a major retailer exiting the category during fiscal 2019.
The Pet segment’s operating income increased 1.6% compared to the first quarter a year ago to $30.2 million, aided by the C&S acquisition. Pet operating margin decreased to 8.5%, a decline of 20 basis points, due to the lingering effects of supply constraints in the aquatics business experienced in the fourth quarter of fiscal 2019. Pet EBITDA of $38.7 million increased from $37.8 million in the first quarter a year ago.
The Company’s cash balance at the end of the quarter decreased to $445.8 compared to $478.7 million in the first quarter a year ago. Cash used by operations during the quarter was $18.0 million compared to cash generated of $6.8 million a year ago due primarily to higher inventory levels. Total debt at December 28, 2019 was $693.4 million compared to $692.4 million at December 29, 2018. Net interest expense of $8.6 million for the first quarter increased $0.5 million from $8.1 million in the prior-year period, mainly due to lower interest earned on the Company’s cash balances during the quarter. The Company’s leverage ratio at the end of the first quarter, as defined in the Company’s credit agreement, was 3.0x compared to 3.2x at the end of the prior year quarter.
The Company’s effective tax rate for the first quarter of 2020 was 27.6%, compared with 14.3% for the first quarter of 2019.
During the quarter, the Company repurchased approximately 829 thousand shares, or $22.1 million, of its common stock. As of the end of the quarter, the Company had $100 million available under the Board’s previously authorized share repurchase program and an additional 600,000 shares under the Board’s equity dilution authorization.
The Company continues to expect fiscal 2020 earnings per diluted share to be at, or modestly above, the $1.61 earned in the prior year. The guidance is inclusive of significant incremental investment intended to support sustainable organic growth in the years ahead.
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 #13698383. A replay of the call will be available for three days by dialing (201) 612-7415 and entering confirmation #13698383.
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®; live plants from BELL NURSERY; outdoor cushions and pillows from ARDEN COMPANIES; 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 5,900 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 financial results, earnings guidance for fiscal 2020 and new product offerings, 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:
- 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 inability to pass through cost increases in a timely manner;
- adverse weather conditions;
- our dependence upon our key executives;
- potential acquisitions;
- the impact of new accounting regulations and the U.S. Tax Cuts and Jobs Act on the Company’s tax rate;
- dependence on a small number of customers for a significant portion of our business;
- the impacts of tariffs or a potential trade war;
- risk associated with litigation arising from our business;
- uncertainty about new product innovations and marketing programs; and
- competition in our industries.
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. The Company has not filed its Form 10-Q for the fiscal quarter ended December 28, 2019, so all financial results are preliminary and subject to change.
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