Central Garden & Pet Announces Q2 Fiscal 2023 Financial Results
Central Garden Pet Company (NASDAQ: CENT) (NASDAQ: CENTA) (“Central”), a market leader in the Pet and Garden industries, today announced its second quarter fiscal 2023 financial results for the period ended March 25, 2023.
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“Consistent with what we shared last month, Central delivered second quarter earnings per share of $0.90 in the face of softness across our garden portfolio. The garden category was impacted by a later start to the season, lighter foot traffic and unfavorable retailer inventory dynamics, while the pet segment expanded market share and performed largely as planned,” said Tim Cofer, CEO of Central Garden Pet. “In line with our original outlook, we expect earnings per share growth in the second half of the year. In addition to short-term actions to cut controllable costs, we are progressing a multi-year cost and simplicity program to reduce complexity, improve margins, and elevate our brands.”
Fiscal 2023 Second Quarter Financial Results
Net sales were $909 million compared to $954 million a year ago, a decline of 5%.
Gross margin was 28.6% compared to 30.1% a year ago. The gross margin decline was driven by the Garden segment due to unfavorable overhead absorption in key garden businesses and input cost pressures.
Operating income was $78 million compared to $107 million a year ago, and operating margin was 8.6% compared to 11.2% in the prior year. The operating margin decline was largely driven by the Garden segment primarily due to overhead absorption pressures.
Net interest expense of $15 million was in line with the prior year quarter.
The Company's net income was $48 million compared to $70 million a year ago. Earnings per share was $0.90 compared to $1.27 in the prior year quarter. Adjusted EBITDA was $107 million compared to $131 million a year ago.
The Company’s effective tax rate was 23.9% compared to 23.4% in the prior year quarter.
Pet Segment Fiscal 2023 Second Quarter Results
Net sales for the Pet segment were $475 million compared to $498 million in the prior year, a decline of 5%. Lower sales in Outdoor Cushions, the Company's decision to discontinue certain low-profit private label pet bed product lines and lower demand for durable pet products were partially offset by strength in Dog Cat Treats Toys.
Pet segment operating income was $55 million compared to $61 million a year ago, and operating margin was 11.6% compared to 12.2%. The decline in operating margin was mainly due to lower sales. Pet segment adjusted EBITDA was $66 million compared to $70 million a year ago.
Garden Segment Fiscal 2023 Second Quarter Results
Net sales for the Garden segment were $434 million compared to $457 million a year ago, a decline of 5%. Lower sales in Grass Seed, Controls Fertilizer and Live Goods were partially offset by strength in Wild Bird and Packet Seed. Net sales were unfavorably impacted by poor spring weather resulting in lower foot traffic, and changes in retailer buying patterns.
Garden segment operating income was $50 million compared to $71 million a year ago, and operating margin was 11.4% compared to 15.4%. The decline in operating margin was mainly due to lower sales, input cost inflation, and initial start-up costs associated with a recently acquired live goods facility. Garden segment adjusted EBITDA was $60 million compared to $78 million in the prior year quarter.
Additional Information
The Company's cash balance at the end of the quarter was $61 million compared to $54 million a year ago. Cash used by operations during the quarter was $34 million compared to $180 million a year ago. The decrease in cash used by operations was driven primarily by lower working capital requirements.
Total debt as of March 25, 2023 and March 26, 2022 was $1.2 billion. The Company's leverage ratio, as defined in the Company's credit agreement, at the end of the second quarter was 3.3x compared to 2.9x at the end of the prior year quarter. The Company repurchased approximately 75,000 shares or $2.7 million of its stock during the quarter.
Cost and Simplicity Program
The Company will provide on its earnings call details related to its multi-year cost and simplicity program consisting of a pipeline of projects across a number of key areas including procurement, manufacturing, logistics, portfolio management and administrative costs.
Fiscal 2023 Guidance
The Company expects fiscal 2023 EPS of $2.35 or better. This outlook reflects the macroeconomic uncertainty, cost inflation, evolving consumer behavior and unfavorable retailer inventory dynamics, as well as pricing actions and productivity initiatives across the Company's portfolio. The Company anticipates capital spending significantly below fiscal 2022 levels. Fiscal 2023 will have 53 weeks compared to 52 weeks in fiscal 2022. This outlook excludes the impact of any acquisitions or restructuring activities that may occur during fiscal 2023, including any projects under the cost and simplicity program.
Conference Call
The Company's senior management will hold a conference call today at 4:30 p.m. Eastern Time (1:30 p.m. Pacific Time) to discuss its second quarter fiscal 2023 financial results and provide a general business update. The conference call and related materials can be accessed at http://ir.central.com.
Alternatively, to listen to the call by telephone, dial (201) 689-8345 (domestic and international) using confirmation #13736274.
About Central Garden Pet
Central Garden Pet Company (NASDAQ: CENT) (NASDAQ: CENTA) understands that home is central to life and has proudly nurtured happy and healthy homes for over 40 years. With fiscal 2022 net sales of $3.3 billion, Central is on a mission to lead the future of the Pet and Garden industries. The Company’s innovative and trusted products are dedicated to helping lawns grow greener, gardens bloom bigger, pets live healthier and communities grow stronger. Central is home to a leading portfolio of more than 65 high-quality brands including Amdro®, Aqueon®, Cadet®, Farnam®, Ferry-Morse®, Four Paws®, Kaytee®, K®, Nylabone® and Pennington®, strong manufacturing and distribution capabilities and a passionate, entrepreneurial growth culture. Central is based in Walnut Creek, California and has over 7,000 employees across North America and Europe. Visit www.central.com to learn more.
Safe Harbor Statement
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: The statements contained in this release which are not historical facts, including statements concerning cost inflation, evolving consumer behavior and unfavorable retailer inventory dynamics, pricing actions, productivity initiatives and reduced capital spending, and earnings guidance for fiscal 2023, 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. The Company has not filed its Form 10-Q for the fiscal quarter ended March 25, 2023, so all financial results are preliminary and subject to change.
(Tables Follow)
CENTRAL GARDEN PET COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts, unaudited)
ASSETS
March 25, 2023
March 26, 2022
September 24, 2022
Current assets:
Cash and cash equivalents
$
60,607
$
54,082
$
177,442
Restricted cash
13,475
12,676
14,742
Accounts receivable (less allowances of $28,283, $28,234 and $26,246)
564,874
619,629
376,787
Inventories, net
966,900
888,051
938,000
Prepaid expenses and other
48,019
49,449
46,883
Total current assets
1,653,875
1,623,887
1,553,854
Plant, property and equipment, net
395,788
384,940
396,979
546,436
511,973
546,436
Other intangible assets, net
525,301
499,251
543,210
Operating lease right-of-use assets
174,435
204,148
186,344
Other assets
54,963
125,059
55,179
Total
$
3,350,798
$
3,349,258
$
3,282,002
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
$
225,311
$
297,194
$
215,681
Accrued expenses
201,286
228,412
201,783
Current lease liabilities
49,082
44,765
48,111
Current portion of long-term debt
270
378
317
Total current liabilities
475,949
570,749
465,892
Long-term debt
1,212,053
1,185,456
1,186,245
Long-term lease liabilities
135,695
165,446
147,724
Deferred income taxes and other long-term obligations
154,854
133,274
147,429
Common stock, $0.01 par value: 11,236,635, 11,335,658 and 11,296,351 shares outstanding at March 25, 2023, March 26, 2022 and September 24, 2022
112
113
113
Class A common stock, $0.01 par value: 41,289,878, 42,228,533 and 41,336,223 shares outstanding at March 25, 2023, March 26, 2022 and September 24, 2022
413
422
413
Class B stock, $0.01 par value: 1,602,374, 1,612,374 and 1,612,374 at March 25, 2023, March 26, 2022 and September 24, 2022
16
16
16
Additional paid-in capital
587,378
580,555
582,056
Retained earnings
786,776
712,683
755,253
Accumulated other comprehensive loss
(3,601
)
(703
)
(4,145
)
Total Central Garden Pet Company shareholders’ equity
1,371,094
1,293,086
1,333,706
Noncontrolling interest
1,153
1,247
1,006
Total equity
1,372,247
1,294,333
1,334,712
Total
$
3,350,798
$
3,349,258
$
3,282,002
CENTRAL GARDEN PET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts, unaudited)
Three Months Ended
Six Months Ended
March 25, 2023
March 26, 2022
March 25, 2023
March 26, 2022
Net sales
$
909,004
$
954,370
$
1,536,667
$
1,615,768
Cost of goods sold
649,366
667,578
1,105,330
1,130,780
Gross profit
259,638
286,792
431,337
484,988
Selling, general and administrative expenses
181,597
179,947
352,890
351,929
Operating income
78,041
106,845
78,447
133,059
Interest expense
(14,876
)
(14,729
)
(29,345
)
(29,211
)
Interest income
186
27
879
101
Other income (expense)
595
(369
)
2,294
(578
)
Income before Income taxes and noncontrolling interest
63,946
91,774
52,275
103,371
Income tax expense
15,268
21,488
12,446
23,889
Income including noncontrolling interest
48,678
70,286
39,829
79,482
Net income attributable to noncontrolling interest
563
573
147
760
Net income attributable to Central Garden Pet Company
$
48,115
$
69,713
$
39,682
$
78,722
Net income per share attributable to Central Garden Pet Company:
Basic
$
0.92
$
1.30
$
0.76
$
1.47
Diluted
$
0.90
$
1.27
$
0.74
$
1.44
Weighted average shares used in the computation of net income per share:
Basic
52,443
53,458
52,461
53,475
Diluted
53,534
54,722
53,520
54,818
CENTRAL GARDEN PET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Six Months Ended
March 25, 2023
March 26, 2022
Cash flows from operating activities:
Net income
$
39,829
$
79,482
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization
43,801
38,449
Amortization of deferred financing costs
1,349
1,316
Non-cash lease expense
25,369
23,532
Stock-based compensation
13,327
11,479
Debt extinguishment costs
—
169
Deferred income taxes
7,486
77,416
Other operating activities
136
(124
)
Change in assets and liabilities (excluding businesses acquired):
Accounts receivable
(187,745
)
(234,146
)
Inventories
(27,152
)
(202,996
)
Prepaid expenses and other assets
(3,868
)
(84,983
)
Accounts payable
15,421
51,195
Accrued expenses
(462
)
(10,038
)
Other long-term obligations
(21
)
(64
)
Operating lease liabilities
(24,542
)
(22,768
)
Net cash used by operating activities
(97,072
)
(272,081
)
Cash flows from investing activities:
Additions to plant, property and equipment
(30,228
)
(75,419
)
Investments
(500
)
(1,918
)
Other investing activities
(100
)
100
Net cash used in investing activities
(30,828
)
(77,237
)
Cash flows from financing activities:
Repayments of long-term debt
(182
)
(889
)
Borrowings under revolving line of credit
48,000
—
Repayments under revolving line of credit
(23,000
)
—
Repurchase of common stock, including shares surrendered for tax withholding
(16,165
)
(18,752
)
Payment of contingent consideration liability
(12
)
(125
)
Distribution to noncontrolling interest
—
(806
)
Payment of financing costs
—
(2,442
)
Net cash provided (used) by financing activities
8,641
(23,014
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
1,157
(432
)
Net decrease in cash, cash equivalents and restricted cash
(118,102
)
(372,764
)
Cash, cash equivalents and restricted cash at beginning of period
192,184
439,522
Cash, cash equivalents and restricted cash at end of period
$
74,082
$
66,758
Supplemental information:
Cash paid for interest
$
29,343
$
29,042
Cash paid for taxes
$
1,889
$
24,603
New operating lease right of use assets
$
13,776
$
62,251
Use of Non-GAAP Financial Measures
We report our financial results in accordance with accounting principles generally accepted in the United States (GAAP). However, to supplement the financial results prepared in accordance with GAAP, we use non-GAAP financial measures including adjusted EBITDA. Management believes non-GAAP financial measures 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.
Adjusted EBITDA is defined by us as income before income tax, net other expense, net interest expense, depreciation and amortization and stock-based compensation (or operating income plus depreciation and amortization and stock-based compensation expense). We present adjusted EBITDA because we believe that adjusted EBITDA is a useful supplemental measure in evaluating the cash flows and performance of our business and provides greater transparency into our results of operations. Adjusted EBITDA is used by our management to perform such evaluation. Adjusted EBITDA should not be considered in isolation or as a substitute for cash flow from operations, income from operations or other income statement measures prepared in accordance with GAAP. We believe that adjusted EBITDA is frequently used by investors, securities analysts and other interested parties in their evaluation of companies, many of which present adjusted EBITDA when reporting their results. Other companies may calculate adjusted EBITDA differently and it may not be comparable.
The reconciliations of adjusted EBITDA 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 adjusted EBITDA in making financial, operating and planning decisions and in evaluating our performance, and we believe it 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.
Adjusted EBITDA Reconciliation
GAAP to Non-GAAP Reconciliation
For the Three Months Ended March 25, 2023
Pet
Garden
Corp
Total
(in thousands)
Net income attributable to Central Garden Pet Company
$
—
$
—
$
—
$
48,115
Interest expense, net
—
—
—
14,690
Other income
—
—
—
(595
)
Income tax expense
—
—
—
15,268
Net income attributable to noncontrolling interest
—
—
—
563
Income (loss) from operations
55,255
49,619
(26,833
)
78,041
Depreciation amortization
10,474
10,818
817
22,109
Noncash stock-based compensation
—
—
6,750
6,750
Adjusted EBITDA
$
65,729
$
60,437
$
(19,266
)
$
106,900
Adjusted EBITDA Reconciliation
GAAP to Non-GAAP Reconciliation
For the Three Months Ended March 26, 2022
Pet
Garden
Corp
Total
(in thousands)
Net income attributable to Central Garden Pet Company
$
—
$
—
$
—
$
69,713
Interest expense, net
—
—
—
14,702
Other expense
—
—
—
369
Income tax expense
—
—
—
21,488
Net income attributable to noncontrolling interest
—
—
—
573
Income (loss) from operations
60,645
70,511
(24,311
)
106,845
Depreciation amortization
9,539
7,719
989
18,247
Noncash stock-based compensation
6,292
6,292
Adjusted EBITDA
$
70,184
$
78,230
$
(17,030
)
$
131,384
Adjusted EBITDA Reconciliation
GAAP to Non-GAAP Reconciliation
For the Six Months Ended March 25, 2023
Pet
Garden
Corp
Total
(in thousands)
Net income attributable to Central Garden Pet Company
$
—
$
—
$
—
$
39,682
Interest expense, net
—
—
—
28,466
Other income
—
—
—
(2,294
)
Income tax expense
—
—
—
12,446
Net income attributable to noncontrolling interest
—
—
—
147
Income (loss) from operations
94,810
38,799
(55,162
)
78,447
Depreciation amortization
20,586
21,660
1,555
43,801
Noncash stock-based compensation
—
—
13,327
13,327
Adjusted EBITDA
$
115,396
$
60,459
$
(40,280
)
$
135,575
Adjusted EBITDA Reconciliation
GAAP to Non-GAAP Reconciliation
For the Six Months Ended March 26, 2022
Pet
Garden
Corp
Total
(in thousands)
Net income attributable to Central Garden Pet Company
$
—
$
—
$
—
$
78,722
Interest expense, net
—
—
—
29,110
Other expense
—
—
—
578
Income tax expense
—
—
—
23,889
Net income attributable to noncontrolling interest
—
—
—
760
Income (loss) from operations
105,896
76,568
(49,405
)
133,059
Depreciation amortization
19,088
17,339
2,022
38,449
Noncash stock-based compensation
—
—
11,479
11,479
Adjusted EBITDA
$
124,984
$
93,907
$
(35,904
)
$
182,987
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