Central Garden & Pet reports fiscal Q2 net earnings of US$20.9M, down 5.9% from year-ago period; net sales rise 1% to US$501.6M

Nevin Barich

WALNUT CREEK, California , May 6, 2014 (press release) – Sales increased 1% to $501.6 million; Diluted EPS of $0.43 per share

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 reported financial results for the second quarter ended March 29, 2014.

The Company reported net sales of $501.6 million, a one percent increase over the comparable fiscal 2013 period. The Company’s second quarter operating income was $44.8 million, compared to operating income of $46.7 million in the second quarter of 2013. Net income was $20.9 million, or $0.43 per fully diluted share, compared with net income of $22.2 million or $0.46 per fully diluted share in the prior year.

“As expected, the second quarter had some positives and negatives,” said John Ranelli, President & CEO of Central Garden & Pet Company. “While we have made important changes to our operations – raising fill rates, improving customer service, reducing costs and strengthening our management team – we have significant challenges ahead of us to overcome. We still believe that it will be a year or more before we are able to fill our new product pipeline and execute in a consistent manner.”

Second Quarter and Year-to-Date Details

Net sales for the Garden segment for the quarter were $284.9 million, a gain of eight percent over the second quarter of 2013. Sales benefitted from aggressive up-front retailer purchasing ahead of the Spring Garden season as well as increased distribution in several of the Company’s Garden businesses. The Garden segment’s branded product sales for the quarter increased $18.1 million, or eight percent, to $247.3 million while sales of other manufacturers’ products were $37.6 million, an increase of 10 percent compared with the second quarter of 2013. The Garden segment’s operating margin of 12.9% during the quarter was similar to a year ago, with a decline in gross margin being offset by lower SG&A expenses. For the second quarter, the Garden segment’s operating income was $36.8 million, an increase from $34.0 million from the second quarter of 2013.

The Company believes that its Garden product sales were shifted from April into the second quarter and will likely result in the opposite effect in the third quarter, with Garden sales being lower than the prior year.

Net sales for the Pet segment for the quarter were $216.7 million, a decrease of eight percent over the second quarter of 2013, impacted by reduced retail distribution for some of its products as well as lower consumer takeaway in areas of the Pet industry where the Company participates. The Pet segment’s branded product sales for the quarter decreased $23.3 million, or 12 percent, to $169.8 million while sales of other manufacturers’ products were $46.9 million, an increase of 12 percent compared with the second quarter of 2013. The Pet segment’s operating margin declined 50 basis points to 11.2% during the quarter. Gross margin was relatively unchanged from a year ago. For the second quarter, the Pet segment’s operating income was $24.2 million, a decline from $27.5 million in the prior-year period.

For the six months ending March 29, 2014, the Company reported net sales of $792.1 million, a slight increase from $790.7 million in the comparable 2013 period. Branded products sales were $650.4 million, a decrease of two percent over the comparable 2013 period. Sales of other manufacturers' products increased 10 percent to $141.7 million. Operating income for the period increased to $36.4 million compared to $33.7 million in the prior year. Net income for the six months ended March 29, 2014 was $8.2 million, an increase of $1.3 million compared to the comparable 2013 period. Earnings per fully diluted share were $0.17 compared to $0.14 per fully diluted share in the year ago period.

At March 29, 2014, the Company’s cash and short term investments balance totaled $31.0 million. Total debt at March 29, 2014 was $545.3 million compared to $593.7 million at March 30, 2013. As of March 29, 2014, there were borrowings of $95.0 million outstanding on the Company’s senior-secured asset-based revolving credit facility and $295.0 million remained available. Net interest expense was $10.4 million for the quarter and $10.9 million in the prior year period. Depreciation and amortization expense was $9.2 million, an increase from $8.3 million in the second quarter of 2013. The Company’s effective tax rate for the second quarter was 37.7 percent compared to 35.8 percent in the prior year period.

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 second 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 (480) 629-9835 and enter passcode 4669806. A replay of the call will be available for three weeks by dialing (303) 590-3030 and entering passcode 4669806.

About Central Garden & Pet

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®, SMART SEED® 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 OCEANIC SYSTEMS®, AQUEON® and ZILLA®; bird & small animal and the brands KAYTEE®, SUPER PET® and CRITTER TRAIL®; dog & cat and the brands TFH™, NYLABONE®, FOUR PAWS®, PINNACLE® and AVODERM®; and equine and the brands FARNAM®, BRONCO® and SUPER MASK®. 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 3,400 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.

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