Central Garden & Pet Company Announces Improved Fiscal 2012 Third Quarter Results

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 its fiscal third quarter ended June 23, 2012.

The Company reported third quarter net sales of $533.8 million, an increase of 10 percent from the same period a year ago. Third quarter operating income was $49.0 million, compared to operating income of $36.6 million in the third quarter of 2011, a 34 percent increase. The increase in operating income reflected higher sales and a favorable product mix, which resulted in both higher gross margins and higher operating margins. Net interest expense was $10.7 million compared to $9.8 million in the year-ago period. Net income totaled $22.7 million, or $0.47 per fully diluted share, compared with net income of $17.1 million, or $0.31 per fully diluted share, in the third quarter of 2011.

“We are pleased with our third quarter revenue growth and bottom line results. We now have generated top-line growth in six of the last seven quarters,” said Gus Halas, President and CEO of Central Operating Companies. “Our Pet segment performed well during the quarter, benefitting from expanded distribution, product innovation and favorable weather for pest control products. Additionally, this quarter’s results also reflect the shipment of backlogged orders from the prior quarter. We believe our revenue growth underscores that our increased marketing investments and master brands strategy are yielding tangible results and helping build a solid base for sustained growth in the years ahead.” Mr. Halas added, “The transformation we began over a year ago is progressing as planned, but is by no means complete. As we move forward, we are continuing to focus on becoming more efficient and more integrated, enabling us to better meet the needs of our customers while raising the visibility of our products to consumers.”

Third Quarter and Year-To-Date Details

Net sales for the Pet segment increased 19 percent, or $44.0 million, from the same period a year ago to $271.3 million, on strength across many of its categories, especially flea and tick. The Pet segment’s branded product sales were $228.9 million and sales of other manufacturers’ products were $42.4 million. The Pet segment’s gross and operating margins rose from a year ago, due primarily to a favorable change in the mix of sales including higher flea & tick sales and lower third party product sales. The Pet segment’s operating income was $40.5 million compared to operating income of $27.2 million in the prior-year period, a $13.3 million or 49 percent increase.

Net sales for the Garden segment rose 2 percent, or $5.5 million, from the same period a year ago to $262.5 million, in large part due to stronger chemical and control sales. The Garden segment’s branded product sales were $221.3 million and sales of other manufacturers’ products were $41.2 million. In the third quarter, the Garden segment’s gross and operating margins increased relative to the same period a year ago, aided by increased sales of higher-margin control products and improved margins on bird seed products. The Garden segment’s operating income in the quarter was $22.6 million, compared to operating income of $18.0 million in the third quarter of 2011, a $4.6 million or 26 percent increase.

For the nine months ending June 23, 2012, the Company reported net sales of $1.30 billion, an increase of 4% from $1.25 billion in the comparable 2011 period. Branded products sales equaled $1.09 billion, increasing 3% over the comparable 2011 period. Sales of other manufacturers' products rose 9% to $214.6 million. Operating income for the period was $82.9 million compared to $89.7 million in the prior year. Net income for the nine months ended June 23, 2012 was $31.2 million compared to $39.3 million in the comparable 2011 period. Earnings per fully diluted share were $0.65 compared to $0.68 per fully diluted share in the year ago period.

At June 23, 2012, the Company’s cash and short-term investments balance was $58.5 million compared to $26.6 million in the prior year-period. Total debt at June 23, 2012 was $449.9 million compared to $450.5 million at June 25, 2011. The quarter-ending total leverage ratio, as defined in the Company’s senior credit facility, was 3.9x. Depreciation and amortization expense was $8.0 million in the third quarter of 2012, compared with $7.1 million in the prior-year period. The Company’s effective tax rate for the third quarter of 2012 was 37.9 percent, compared with 36.4 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 fiscal third quarter 2012 results. The conference call will be accessible through the investor relations section of Central’s website, http://ir.central.com.

Alternatively, to listen to the call by telephone, dial 1-412-317-6789 and enter passcode 10015876. A replay of the call will be available for three weeks by dialing 1-412-317-0088 (domestic and international) and entering passcode 10015876.

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 and the brands NORCAL POTTERY®, NEW ENGLAND POTTERY® and MATTHEWS FOUR SEASONS™. 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 3,800 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 improved efficiency and profitability from the Company’s transformation initiatives, 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. These risks are described in the Central’s Annual Report on Form 10-K, filed on November 21, 2011, as well as the Company’s other Securities and Exchange Commission filings. Central 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
 
  June 25,   June 23,     September 24,
ASSETS 2011 2012 2011
Current assets:
Cash and cash equivalents $ 11,233 $ 40,699 $ 12,031
Short term investments 15,320 17,820 17,820
Accounts receivable (less allowance for doubtful accounts of $18,782, $18,297 and $15,590) 257,418 245,780 195,417
Inventories 343,788 334,796 329,546
Prepaid expenses and other   40,095   46,107   47,772
Total current assets 667,854 685,202 602,586
 
Land, buildings, improvements and equipment—net 171,187 185,225 176,402
Goodwill 209,348 210,223 210,223
Other intangible assets—net 85,705 80,529 84,526
Deferred income taxes and other assets   21,638   18,539   19,266
Total $ 1,155,732 $ 1,179,718 $ 1,093,003
 
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 115,380 $ 125,111 $ 116,524
Accrued expenses 92,678 106,818 75,128
Current portion of long-term debt   198   347   279
Total current liabilities 208,256 232,276 191,931
 
Long-term debt 450,266 449,530 435,330
Deferred income taxes and other long-term obligations 4,104 23,478 8,960
 
Equity:
Common stock, $.01 par value: 13,755,693, 12,247,571 and 12,949,593 shares outstanding at June 25, 2011, June 23, 2012 and September 24, 2011 137 122 129
Class A common stock, $.01 par value: 38,191,629, 34,506,329 and 35,941,360 shares outstanding at June 25, 2011, June 23, 2012 and September 24, 2011 382 345 359
Class B stock, $.01 par value: 1,652,262 shares outstanding 16 16 16
Additional paid-in capital 421,351 381,751 396,208
Retained earnings 69,234 89,777 59,045
Accumulated other comprehensive income   1,386   1,127   1,019
Total Central Garden & Pet Company shareholders’ equity 492,506 473,138 456,776
Noncontrolling interest   600   1,296   6
Total equity   493,106   474,434   456,782
Total $ 1,155,732 $ 1,179,718 $ 1,093,003
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 
  Three Months Ended   Nine Months Ended

June 25, 2011
 

June 23, 2012

June 25, 2011
 

June 23, 2012
Net sales $ 484,303 $ 533,808 $ 1,251,746 $ 1,302,777
 
Cost of goods sold and occupancy   334,914     353,156     856,031     893,691  
Gross profit 149,389 180,652 395,715 409,086
Selling, general and administrative expenses   112,795     131,683     305,974     326,175  
Income from operations 36,594 48,969 89,741 82,911
Interest expense (9,948 ) (10,723 ) (28,330 ) (30,738 )
Interest income 140 28 333 84
Other income (expense)   318     102     116     (19 )
Income before income taxes and noncontrolling interest 27,104 38,376 61,860 52,238
Income taxes   9,879     14,554     21,952     19,716  
Income including noncontrolling interest 17,225 23,822 39,908 32,522
Net income attributable to noncontrolling interest   144     1,123     653     1,290  
Net income attributable to Central Garden & Pet Company $ 17,081   $ 22,699   $ 39,255   $ 31,232  
 
Net income per share attributable to Central Garden & Pet Company:
Basic $ 0.32   $ 0.48   $ 0.68   $ 0.66  
Diluted $ 0.31   $ 0.47   $ 0.68   $ 0.65  
 
Weighted average shares used in the computation of net income per share:
Basic 54,020 47,661 57,635 47,580
Diluted 54,498 48,388 58,115 48,253

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