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