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Central Garden & Pet Company Announces Record Fiscal Year 2021 Operating Results

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  • CENT
  • CENTA

Fiscal 2021 net sales increased 23% to $3.3 billion
Fiscal 2021 diluted EPS of $2.75 vs. $2.20 for fiscal 2020
Initial outlook for fiscal 2022 EPS of $3.10 or better

WALNUT CREEK, Calif., November 22, 2021--(BUSINESS WIRE)--Central Garden & Pet Company (NASDAQ: CENT) (NASDAQ: CENTA) ("Central"), a market leader in the Garden and Pet industries, today announced results for its fourth quarter and fiscal year 2021 ended September 25, 2021.

"Central delivered another year of record results, thanks to the continued strength of the Garden and Pet industries and our teams' relentless execution as they adapt to the ever-changing dynamics of the pandemic. We made meaningful progress against our Central to Home strategy, investing in capabilities such as consumer insights, digital marketing and innovation, to drive our organic growth. Moreover, we added four acquisitions to the Central portfolio," said Tim Cofer, CEO of Central Garden & Pet. "As we look to fiscal 2022, we expect to face continued inflationary pressures and supply chain disruption. However, I am confident in the dedication of our people and their ability to perform in this challenging environment."

Fiscal 2021 Results

Net sales of $3.3 billion increased 23% from $2.7 billion in the prior year, driven by the Company's four recent acquisitions, Hopewell Nursery, Green Garden, DoMyOwn and D&D, as well as organic growth in both the Garden and Pet segments. Organic net sales increased 13%, with the most significant contributions coming from dog treats and chews, distribution, wild bird feed, small animal supplies and outdoor cushions.

Net sales for the Pet segment for fiscal 2021 increased 13% to $1.9 billion compared to $1.7 billion a year ago, and net sales for the Garden segment increased 38% to $1.4 billion compared to $1.0 billion in the prior year.

Despite significant inflationary headwinds and the impact of inventory-related purchase accounting, gross margin was largely in line with the prior year, decreasing 20 basis points to 29.4%. The Company was able to mostly offset these headwinds through a combination of pricing actions and gross productivity efforts as well as favorable product mix.

Operating income of $254 million increased 29% from $198 million in fiscal 2020. Operating margin increased 40 basis points to 7.7% compared to 7.3% a year ago, due to improved overhead leverage, despite rising logistics costs and heightened investment spending.

Other expense was $1.5 million compared to $4.3 million in the prior year. The difference was due primarily to impairment in fiscal 2020 on two minority investments impacted by the COVID-19 pandemic.

Net interest expense was $58 million compared to $40 million in the prior year. The increase was mainly due to incremental interest expense related to recognizing the impacts of the call premium, unamortized debt issuance cost and double interest on the debt retired during the first quarter of fiscal 2021 as well as higher debt outstanding.

Net income was $152 million, an increase of 26% compared to $121 million a year ago. Diluted earnings per share grew 25% to $2.75 compared to $2.20 in the prior year driven by strong operating results partially offset by a 1% increase in the number of shares outstanding and an increase in the Company's income tax rate, as compared to the prior year.

Adjusted EBITDA was $329 million, an increase of 30% compared to fiscal 2020.

The effective tax rate for the fiscal year was 21.6% compared to 21.0% in the prior year.

Fourth Quarter Fiscal 2021 Results

Net sales increased 9% to $739 million compared to $676 million in the fourth quarter of fiscal 2020, driven by the Company's four recent acquisitions, partially offset by an organic sales decline of 1%. The organic sales decline was principally due to unprecedented growth in net sales in the fourth quarter of fiscal 2020. On a two-year compound annualized growth rate basis, organic sales increased 11% in the fourth quarter.

Gross margin was largely in line with the prior year quarter, decreasing 20 basis points to 28.8%. The Company was able to mostly offset substantial inflationary cost pressure through a combination of aggressive pricing actions and gross productivity efforts as well as favorable product mix.

Operating income was $10 million compared to $25 million in the fourth quarter of fiscal 2020. Operating margin was 1.3%, a decrease of 240 basis points compared to 3.7% in the prior year quarter, primarily driven by increasing costs for key commodities, freight and labor as well as heightened strategic investment spending, partially offset by pricing actions and favorable product mix as well as improved overhead leverage.

Other expense was $1.9 million in the fourth quarter of fiscal 2021, compared to $35 thousand in the prior year quarter, mainly due to unfavorable minority investment activity.

Net interest expense was $14 million for the fourth quarter compared to $11 million in the prior-year period, primarily due to higher debt outstanding.

This resulted in a net loss of $3.0 million compared to net income of $14 million in the fourth quarter of fiscal 2020, and a loss per share of $0.06 compared to earnings per diluted share of $0.25 in the prior year quarter.

Adjusted EBITDA for the quarter was $32 million, down 23% from $41 million in the fourth quarter of fiscal 2020.

Pet Segment Fourth Quarter Fiscal 2021 Results

Fourth quarter net sales for the Pet segment increased 3% to $459 million. The most significant contributions to the segment's growth came from dog treats and chews, distribution, outdoor cushions and animal health. On a two-year compound annualized growth rate basis, sales increased 14% in the fourth quarter.

The Pet segment’s operating income was $32 million, compared to $36 million in the prior year quarter. Operating margin of 6.9% reflected a decrease of 110 basis points compared to 8.0% in the fourth quarter of fiscal 2020, primarily due to significant cost inflation across key commodities, freight and labor as well as heightened investment levels to build capacity and drive future growth, partially offset by pricing actions and favorable product mix.

Garden Segment Fourth Quarter Fiscal 2021 Results

Net sales for the Garden segment increased 21% to $280 million driven by a $78 million contribution from the Company's recent acquisitions. On an organic basis, net sales for the Garden segment declined 13%, as continued strength in wild bird feed was more than offset by softness across the rest of the Garden portfolio. On a two-year compound annualized growth rate basis, organic Garden segment sales increased 6% in the fourth quarter.

The Garden segment’s operating income was $1.1 million as compared to $14 million in the fourth quarter of fiscal 2020. Operating margin was 0.4%, down 570 basis points compared to 6.1% in the prior year quarter, primarily driven by significant cost inflation and investment which more than offset of pricing and productivity initiatives.

Additional Information

At September 25, 2021, the Company’s cash and cash equivalents was $426 million, compared to $653 million a year ago. Cash flow from operations for fiscal 2021 was $251 million, compared to $264 million in the prior year.

Total debt at September 25, 2021 was $1.2 billion compared to $700 million at September 26, 2020. The Company's leverage ratio, as defined in the Company's credit agreement, at the end of the quarter and the fiscal year was 3.0x compared to 2.2x in the prior year.

Outlook for Fiscal 2022

The Company currently projects fiscal 2022 GAAP EPS of $3.10 or better. The outlook includes the Company's anticipated investments in capacity expansion and automation at or slightly above fiscal 2021 levels, increased investments in brand building and eCommerce to drive sustainable growth, increasing costs for key commodities, freight and labor, muted consumer demand patterns following extraordinary demand spanning the last two fiscal years, as well as pricing actions across the Company's portfolio to help mitigate inflationary headwinds. The Company expects the impact of the headwinds to be more heavily front-half weighted.

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 fourth quarter and fiscal year 2021 results. The conference call and related materials can be accessed on the Company's website, http://ir.central.com.

Alternatively, to listen to the call by telephone, dial (201) 689-8345 (domestic and international) using confirmation #13723027.

About Central Garden & Pet

Central Garden & Pet (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 2021 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 Pennington, Nylabone, Kaytee, Amdro and Aqueon, strong manufacturing and distribution capabilities and a passionate, entrepreneurial growth culture. Central Garden & Pet is based in Walnut Creek, California and has over 7,000 employees across North America and Europe. For additional information about Central, please visit the Company’s website at www.central.com.

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 expectations for increased investment levels to drive capacity expansion, brand building and eCommerce, increases in labor and freight cost as well as key commodities, price increases, in addition to resuming more normal levels of consumer activity and their impact on future growth, and earnings guidance for fiscal year 2022, 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:

  • our ability to successfully manage the impact of COVID-19 on our business, including but not limited to, the impact on our workforce, operations, fill rates, supply chain, demand for our products and services, and our financial results and condition;

  • the potential for future reductions in demand for product categories that benefited from the COVID-19 pandemic;

  • the success of our Central to Home strategy;

  • risks associated with our acquisition strategy, including our ability to successfully integrate acquisitions and the impact of purchase accounting on our financial results;

  • inflation and other adverse macro-economic conditions;

  • fluctuations in market prices for seeds and grains and other raw materials;

  • fluctuations in energy prices, fuel and related petrochemical costs;

  • our inability to pass through cost increases in a timely manner;

  • supply chain delays and interruptions resulting in lost sales, reduced fill rates and service levels and delays in expanding capacity and automating processes;

  • adverse weather conditions;

  • seasonality and fluctuations in our operating results and cash flow;

  • supply shortages in pet birds, small animals and fish;

  • dependence on a small number of customers for a significant portion of our business;

  • impacts of tariffs or a trade war;

  • consolidation trends in the retail industry;

  • declines in consumer spending during economic downturns;

  • risks associated with new product introductions, including the risk that our new products will not produce sufficient sales to recoup our investment;

  • competition in our industries;

  • continuing implementation of an enterprise resource planning information technology system;

  • potential environmental liabilities;

  • risk associated with international sourcing;

  • access to and cost of additional capital;

  • potential goodwill or intangible asset impairment;

  • our dependence upon our key executives and our ability to recruit employees generally;

  • our inability to protect our trademarks and other proprietary rights;

  • litigation and product liability claims;

  • regulatory issues;

  • the impact of product recalls;

  • potential costs and risks associated with actual or potential cyber attacks;

  • potential dilution from issuance of authorized shares;

  • the voting power associated with our Class B stock; and

  • the impact of new accounting regulations and the possibility our effective tax rate will increase as a result of future changes in the corporate tax rate or other tax law changes.

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.

CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

ASSETS

September 25, 2021

September 26, 2020

Current assets:

Cash and cash equivalents

$

426,422

$

652,712

Restricted cash

13,100

13,685

Accounts receivable, net

385,384

391,773

Inventories, net

685,237

439,615

Prepaid expenses and other

33,514

27,498

Total current assets

1,543,657

1,525,283

Plant, property and equipment, net

328,571

244,667

Goodwill

369,391

289,955

Other intangible assets, net

134,431

134,924

Operating lease right-of-use assets

165,602

115,882

Other assets

575,028

28,653

Total

$

3,116,680

$

2,339,364

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable

$

245,542

$

205,234

Accrued expenses

234,965

201,436

Current lease liabilities

40,731

33,495

Current portion of long-term debt

1,081

97

Total current liabilities

522,319

440,262

Long-term debt

1,184,683

693,956

Long-term lease liabilities

130,125

86,516

Deferred income taxes and other long-term obligations

56,012

40,956

Equity:

Common stock

113

113

Class A common stock

423

419

Class B stock

16

16

Additional paid-in capital

576,446

566,883

Retained earnings

646,082

510,781

Accumulated other comprehensive loss

(831

)

(1,409

)

Total Central Garden & Pet shareholders’ equity

1,222,249

1,076,803

Noncontrolling interest

1,292

871

Total equity

1,223,541

1,077,674

Total

$

3,116,680

$

2,339,364

CENTRAL GARDEN & PET COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

Fiscal Year Ended

September 25, 2021

September 26, 2020

September 25, 2021

September 26, 2020

Net sales

$

739,127

$

675,969

$

3,303,684

$

2,695,509

Cost of goods sold and occupancy

526,356

479,854

2,332,783

1,898,951

Gross profit

212,771

196,115

970,901

796,558

Selling, general and administrative expenses

203,166

170,948

716,405

598,581

Operating income

9,605

25,167

254,496

197,977

Interest expense

(14,269

)

(10,793

)

(58,597

)

(44,016

)

Interest income

93

248

415

4,027

Other expense, net

(1,876

)

(35

)

(1,506

)

(4,250

)

Income (loss) before income taxes and noncontrolling interest

(6,447

)

14,587

194,808

153,738

Income tax (benefit) expense

(3,225

)

1,007

42,035

32,218

Net income (loss) including noncontrolling interest

(3,222

)

13,580

152,773

121,520

Net income (loss) attributable to noncontrolling interest

(215

)

(9

)

1,027

844

Net income (loss) attributable to Central Garden & Pet Company

$

(3,007

)

$

13,589

$

151,746

$

120,676

Net income (loss) per share attributable to Central Garden & Pet Company:

Basic

$

(0.06

)

$

0.25

$

2.81

$

2.23

Diluted

$

(0.06

)

$

0.25

$

2.75

$

2.20

Weighted average shares used in the computation of net income per share:

Basic

53,926

53,619

53,914

54,008

Diluted

53,926

54,515

55,248

54,738

CENTRAL GARDEN & PET COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal Year Ended

September 25, 2021

September 26, 2020

September 28, 2019

(in thousands)

Cash flows from operating activities:

Net income

$

152,773

$

121,520

$

92,647

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

74,727

55,359

50,828

Amortization of deferred financing costs

2,208

1,873

1,832

Non-cash lease expense

41,044

35,025

Stock-based compensation

23,127

18,982

14,662

Debt extinguishment costs

8,577

Loss on sale of business

2,611

Deferred income taxes

(14,744

)

(6,615

)

6,659

(Gain) loss on disposal of property, plant and equipment

(256

)

1,171

730

Asset impairments

3,566

Other

4,716

4,675

(570

)

Changes in assets and liabilities (excluding businesses acquired):

Receivables

69,135

(91,470

)

1,485

Inventories

(132,170

)

27,351

(3,696

)

Prepaid expenses and other assets

13,370

4,683

(2,643

)

Accounts payable

24,583

52,047

30,473

Accrued expenses

6,734

72,278

12,261

Other long-term obligations

14,731

(83

)

306

Operating lease liabilities

(40,322

)

(36,089

)

Net cash provided by operating activities

250,844

264,273

204,974

Cash flows from investing activities:

Additions to property, plant and equipment

(80,333

)

(43,055

)

(31,577

)

Businesses acquired, net of cash acquired

(820,453

)

(41,161

)

Proceeds from sale of business

2,400

Payments for investments

(500

)

(4,439

)

(2,010

)

Other investing activities

(473

)

(612

)

(1,515

)

Net cash used in investing activities

(899,359

)

(48,106

)

(76,263

)

Cash flows from financing activities:

Repayments on revolving line of credit

(858,000

)

(200,000

)

Borrowings on revolving line of credit

858,000

200,000

Premium paid on extinguishment of debt

(6,124

)

Repayments of long-term debt

(430,401

)

(113

)

(46,193

)

Issuance of long-term debt

900,000

Repurchase of common stock, including shares surrendered for tax withholding

(27,892

)

(59,129

)

(62,974

)

Payments of contingent consideration

(373

)

(227

)

(170

)

Distribution to noncontrolling interest

(606

)

(143

)

(76

)

Payment of financing costs

(14,129

)

(948

)

(1,352

)

Net cash provided by (used in) financing activities

420,475

(60,560

)

(110,765

)

Effect of exchange rate changes on cash and equivalents

1,165

89

(250

)

Net (decrease) increase in cash, cash equivalents and restricted cash

(226,875

)

155,696

17,696

Cash, cash equivalents and restricted cash at beginning of year

666,397

510,701

493,005

Cash, cash equivalents and restricted cash at end of year

$

439,522

$

666,397

...

$

510,701

Supplemental information:

Cash paid for interest

$

42,762

$

43,892

$

42,702

Cash paid for income taxes – net of refunds

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