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Central Garden & Pet Company Announces Record Fiscal Third Quarter Revenues and Profits

WALNUT CREEK, Calif.--(BUSINESS WIRE)--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 announced record financial results for its fiscal third quarter ended June 24, 2017.

“Central's businesses continued to perform at a high level in our third quarter, driving meaningful organic growth and increased profitability”

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"Central's businesses continued to perform at a high level in our third quarter, driving meaningful organic growth and increased profitability," said George Roeth, President & CEO. "Our Garden segment's strong results were a key driver, with market share gains broadly across categories, driven by strong partnerships with customers, increased demand creation activities including new products, and a continued focus on reducing operating costs. Very simply, we had outstanding execution. Our Pet segment also performed well during the quarter. It delivered its eighth consecutive quarter of year-over-year organic growth and continued to increase market share, with point-of-sale-data tracking well above category averages." Roeth continued, "The Company's strong earnings growth this quarter was achieved despite higher costs related to our continuing investments for future growth, as we brought new facilities on-line, increased our innovation spending and continued to successfully integrate our acquisitions."

Fiscal 2017 Third Quarter Financial Results

Net sales increased 11.7% to $574.6 million compared to $514.5 million in the third quarter a year ago, primarily driven by strong organic growth in the Garden segment. Total Company organic sales growth, which excludes the Segrest and K&H businesses, rose 7.6%. Significantly, branded product sales of $462.1 million increased 14.5%, and sales of other manufacturers’ products of $112.5 million rose 1.4%.

Third quarter gross margin rose 10 basis points to 31.9% compared to the third quarter a year ago. Operating income increased to $57.9 million from $48.2 million and operating margin of 10.1% increased 70 basis points, compared to 9.4% in the third quarter a year ago. Operating leverage from higher revenues and other cost savings resulted in SG&A as a percent of sales declining 70 basis points to 21.8%. Net income of $32.2 million rose 23.9% compared to $26.0 million in the third quarter a year ago, and earnings per diluted share increased 21.6% to $0.62 from $0.51.

Pet Segment Fiscal 2017 Third Quarter Results

Third quarter net sales for the Pet segment increased 9.1% to $313.4 million, from the same period a year ago, driven primarily by the Segrest and K&H acquisitions. Pet organic sales grew 1.7%, benefiting from stronger results in many of the Company's consumer businesses, more than offsetting lower revenues from the Company's animal health business. Point of sale data continues to indicate market share gains in the majority of the consumer Pet categories in which the Company operates. The Pet segment’s third quarter branded product sales were $254.3 million, up 11.7% compared to a year ago and sales of other manufacturers’ products were $59.0 million, a decrease of 0.8%.

The Pet segment’s operating income decreased 6.9% compared to the third quarter a year ago to $36.1 million. Pet operating margin decreased to 11.5%, a decline of 200 basis points compared to the third quarter a year ago. The prior year period's operating margin benefited from a $2.4 million gain from the sale of a manufacturing facility. Excluding the impact of the sale, pet operating margin declined 120 basis points. Pet operating margin was also negatively impacted by expenses to expand, move and consolidate facilities, an unfavorable mix of sales in the animal health business, and the Company's recent acquisitions, which were negatively impacted by purchase price accounting amortization costs.

Garden Segment Fiscal 2017 Third Quarter Results

Net sales for the Garden segment, all organic, rose 14.9% compared to the third quarter a year ago to $261.2 million, due to share gains and widespread strength across all categories except wild bird feed. Grass seed and private label sales were especially strong. The Garden segment’s branded product sales were $207.7 million in the quarter, up 18.1% compared to the third quarter a year ago. Sales of other manufacturers’ products were up 4.0% to $53.5 million.

The Garden segment’s operating income in the quarter rose to $38.3 million compared to $26.5 million in the third quarter a year ago on the higher volumes and an increase in gross margin. Garden operating margin improved 310 basis points to 14.7%, benefiting from operating leverage from higher volumes and cost saving initiatives which more than offset higher demand-creation expenditures.

Year-to-date 2017 Operating Income, Net Earnings and EPS

Year-to-date non-GAAP results through the third quarter of 2017 exclude a $2.0 million gain on the sale of a distribution facility in the first quarter. Results for the same period a year ago exclude a gain of $2.4 million from the sale of a manufacturing plant in the third quarter as well as the impact of $14.3 million of incremental costs from the redemption of the Company's 2018 Notes and issuance of its 2023 Notes in the first quarter.

For the nine months ending June 24, 2017, the Company reported:

  • Year-to-date sales of $1.6 billion compared with $1.4 billion a year ago, an increase of 10.5% Organic sales increased 5.2%.
  • Operating income of $141.7 million increased $25.3 million from $116.4 million in the first nine months of 2016; non-GAAP operating income increased to $139.7 million from $114.0 million.
  • Operating margin of 9.1% increased 90 basis points from 8.2% in the first nine months of 2016. Non-GAAP operating margin of 8.9% increased 80 basis points from 8.1%.
  • Net income rose 48.8% to $74.6 million from $50.1 million a year ago. Non-GAAP net income rose 26.7% to $73.3 million compared to $57.8 million in the first nine months of 2016.
  • Diluted EPS of $1.44 rose 45.5% from $0.99 per share a year ago. Non-GAAP earnings per diluted share increased 24.6% to $1.42 from $1.14 in the first nine months of 2016.

2017 Guidance

The Company is raising its guidance and now expects non-GAAP earnings per fully-diluted share of $1.44 or higher for fiscal 2017, an increase of 14.3% or more from the prior year. As noted in last quarter's earnings release, certain non-operating factors are expected to impact net income in the remainder of the year. These factors include higher corporate expenses versus...


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