Central Garden & Pet Company Announces Fiscal 2013 First Quarter Results

Sales decrease 3% to $292 million; Net loss of $0.32 per share

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 financial results for its fiscal first quarter ended December 29, 2012.

“We continue to focus on our transformation to an integrated multi-brand consumer products company. We expect to make significant progress over the next few years as we aggressively build our brands, lower our costs, and drive meaningful revenue and profit growth.”

The Company reported first quarter net sales of $292.5 million, a 3 percent decrease over the comparable period a year ago. Net sales decreased in both its Garden and Pet segments. The first quarter operating loss was $13.1 million compared to an operating loss of $11.3 million in the first quarter of 2012, primarily reflecting lower sales and gross margins. The net loss for the quarter was $15.3 million, or $0.32 per fully diluted share, compared with a loss of $13.1 million, or $0.27 per fully diluted share, in the year-ago period. Typically, the Company has reported a loss in its fiscal first quarter given the seasonal nature of the lawn and garden category.

“As we expected, our first quarter results were lower than the prior year,” said Gus Halas, President & CEO of the Central Operating Companies. “Despite lower Garden revenues in our seasonally smaller first quarter, we are excited about the new innovations we are bringing to market and expect more favorable results for our upcoming Garden season, which encompasses our next two quarters.”

Halas continued, “We continue to focus on our transformation to an integrated multi-brand consumer products company. We expect to make significant progress over the next few years as we aggressively build our brands, lower our costs, and drive meaningful revenue and profit growth.”

First Quarter 2013 Details

Both the Garden and Pet segment sales declined during the quarter. Net sales for the Garden segment decreased 5 percent or $5.5 million over the same period a year ago to $97.3 million, in part due to lower seasonal décor revenues. The Garden segment’s branded product sales were $85.3 million and sales of other manufacturers’ products were $12.0 million. Historically, first quarter revenues for the Garden segment have been the lowest of any quarter of the year due to the seasonality of the lawn and garden market. In the first quarter, the Garden segment’s operating margin improved 200 basis points, in part due to improvements in its grass seed and pottery businesses. The Garden segment’s operating loss in the quarter was $8.5 million, compared to an operating loss of $11.1 million in the first quarter of 2012.

First quarter net sales for the Pet segment declined 2 percent, or $4.1 million, over the prior year to $195.2 million, due primarily to lower sales of dog and cat products. The Pet segment’s branded product sales were $154.2 million and sales of other manufacturers’ products were $41.0 million. The Pet segment’s operating margins increased 30 basis points, due in part to improved results in its equine business. The Pet segment’s operating income was $10.2 million compared to $9.7 million in the prior-year period.

At December 29, 2012, the Company’s cash and short-term investments balance was $30.4 million. Net interest expense was $10.3 million for the quarter compared to $9.5 million in the prior-year period. Depreciation and amortization expense was $8.0 million in the first quarter of 2013, compared with $7.4 million in the prior-year period. The Company’s effective tax rate for the first quarter of 2013 was 37 percent on its operating loss, in line with the prior-year period.

Total debt at December 29, 2012 was $450.8 million compared to $460.7 million at December 24, 2011. The quarter-ending total leverage ratio, as defined in the Company’s credit agreement, was 4.1x.

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 first quarter 2013 results. The conference call will be accessible through the investor relations section of Central’s website, http://www.central.com.

Alternatively, to listen to the call by telephone, dial 1-412-317-6789 and enter passcode 10023698. A replay of the call will be available for three weeks by dialing 1-412-317-0088 (domestic and international) and entering passcode 10023698.

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®, VITA FLEX® and HORSE HEALTH^TM PRODUCTS. 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 3,600 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 improving Garden segment results through new product introductions, aggressively building our brands, lowering costs and achieving revenue growth and improved 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 December 13, 2012, and 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
	December 29,		December 24,			September 29,
ASSETS	2012		2011			2012
Current assets:
Cash and cash equivalents	$	12,591	$	10,289		$	48,475
Short term investments		17,820		17,820			22,705
Accounts receivable (less allowance for doubtful accounts of $18,555, $15,791 and $18,574)		150,767		139,254			202,422
Inventories		397,725		365,743			330,032
Prepaid expenses and other		66,629		62,614			48,149
Total current assets		645,532		595,720			651,783
Land, buildings, improvements and equipment—net		192,486		180,401			191,163
Goodwill		210,223		210,223			210,223
Other intangible assets—net		77,790		83,458			78,853
Deferred income taxes and other assets		20,041		18,467			17,525
Total	$	1,146,072	$	1,088,269		$	1,149,547
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	130,484	$	122,009		$	126,662
Accrued expenses		83,580		66,862			79,491
Current portion of long-term debt		309		328			331
Total current liabilities		214,373		189,199			206,484
Long-term debt		450,446		460,346			449,483
Other long-term obligations		30,968		14,253			28,697
Equity:
Common stock, $.01 par value: 12,247,359, 12,254,778, and 12,247,571 shares outstanding at December 29, 2012, December 24, 2011 and September 29, 2012		122		123			122
Class A common stock, $.01 par value: 34,765,783, 34,130,214 and 34,706,902 shares outstanding at December 29, 2012, December 24, 2011 and September 29, 2012		347		341			347
Class B stock, $.01 par value: 1,652,262 shares outstanding		16		16			16
Additional paid-in capital		383,615		377,598			382,195
Accumulated earnings		64,449		45,455			79,718
Accumulated other comprehensive income		1,497		1,110			1,539
Total Central Garden & Pet Company shareholders’ equity		450,046		424,643			463,937
Noncontrolling interest		239		(172	)		946
Total equity		450,285		424,471			464,883
Total	$	1,146,072	$	1,088,269		$	1,149,547

See notes to condensed consolidated financial statements.

CENTRAL GARDEN & PET COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
	Three Months Ended
	December 29, 2012			December 24, 2011
Net sales	$	292,497		$	302,066
Cost of goods sold and occupancy		215,538			221,328
Gross profit		76,959			80,738
Selling, general and administrative expenses		90,053			92,018
Loss from operations		(13,094	)		(11,280	)
Interest expense		(10,315	)		(9,547	)
Interest income		65			28
Other expense		(981	)		(114	)
Loss before income taxes and noncontrolling interest		(24,325	)		(20,913	)
Income tax benefit		(8,978	)		(7,646	)
Loss including noncontrolling interest		(15,347	)		(13,267	)
Net loss attributable to noncontrolling interest		(78	)		(177	)
Net loss attributable to Central Garden & Pet Company	$	(15,269	)	$	(13,090	)
Net loss per share attributable to Central Garden & Pet Company:
Basic and diluted	$	(0.32	)	$	(0.27	)
Weighted average shares used in the computation of net loss per share:
Basic and diluted		47,871			47,823
See notes to condensed consolidated financial statements.