Central Garden & Pet Co (CENT) Q3 2024 Earnings Call Highlights: Navigating Challenges with ...
Net Sales: $996 million, a 3% decline from the prior year.
Organic Net Sales: Decreased by 3%.
Non-GAAP Gross Profit: $326 million, in line with the prior year.
Non-GAAP Gross Margin: Improved to 32.7%.
Non-GAAP SG&A Expense: $199 million, a 5% increase from the prior year.
Non-GAAP Operating Income: $127 million.
Non-GAAP Operating Margin: Contracted by 60 basis points to 12.8%.
Net Interest Expense: $10 million, down from $13 million in the prior year.
Non-GAAP Net Income: $88 million, compared to $94 million a year ago.
GAAP EPS: $1.19, compared to $1.25 in the prior year.
Non-GAAP EPS: $1.32, compared to $1.40 in the prior year.
Adjusted EBITDA: $156 million, compared to $166 million.
Effective Tax Rate: 24%, compared to 24.4% in the prior year.
Pet Segment Sales: Increased 1% to $508 million.
Pet Segment Operating Income: Improved 39% to $83 million.
Pet Segment Operating Margin: Expanded by 450 basis points to 16.4%.
Pet Segment Adjusted EBITDA: $94 million, compared to $84 million a year ago.
Garden Segment Sales: $488 million, a 6% decline from the prior year.
Garden Segment Operating Income: $74 million, compared to $88 million a year ago.
Garden Segment Operating Margin: Declined to 15.1%.
Garden Segment Adjusted EBITDA: $85 million, compared to $99 million in the prior year.
Cash and Cash Equivalents: $570 million, compared to $333 million a year ago.
Net Cash Provided by Operations: $286 million for the quarter, compared to $325 million.
Total Debt: $1.2 billion, in line with the prior year.
Gross Leverage Ratio: 3 times at the end of the quarter.
Depreciation and Amortization: $23 million, compared to $22 million.
Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Central Garden & Pet Co (NASDAQ:CENT) delivered solid third quarter 2024 earnings performance despite a challenging environment, with GAAP EPS of $1.19 and non-GAAP EPS of $1.32.
The company expanded its gross margin, driven by cost and simplicity projects, including the consolidation of its cushion business with dog beds and moderating inflation.
Pet segment sales increased by 1% to $508 million, driven by the TDBBS acquisition and growth in professional business, dog, cat, and equine categories.
E-commerce sales grew significantly, representing approximately 28% of pet sales and 7% of total garden sales, indicating strong online growth.
The company maintained a strong balance sheet with cash and cash equivalents of $570 million, compared to $333 million a year ago, and no borrowings under its credit facility.
Negative Points
Net sales declined by 3% compared to the prior year, with organic net sales also decreasing by 3%.
The garden segment faced a 6% decline in sales, primarily due to unfavorable weather impacting live plant sales and lower foot traffic in key home center customers.
The company anticipates a write-down of approximately $15 million to $20 million in grass seed inventory due to a significant decrease in market prices.
Non-GAAP SG&A expenses increased by 5% compared to the prior year, mainly due to the TDBBS acquisition and higher legal costs.
The pet segment continues to face challenges with declining durable pet product sales, attributed to softer new pet adoptions and macroeconomic pressures affecting consumer discretionary spending.
Q & A Highlights
Q: Can you discuss the underlying trends in the Garden segment, particularly the impact of weather and pricing? A: J.D. Walker, President of Garden Consumer Products, explained that the third quarter was challenging due to unfavorable weather, which significantly impacted the live goods business. Despite a strong start to the year, the cold and wet weather in April and May, followed by intense heat in June, led to a decline in sales. However, excluding live goods, the underlying metrics were healthy, and the company remains optimistic about the future, focusing on cost and simplicity initiatives and gaining market share in certain categories.
Q: What is the margin outlook for fiscal 2025, considering the current year's performance? A: Nicholas Lahanas, CFO, stated that the company will continue its cost and simplicity initiatives, focusing on portfolio optimization and higher-margin businesses. Despite challenges in the live goods business, margins are expected to expand due to these initiatives and moderating inflation. More detailed guidance for fiscal 2025 will be provided in November.
Q: Can you clarify the situation with grass seed inventory and market dynamics? A: J.D. Walker explained that the grass seed market has experienced fluctuations in supply and demand, leading to significant price drops recently. The company anticipates a write-down of $15 million to $20 million in grass seed inventory due to these market changes. The write-down is a result of marking inventory to market value, not due to spoilage.
Q: How did the pet segment perform, particularly in consumables and durables? A: John Hanson, President of Pet Consumer Products, noted that consumables grew mid-single digits, while durables declined in low double digits. The decline in durables is attributed to softening pet ownership, macroeconomic pressures, and low-priced imports. The company is focusing on consumables and e-commerce, which is growing and now represents 28% of pet sales.
Q: What is the company's approach to M&A, given the current cash position? A: Nicholas Lahanas highlighted that the company is looking for M&A opportunities, particularly in pet consumables and digital capabilities. The current M&A climate is slow, but the company is prepared to act quickly due to its strong cash position. The focus is on acquisitions that can add scale, enter adjacent categories, or enhance digital and e-commerce capabilities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.