Central Garden & Pet Company (NASDAQ:CENT.A) Q2 2016 Earnings Conference Call - Final Transcript

May 04, 2016 • 04:30 pm ET


Central Garden & Pet Company (NASDAQ:CENT.A) Q2 2016 Earnings Conference Call - Final Transcript


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John R. Ranelli

this by reallocating marketing resources to areas they would have the most impact on the top-line. In many cases, this meant moving more of our efforts into the store to win customers at the point of sale.

We are also reducing the under-utilization of our infrastructure that had resulted in a relatively high cost base. More recently, we launched a low-cost producer initiative, challenging each of our businesses to lower their production cost, better utilize their capacity and their operating leverage. This initiative is designed to strengthen the position of our businesses in their markets and improve profits by reducing the non-demand creating expenditures.

So, at the same time, we are lowering production costs. We are also investing in faster-growing categories by expanding capacity, product development and our sales teams. Our cash flow, balance sheet and capital structure are strong. We reduced our leverage ratio to 3.1 times from 4.5 times. This underscores Central's cash flow generation capability and capital availability to invest in future growth, both organically and through acquisitions.

Based on our recent results and belief in our future, we are raising our adjusted earnings per share guidance for fiscal 2016 to $1.10 per share or higher. Howard will provide more detail.

Now, I would like to turn the call over to Howard to go more in depth on the financials. Howard?

Howard A. Machek

Thank you, John. Good afternoon, everyone. We issued a press release earlier today outlining our second quarter financial results. I'd like to give you some color around those results. As John mentioned earlier, the company recorded earnings of $0.65 per diluted share for the second quarter, up 38% over the same period last year. Consolidated sales for the quarter increased 9% versus the prior year to $541 million due to recent acquisitions and organic growth in the Pet business. Consolidated gross profit rose 13% and our gross margin increased 110 basis points to 31.3%.

SG&A expense for the quarter increased 10% or $10 million versus a year ago, and as a percent of sales increased by 20 basis points versus the prior to 20.3%. Operating income for the quarter rose to $59 million compared to $50 million a year ago. Our operating margin of 11% was up 100 basis points.

Turning now to the Pet segment. Pet segment sales for the quarter increased 24% or $54 million to $275 million. Of the increase, $38 million was from two recently acquired businesses. From an organic perspective, our dog & cat and animal health revenues, both professional and consumer, were up significantly, with the product revenues and sales of other manufacturers' products up to a lesser extent.

Pet segment operating income increased $5 million or 20% compared to the prior year. Pet operating margin declined 40 basis points to 11.8% due in large part to our newly acquired businesses, which are still in the process of being integrated and investments for future growth.

Moving to Garden. For the quarter, Garden segment sales decreased 4% or $10 million to