Central Garden & Pet Company · NASDAQ:CENT
Central Garden & Pet — Debt Investor Presentation (February 2019)
54 slides from Central Garden & Pet's debt investor presentation, Feb 26, 2019
Slide 1: Central Garden & Pet
CENTRAL GARDEN & PET FEBRUARY 26, 2019
Slide 2: Presenters
PRESENTERS Niko Lahanas Chief Financial Officer Steve Zenker Vice President, Investor Relations, FP&A & Communications 2
Slide 3: Safe Harbor
SAFE HARBOR "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: The statements contained in this presentation which are not historical facts, including expectations for improved efficiency and profitability and FY19 guidance are forward-looking statements that are sub
Slide 4: Central Garden & Pet Company Overview
CENTRAL GARDEN & PET (NASDAQ: CENT AND CENTA) • Leading manufacturer and supplier of branded and private label lawn & garden and pet products • Founded in 1980 as a distribution company. Approximately 21% of revenues today from distribution • 10% - 15% of revenue from private label products • In fis
Slide 5: History of Growth
HISTORY OF GROWTH ’13: John Ranelli named President and CEO ‘14: Rejected unsolicited proposal from ‘16: George Roeth named ’04: Surpassed $1.5B in Net Sales Harbinger Group President and CEO ’13 -’15: Focused on “righting the ship” ‘17: Surpassed $2.0B in Net Sales Milestones ‘80: Founded ’07 -’11:
Slide 6: Proven M&A Capability
PROVEN M&A CAPABILITY …Central Possesses Acquisition Momentum with Several Recent Deals… 2014 – 2018 Deals by Segment & Market Size • Central is a preferred acquirer • Track record of successful M&A - over 50 acquisitions in the Live Fish & last 25 years Small Animals Company Overview Fertilizers •
Slide 7: Latest Acquisitions
LATEST ACQUISITIONS • The largest commercial grower of flowers & • A leading supplier of pet • Leading manufacturer & marketer of plants in the mid-Atlantic U.S. food & supplies in the outdoor cushions and pillows sold at Home Midwest Depot, Lowes & Walmart • Live plants drive traffic to stores • Fi
Slide 8: Business Model Drives Competitive Advantages
BUSINESS MODEL DRIVES COMPETITIVE ADVANTAGES Our Broad Product Portfolio and Distribution Footprint Differentiate Central • Broad product portfolio: premium brands through private label programs • Superior knowledge of consumer and marketplace trends as a Company Overview manufacturer & an owner of
Slide 9: The Garden Industry Is Seasonal with a Concentrated Supplier Base
THE GARDEN INDUSTRY IS SEASONAL WITH A CONCENTRATED SUPPLIER BASE The Garden Industry Central’s Garden Business • Central participates in $22B of a $40B industry • Net sales of $874M in 2018 • Home centers & mass merchandisers represent • 19% of segment sales from 3rd party distribution approximatel
Slide 10: The Pet Segment Is Fragmented with Attractive Growth Rates
THE PET SEGMENT IS FRAGMENTED WITH ATTRACTIVE GROWTH RATES The Pet Industry Central’s Pet Business • Central participates in $27B of a $58B industry • Net sales of $1.3B in 2018 • Fragmented customer base • Consumer and professional businesses • Less than 20% sales through major pet specialty retail
Slide 11: Central's Broad Product Portfolio Is Unique
CENTRAL’S BROAD PRODUCT PORTFOLIO IS UNIQUE Commentary Company Garden Products Pet Products • Participant in a Animal Health – Food, Treats & Animal Health Bird & Small Fertilizers Grass Seed Aquatics & Professional Dog & Cat Dog & Cat Wild Bird Live Plants Consumer number of categories Controls Sup
Slide 12: Our Markets
OUR MARKETS* Market Opportunity $6B Dog & Cat Supplies $5B Company Overview Garden Live Pet $4B Plants Both Dog & Cat Treats & = Size of circle is Central’s 2018 sales Chews Source: Internal estimates – U.S. wholesale markets Natural $3B (Dog & Cat) Nutrition Fertilizer *Excludes third-party distrib
Slide 13: Recent Acquisitions Expand Addressable Market
RECENT ACQUISITIONS EXPAND ADDRESSABLE MARKET Prior to 2015* 2019* $30.5B $46.7B Fertilizers Fertilizers Live Plants Controls Aquatics & Equine Controls Reptile Décor Equine Bird & Small Animal Premium Pet Nutrition Aquatics Premium Pet Dog & Cat & Nutrition Treats/ Chews Dog & Cat Reptile Dog & Cat
Slide 14: Strong 2018 Results
STRONG 2018 RESULTS GAAP $ in millions except EPS For the Fiscal Year Ended September Non-GAAP 1,2 2017 2018 Change Change Net Sales/Organic Net Sales $2,054 $2,215 7.8% 2.6% Performance Track Record Gross Margin % 30.8% 30.5% (30 bps) - Operating Income $156.1 $167.3 7.2% 8.6% Operating Margin % 7.
Slide 15: Metrics Accelerating Over the Last Three Years
METRICS ACCELERATING OVER THE LAST THREE YEARS Net Sales Operating Margin (in billions) 10% $2.5 $2.2 9% $2.1 7.6% $2.0 8% 7.6% $1.7 $1.8 7.1% $1.7 $1.6 $1.7 7% $1.5 6% 5.5% 5% 4.4% $1.0 Performance Track Record 4% 3.5% 3% 2.4% $0.5 2% $- 1% FY12 FY13 FY14 FY15 FY16 FY17 FY18 0% FY12 FY13 FY14 FY15
Slide 16: Strong Cash Flow
STRONG CASH FLOW EBITDA* Cash Provided by Operations (in millions) (in millions) $151 $160 $250 $215 $140 $126 $225 $199 $114 $114 $120 $200 $175 $169 $100 $89 $87 $150 $132 $80 $125 $114 $105 $60 $51 $104 $100 $92 $40 $75 $20 $50 $- $25 -$20 $- $(28) -$40 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY1
Slide 17: Q1'19 Results
Q1’19 RESULTS GAAP $ in millions except EPS For the Fiscal Year Ended September Non-GAAP 1 Q1’18 Q1’19 Change Change Net Sales/Organic Net Sales $442.0 $462.0 4.5% (1.7)% Gross Margin % 29.8% 28.2% (160 bps) - Performance Track Record Operating Income $22.5 $10.2 (54.7)% - Operating Margin % 5.1% 2.
Slide 18: Historic Total Company Organic Growth
HISTORIC TOTAL COMPANY ORGANIC GROWTH 10.0% 8.0% 7.6% 7.0% 6.1% 6.0% 5.0% 4.0% 3.6% * * 2.6% 2.8% 1.7% 2.0% 1.1% 0.0% -0.1% -2.0% -1.7% -4.0% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 FY16 FY17 FY18 FY19 YOY Quarterly Growth Rate 4-Qtr Rolling Avg Growth Rate *Adjusted for 53rd week in Q4 2017 3/6/2019 18
Slide 19: 2019 Guidance
2019 GUIDANCE* • Company expects overall revenue growth in mid-single digits • Organic revenue growth consistent with LT annual target of 2% - 3% Performance Track Record • Company expects fully-diluted EPS of $1.80 or higher, a decrease from FY 2018 due to: • Higher projected tax rate • Increased s
Slide 20: Factors Favoring Better Second Half Results
FACTORS FAVORING BETTER SECOND HALF RESULTS 1) Lack of dilution from Bell Nursery and General Pet Acquisitions will anniversary at end of Q2 2) An unfavorable weather season last year Impacted consumer garden and professional purchases of fly and other pest control products 3) Continued share ga
Slide 21: Central Garden & Pet Strategy
CENTRAL GARDEN & PET STRATEGY Accelerate the portfolio • Manage businesses differentially based on clearly articulated strategies. growth momentum • Build out our portfolio in attractive broadly defined Pet & Garden markets. • Ensure sufficient demand creation investment to drive organic growth & bu
Slide 22: Develop More Differentiated and Defensible New Products
DEVELOP MORE DIFFERENTIATED AND DEFENSIBLE NEW PRODUCTS • New brand for the Pet Specialty Channel and Independent Pet Retailers Keep the Core Healthy • Collection of single & limited ingredients • Minimally processed treats & chews Four Paws Wee Wee • Stain & Odor and pads • Wee-Wee Professional Str
Slide 23: Develop More Differentiated and Defensible New Products
DEVELOP MORE DIFFERENTIATED AND DEFENSIBLE NEW PRODUCTS Pennington Lawn Booster • Combination grass seed, fertilizer & soil enhancer • For quicker, thicker, greener grass • Feeds for up to 12 weeks • Corrects the pH and loosens the soil • Uses up to 30% less water year after year Pennington Smart Bl
Slide 24: Build Digital Capabilities for Competitive Advantage
BUILD DIGITAL CAPABILITIES FOR COMPETITIVE ADVANTAGE AND COMPELLING CONSUMER EXPERIENCE • Free up businesses to compete in ecommerce by ensuring we have the right policies, products and programs to allow all channels to compete effectively. • Optimize the supply chain for high-demand ecommerce items
Slide 25: Improve Coordination by Sharing Best Practices and Aligning for Scale
IMPROVE COORDINATION BY SHARING BEST PRACTICES AND ALIGNING FOR SCALE Drive Cost Savings & Productivity to Fuel Growth AMDRO Quick Kill® Mosquito Controls Only brand to offer full line of solutions aligned with CDC recommendation ▪ Cross-company collaboration ▪ Larvicide & Adulticide – control produ
Slide 26: Build on Strong Customer Relationships
BUILD ON OUR STRONG CUSTOMER RELATIONSHIPS BY DEVELOPING AND EXECUTING WINNING CATEGORY GROWTH STRATEGIES • Provide direction, fueled by consumer insights and specific customer understanding, on how our retail partners can grow their category sales and profits • Merchandising Keep the Core Healthy •
Slide 27: A Dedicated Staff of Over 5,400 Employees
A DEDICATED STAFF OF NOW OVER 5,400 EMPLOYEES Working in 92 Locations Throughout the United States, Canada, Mexico, China and UK Attract, Retain & Develop Exceptional Employees 27 27
Slide 28: Investment Thesis
INVESTMENT THESIS 1) Underlying trends in both garden and pet categories are favorable 2) The company is operating with a continuous improvement mindset – and has ample opportunities to take 1% to 2% out of costs per year 3) Cost savings expected to fund growth levers, e.g. R&D, selling, marketing,
Slide 29: Questions & Answers
QUESTIONS & ANSWERS Arden Companies 29 29
Slide 30: Fertilizers
FERTILIZERS Consumer fertilizer sales are approximately $2.8B Home Centers are still the preferred shopping destination and maintain the largest retail share L&G Retailer Share 2017* Mail Order, Internet, 5% 2% Supermarket / Drug Store, 9% Home Center, 26% Other , 9% Hardware Mass Store, 14% Merchan
Slide 31: Controls
CONTROLS Consumer pesticide sales are approximately $2.3B - Retail U.S. household participation in Lawn & Garden is at an all-time high of 77%* Industry Sales of Outdoor Controls** Fire Slug & Outdoor Ants 5% Snail 3% Lawn Fungicides Insecticides 9% 2% Surface Insects 24% Non Selective Herbicides 21
Slide 32: Grass Seed
GRASS SEED A broad line of product with an emphasis on superior performance & technology • Grass Seed Industry • Estimated at $955 MM • 61% of all grass seed sales in the Southeast & Northeast • Central is the largest grass seed manufacturer • Package & ship 160M pounds of turf grass annually • Cent
Slide 33: Live Plants
LIVE PLANTS • Bell Nursery ranked #7 of Top 100 Growers • No major players in this industry; many opportunities for bolt-on acquisitions • Approximately 33K businesses • Key drivers - Demand from nursery & garden stores, flower & nursery stock wholesalers • In past 5 years, emphasis on quality has d
Slide 34: Pennington Décor
PENNINGTON DÉCOR The Home and Garden Décor category is the focal point of every living space; from indoor design through to an outdoor oasis. Central’s Pennington® Décor offers a wide array of products and families to inspire, simplify and educate the consumer in the beauty of decorating. 1. Scale:
Slide 35: Wild Bird Feed
WILD BIRD FEED Pennington® & Kaytee® together shipped over 450M pounds in 2018 Brand Segment Distribution Industry Sales Predominantly sold in the mass channel with Pennington Garden additional home improvement channel distribution Sold primarily in small format hardware (Ace, True Kaytee Pet Value)
Slide 36: Distribution
DISTRIBUTION Garden Pet • 19% of Garden segment revenue from 3rd party • 22% of Pet segment revenue from 3rd party products products • Distributes products, foods and provides service to over 7K • Distribution services over 12K “ship to” locations in retailers and 3K vet clinics throughout the conti
Slide 37: Dog & Cat Supplies
DOG & CAT SUPPLIES Nylabone®, Four Paws® , DMCTM and K&H™ Four Paws® provides high quality solutions for pet parents in a wide array of product categories, including waste Nylabone® makes high-quality chew toys to meet all management via Wee-Wee® branded products, dog & cat the different chew types
Slide 38: Dog & Cat Food, Treats and Edible Chews
DOG & CAT FOOD, TREATS AND EDIBLE CHEWS Nylabone®, IMS™, Breeder’s Choice Edible Dog & Cat Treats & Chews is a $6.0B category & projected to grow an average of over 5% annually* Nylabone offers natural edible chews and treats that are IMS Pet is launching a new brand for the Pet Specialty wholesome
Slide 39: Small Animal & Pet Bird
SMALL ANIMAL & PET BIRD Kaytee ® Kaytee has the #1 share in the combined Pet Bird & Small Animal Category Small ALSO 51% Kaytee is the only brand to offer consumers a complete Mammal OWN… solution from food, treats, bedding, hay and habitats Owners 68% CAT 28% Appendix DOG FISH Most Small Mammal Own
Slide 40: Aquatics
AQUATICS Aqueon® and Zilla Make getting into the hobby and keeping fish/reptiles easy. • A leading aquatics manufacturer in U.S. • Single brand name across all consumer touch • Complete line of aquatic products from one brand points improves shop-ability Appendix • Easy to find solutions for the ent
Slide 41: Live Fish, Reptiles, Small Animals & Pet Birds
LIVE FISH, REPTILES, SMALL ANIMALS & PET BIRDS Segrest Inc. is the leading wholesaler of quality pets, aquatic, small animals, birds and reptiles. Small Animal, 5% Bird, 11% Saltwater Growth and Leadership: Fish, 14% Freshwater Fish, 70% Appendix • Growing the market through industry leadership • Pr
Slide 42: Animal Health - Professional
ANIMAL HEALTH - PROFESSIONAL • Over 45 years ago, invented insect growth regulator (IGR) technology which uses the insect’s natural chemistry as a means to reduce disease-spreading and profit-reducing pest populations • Pest control solutions with a proven record of efficacy, recommended by professi
Slide 43: Animal Health & Wellness – Consumer Products
ANIMAL HEALTH & WELLNESS – CONSUMER PRODUCTS Updated 1/7/19 Lazarczyk Flea & Tick Control Behavior Management Comfort Zone® is a leading brand in pet behavior management bringing thoroughly tested, superior-performing products to market that are safe, effective, and that drive Category growth. Facts
Slide 44: Equine
EQUINE Central Garden & Pet’s Equine Brands Comprehensive Horse Care: • Complete range of horse care products to keep horses healthy inside and out, from head to hoof Fundamental Horse Care: • Fundamental care and ingredient-focused products for the experienced horseman Performance Horse Care: Appen
Slide 45: GAAP to Non-GAAP Reconciliation
GAAP TO NON-GAAP RECONCILIATION Use of Non-GAAP Financial Measures We report our financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, to supplement the financial results prepared in accordance with GAAP, we use non-GAAP financial measures including orga
Slide 46: GAAP to Non-GAAP Reconciliation (Continued)
GAAP TO NON-GAAP RECONCILIATION (CONTINUED) Non-GAAP financial measures reflect adjustments based on the following items: • Asset impairment charges: We have excluded the impact of asset impairments on intangible assets and equity method investments as such non-cash amounts are inconsistent in amoun
Slide 47: GAAP to Non-GAAP Reconciliation (Continued)
GAAP TO NON-GAAP RECONCILIATION (CONTINUED) Non-GAAP Adjustments GAAP to Non-GAAP Reconciliation (in thousands) For the Fiscal Year Ended September, 2018 2017 Appendix (Gain)/loss on disposal of plant assets $ $ (2,050) - Total non-GAAP adjustments $ - $ (2,050) Tax effects of non-GAAP adjustments 7
Slide 48: GAAP to Non-GAAP Reconciliation (Continued)
GAAP TO NON-GAAP RECONCILIATION (CONTINUED) Non-GAAP Adjustments GAAP to Non-GAAP Reconciliation (in thousands) For the Quarter Ended December, Q1’19 Q1’18 Appendix GAAP net income attributable to Central Garden & Pet $1,803 $ 26,247 Tax effect of revaluation of deferred tax amounts - 16,343 Non-GAA
Slide 49: GAAP to Non-GAAP Reconciliation (Continued)
GAAP TO NON-GAAP RECONCILIATION (CONTINUED) Organic Net Sales Reconciliation We have provided organic net sales, a non-GAAP measure that excludes the impact of recent acquisitions and dispositions, because we believe it permits investors to better understand the performance of our historical busines
Slide 50: GAAP to Non-GAAP Reconciliation (Continued)
GAAP TO NON-GAAP RECONCILIATION (CONTINUED) Organic Net Sales Reconciliation We have provided organic net sales, a non-GAAP measure that excludes the impact of recent acquisitions and dispositions, because we believe it permits investors to better understand the performance of our historical busines
Slide 51: GAAP to Non-GAAP Reconciliation (Continued)
GAAP TO NON-GAAP RECONCILIATION (CONTINUED) Consolidated Operating Income Reconciliation GAAP to Non-GAAP Reconciliation (in thousands) For the Fiscal Year Ended September, 2018 2017 2016 2015 2014 2013 2012 GAAP operating income $167,336 $156,112 $129,358 $91,435 $56,213 $40,155 $74,421 Total opera
Slide 52: GAAP to Non-GAAP Reconciliation (Continued)
GAAP TO NON-GAAP RECONCILIATION (CONTINUED) EBITDA Reconciliation GAAP to Non-GAAP Reconciliation (in thousands) For the Fiscal Year Ended September, 2018 2017 2016 2015 2014 2013 2012 Net income (loss)attributable to Central Garden & Pet $123,594 $78,828 $44,514 $31,971 $8,804 $(1,929) $21,173 Appe
Slide 53: GAAP to Non-GAAP Reconciliation (Continued)
GAAP TO NON-GAAP RECONCILIATION (CONTINUED) EBITDA Reconciliation GAAP to Non-GAAP Reconciliation (in thousands) For the Quarter Ended December 29, 2018 Garden Pet Corp Total Net income (loss)attributable to Central Garden & Pet - - - $1,803 Interest expense, net - - - 8,077 Other income - - - 192 I
Slide 54: GAAP to Non-GAAP Reconciliation (Continued)
GAAP TO NON-GAAP RECONCILIATION (CONTINUED) Net Income & Diluted Net Income Per Share Reconciliation GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) For the Fiscal Year Ended September, 2018 2017 2016 2015 2014 2013 2012 GAAP net income attributable to Central Garden & Pet $
Central Garden & Pet Company — Debt Investor Presentation (February 2019) on 6ix