Central Garden & Pet Company · NASDAQ:CENT
Central Garden & Pet — Barclays Global Consumer Staples Conference 2018
61 slides from Central Garden & Pet's conference presentation, September 2018
Slide 1: Barclays Global Consumer Staples Conference
Barclays Global Consumer Staples Conference September 2018
Slide 2: Presenters
Presenters • George Roeth • President & CEO • Steve Zenker • Vice President, Investor Relations, FP&A & Communications 2 9/5/2018
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 FY18 guidance are forward-looking statements that are sub
Slide 4: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis Appendix 4 9/5/2018
Slide 5: Central Garden & Pet (Nasdaq: CENT and CENTA)
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 20% of revenues today from distribution. • In fiscal 2017, Company had $2.1 billion in net sales,
Slide 6: History of Growth
History of Growth ‘16: George Roeth named ’13: John Ranelli named President and CEO President and CEO ‘14: Rejected unsolicited proposal from ’04: Surpassed $1.5bn in Net Sales ’18: Eleven consecutive Harbinger Group quarters of record ’13 -’15: Focused on “righting the ship” earnings Milestones ‘80
Slide 7: The Garden Industry is Seasonal with a Concentrated Supplier Base
The Garden Industry is Seasonal with a Concentrated Supplier Base The Garden Industry • Central participates in $19B of a $28B industry • 3 retailers represent approximately 70% of sales • Seasonal business – 2/3 sales in fiscal Q2 & Q3 • Industry annual growth rate 0% – 1% Garden Industry Sales* (i
Slide 8: Central's Garden Business
The Garden Industry is Seasonal with a Concentrated Supplier Base Central’s Garden Business • Net sales of $808M in 2017 • 21% of segment sales from 3rd party distribution • 8% revenue growth FY 2017; all organic • Widespread market share gains driven by private label and branded products • Leading
Slide 9: The Pet Segment is Fragmented with Attractive Growth Rates
The Pet Segment is Fragmented with Attractive Growth Rates The Pet Industry • Central participates in $28B of a $56B industry • Fragmented customer base • ~20%+ sales through major pet specialty retailers Pet Industry Sales* • 8,300 independent retail stores Treats & Chews, (in billions) • Mass mark
Slide 10: Central's Pet Business
The Pet Segment is Fragmented with Attractive Growth Rates Central’s Pet Business • Net sales of $1.25B in 2017 • Consumer and professional businesses • 19% of segment sales from 3rd party distribution • 15% revenue growth FY 2017; 5% organic growth • E-commerce growth superseding decline in pet spe
Slide 11: Central's Broad Product Portfolio is Unique
Central’s Broad Product Portfolio is Unique Garden Pet Dog & Cat Supplies Dog & Cat Food, Wild Bird Feed Treats & Chews Animal Health – Animal Health Bird & Small Fertilizers Grass Seed Aquatics & Professional Live Plants Consumer Controls Reptile Animal Décor Central Garden & Pet Scotts Miracle-Gro
Slide 12: Business Model Drives Competitive Advantages
Business Model Drives Competitive Advantages Our Broad Product Portfolio and Distribution Footprint Differentiate CENT • Broad product portfolio: premium brands through private label programs • Superior knowledge of consumer and marketplace trends as a manufacturer & an owner of distribution network
Slide 13: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis Appendix 13 9/5/2018
Slide 14: 2018 Off to a Strong Start
2018 Off to a Strong Start $ in millions except EPS GAAP Non-GAAP 1 For the Nine Months Ended June 2017 YTD 2018 YTD Change Change Net Sales/Organic Net Sales $1,564.0 $1713.0 9.5% 2.5% Gross Margin % 31.2% 30.8% (40 bps) - Operating Income $141.7 $149.1 5.2% 6.7% Operating Margin % 9.1% 8.7% (40 bp
Slide 15: Metrics Accelerating Over the Last Three Years
Metrics Accelerating Over the Last Three Years Net Sales Operating Margin (in billions) 10% 9.1% $2.5 8.7% 9% $2.1 8% 7.6% $2.0 $1.8 $1.7 7.1% $1.7 $1.7 7% $1.6 $1.7 $1.6 $1.5 6% 5.5% 5% 4.4% $1.0 4% 3.5% 3% 2.4% $0.5 2% 1% $- 0% FY12 FY13 FY14 FY15 FY16 FY17 Q3 FY17 Q3 FY18 FY12 FY13 FY14 FY15 FY16
Slide 16: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis Appendix 16 9/5/2018
Slide 17: 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 18: Manage Businesses Differentially Based on Clearly Articulated Strategies
Accelerate the Portfolio Growth Momentum MANAGE BUSINESSES DIFFERENTIALLY BASED ON CLEARLY ARTICULATED STRATEGIES High Protect & Maintain Strategic Growth Engines Profitability Manage for Profit Build High Potential Brands Optimize for Cash Test & Learn Low Low High Growth Potential • Each business
Slide 19: Build Out Our Portfolio in Attractive Broadly Defined Pet & Garden Markets
Accelerate the Portfolio Growth Momentum BUILD OUT OUR PORTFOLIO IN ATTRACTIVE BROADLY DEFINED PET & GARDEN MARKETS • The largest commercial grower of flowers & plants in the mid-Atlantic U.S. • Live plants drive traffic to stores • Category growing faster than overall Garden industry • Dedicated on
Slide 20: Build Out Our Portfolio in Attractive Broadly Defined Pet & Garden Markets
Accelerate the Portfolio Growth Momentum BUILD OUT OUR PORTFOLIO IN ATTRACTIVE BROADLY DEFINED PET & GARDEN MARKETS • A leading supplier of pet food & supplies in the Midwest • Fills out company’s national footprint • Expands Central’s food distribution business • Provides access to the veterinary c
Slide 21: Proven M&A Capability
Accelerate the Portfolio Growth Momentum PROVEN M&A CAPABILITY …Central Possesses Acquisition Momentum with Several Recent Deals… 2014 – 2018 Deals by Segment • Central is a preferred acquirer Pet Supplies & Distributors • Track record of successful M&A - over 50 acquisitions in the last 25 years •
Slide 22: Ensure Sufficient Demand Creation Investment to Drive Organic Growth
Keep the Core Healthy ENSURE SUFFICIENT DEMAND CREATION INVESTMENT TO DRIVE ORGANIC GROWTH & BUILD SHARE Commercial Spending Trends in $(1) 105.0 102.9 100.0 100.0 95.4 95.0 92.3 90.0 89.1 85.0 80.0 2013 2014 2015 2016 2017 Commercial spending includes selling, merchandising, marketing and innovatio
Slide 23: Ensure Sufficient Demand Creation Investment to Drive Organic Growth
Keep the Core Healthy ENSURE SUFFICIENT DEMAND CREATION INVESTMENT TO DRIVE ORGANIC GROWTH & BUILD SHARE 23 9/5/2018
Slide 24: Develop More Differentiated and Defensible New Products
Keep the Core Healthy DEVELOP MORE DIFFERENTIATED AND DEFENSIBLE NEW PRODUCTS Sevin® New formulation Leads to Product Improvement • More efficient active ingredient • Best in class claims and performance vs. competitive set and previous formula • Liquids Kills 500 Insects (old formula 100) • Granule
Slide 25: Develop More Differentiated and Defensible New Products
Keep the Core Healthy DEVELOP MORE DIFFERENTIATED AND DEFENSIBLE NEW PRODUCTS Nylabone® Primal Instinct Dental Bones ▪ All-natural ▪ Made with real meat and real chicken ▪ Highly-digestible dental treats ▪ Helps clean teeth and freshen breath ▪ 100% grain-free Four Paws Wee Wee ▪ Stain & Odor and pa
Slide 26: Build on Strong Customer Relationships with Category Growth Strategies
Keep the Core Healthy 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 •
Slide 27: Build on Strong Customer Relationships with Category Growth Strategies
Keep the Core Healthy BUILD ON OUR STRONG CUSTOMER RELATIONSHIPS BY DEVELOPING AND EXECUTING WINNING CATEGORY GROWTH STRATEGIES • A leading full line aquatics • A leading wholesaler of small animals • Joint venture investment manufacturer in U.S. & aquarium fish • Global supplier of livestock • Over
Slide 28: 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 29: Optimize Our Supply Chain Footprint
Drive Cost Savings and Productivity to Fuel Growth OPTIMIZE OUR SUPPLY CHAIN FOOTPRINT Colorado Springs, CO Surprise, AZ Athens, TX 29 9/5/2018
Slide 30: Improve Operating Efficiency with a Continuous Improvement Mindset
Drive Cost Savings and Productivity to Fuel Growth IMPROVE OUR OPERATING EFFICIENCY WITH A CONTINUOUS IMPROVEMENT MINDSET Productivity over Base Year (1) (Garden Distribution Pounds Picked per Hour) Index, 2013 = 100 200 154 158 150 135 122 100 100 50 0 2013 2014 2015 2016 2017 (1) Indexed with 2013
Slide 31: Improve Coordination by Sharing Best Practices and Aligning for Scale
Drive Cost Savings and Productivity to Fuel Growth IMPROVE COORDINATION BY SHARING BEST PRACTICES AND ALIGNING FOR SCALE AMDRO Quick Kill® Mosquito Controls Only brand to offer full line of solutions aligned with CDC recommendation ▪ Cross-company collaboration ▪ Larvicide & Adulticide – control pro
Slide 32: Unique Mix of Management Talent
Attract, Retain & Develop Exceptional Employees UNIQUE MIX OF MANAGEMENT TALENT George Roeth President & CEO Glen Axelrod Bill Lynch Kay Schwichtenberg SVP, Dog & Cat Brands SVP of Operations EVP, Animal & Public Health, CLS Jim Heim Howard Machek Rodolfo Spielmann Pres. Pet Industry & Consumer Dev.
Slide 33: A Dedicated Staff of Approximately 5,000 Employees
Attract, Retain & Develop Exceptional Employees AND A DEDICATED STAFF OF APPROXIMATELY 5,000 EMPLOYEES Working in 64 Locations Throughout the United States and UK 33 9/5/2018
Slide 34: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis Appendix 34 9/5/2018
Slide 35: 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 36: Questions & Answers
Questions & Answers 36 9/5/2018
Slide 37: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis Appendix 37 9/5/2018
Slide 38: Fertilizers
Fertilizers L&G Retailer Share 2016 Other Providing a wide range of fertilizer options for its customers Internet 9% Supermarket/ 6% Drug Store Home Center 6% 27% Mass Merchandiser Hardware Garden Center/ 20% Store Nursery 15% 17% The Central Garden & Pet Branded Fertilizer portfolio offers • Househ
Slide 39: Controls
Controls Pesticide sales expected to grow 37% in the next decade* Industry Sales of Outdoor Controls** Our AMDRO® brand is backed by nearly 40 years of pest Slug & Outdoor Fire Ants Snail 3% Lawn Fungicides expertise. Beginning with fire ant controls, we have extended 5% Insecticides 9% Surface 2% t
Slide 40: Grass Seed
Grass Seed A broad line of product with an emphasis on superior performance & technology • Grass Seed Industry • 64% of all grass seed sales in the Southeast & Northeast • Central is the largest grass seed manufacturer • Package & ship 160M pounds of turf grass annually • Central is the largest seed
Slide 41: Pennington Décor
Pennington Décor The Home and Garden Décor category is the focal point of every living spacing; 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 42: Wild Bird Feed
Wild Bird Feed Pennington® & Kaytee® Brand Segment Distribution Industry Sales Predominantly sold in the mass channel with additional home improvement Pennington Garden channel distribution Sold primarily in small format hardware Over 35% of every dollar spent by U.S. (Ace, True Value), grocery stor
Slide 43: Distribution
Distribution Garden Pet • 21% of Garden revenue from 3rd party • 19% of Pet revenue from 3rd party products products • Distributes products, foods and provides • Distribution services over 12K “ship to” service to nearly 4K retailers throughout locations in all 50 states the continental US, Alaska &
Slide 44: Dog & Cat Supplies
Dog & Cat Supplies Nylabone®, Four Paws® , DMCTM and K&H Nylabone® makes high-quality chew toys to meet all the different chew types and chew styles of dogs and puppies because all dogs need to chew. Four Paws® provides high quality solutions for pet parents in a wide array of product categories, in
Slide 45: 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 $4.8B category & projected to grow approximately 2% annually* Dog & Cat Treats & Chews* Nylabone® makes edible chews and Sales by Category treats for pure indulgence, with dental Long Lastin
Slide 46: Small Animal & Pet Bird
Small Animal & Pet Bird Kaytee ® Kaytee has the #1 share in the combined Pet Bird & Small Animal Category Small 51% Kaytee is the only brand to offer consumers a ALSO OWN… complete solution from food, treats, bedding, Mammal hay and habitats Owners 68% CAT 28% DOG FISH Most Small Mammal Owners also
Slide 47: Aquatics
Aquatics Aqueon®, Zilla®, Segrest and Casco Make getting into the hobby and keeping fish/reptiles easy. • A leading aquatics • Leading wholesaler of • Single brand name across manufacturer in U.S. premium quality fresh all consumer touch points • Complete line of aquatic water & cold water improves
Slide 48: Animal Health - Professional
Animal Health - Professional ▪ Over 45 years ago, invented insect growth regulator technology using the insect’s chemistry as a means to reduce pest populations ▪ Professional Applied Science solutions centered on animals, pets & families living healthier & more enjoyable lives ▪ Trusted products us
Slide 49: Animal Health & Wellness – Consumer Products
Animal Health & Wellness – Consumer Products Flea & Tick Control Behavior Management FLEA & TICK INDUSTRY SALES* Club Grocery Other Online 4% 2% 3% Pet 6% Specialty 11% Veterinary 62% Mass 12% • 2/3 of cat & dog households report behavior problems • Behavior problems are responsible for 30-40% of an
Slide 50: 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: • Ind
Slide 51: 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 52: 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 53: 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, 2017 2016 Impairments of intangible assets $ - $ 1,828 (Gain)/loss on disposal of plant assets (2,050) (2,363) Incremental expenses from note redemptio
Slide 54: 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 55: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) Organic Net Sales Reconciliation (YTD) GAAP to Non-GAAP Reconciliation (in millions, except per share amounts) For the Nine Months Ended June 30, 2018 Consolidated Pet Segment Garden Segment Percent Percent Percent Change Change Change Reported Net Sales –
Slide 56: 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, 2017 2016 2015 2014 2013 2012 GAAP operating income $156,112 $129,358 $91,435 $56,213 $40,155 $74,421 Total operating income im
Slide 57: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) Consolidated Operating Income Reconciliation (YTD) GAAP to Non-GAAP Reconciliation (in thousands) For the Nine Months ended June 30, 2018, 2018 2017 GAAP operating income $149,126 $141,731 Total operating income impact from non-GAAP adjustments - (2,050) N
Slide 58: 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, 2017 2016 2015 2014 2013 2012 GAAP Operating Income $ 156,112 $ 129,358 $ 91,435 $56,213 $40,155 $ 74,421 Depreciation & Amortization 42,719 40,001 33
Slide 59: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) EBITDA Reconciliation (YTD) GAAP to Non-GAAP Reconciliation (in thousands) For the Nine Months Ended June 30, 2018 2018 2017 GAAP Operating Income $ 149,126 $ 141,731 Depreciation & Amortization 34,872 31,374 EBITDA $183,998 $173,105 59 9/5/2018
Slide 60: 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, 2017 2016 2015 2014 2013 2012 GAAP net income attributable to Central $78,828 $44,514 $31
Slide 61: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) Net Income & Diluted Net Income Per Share Reconciliation (YTD) GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) For the Nine Months Ended June 30, 2018 2018 2017 GAAP net income attributable to Central Garden & Pet $ 113,026 $ 74,56
Central Garden & Pet Company — Barclays Global Consumer Staples Conference 2018 on 6ix