Central Garden & Pet Company · NASDAQ:CENT
Central Garden & Pet — Investor Presentation (March 2018)
57 slides from Central Garden & Pet's investor presentation, March 2018
Slide 1: Corporate Presentation March 2018
Corporate Presentation March 2018
Slide 2: 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 3: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis Appendix 3 3/16/2018
Slide 4: Central Garden & Pet (Nasdaq: CENT and CENTA)
Central Garden & Pet (Nasdaq: CENT and CENTA) • Founded in 1980 as a distribution company. Through a combination of over 50 strategic acquisitions and internal investment, Central has evolved its business into a portfolio of leading brands in the lawn and garden supplies and pet supplies industries.
Slide 5: Central Produces and Distributes a Broad Array of Branded and Private Label Products
Central Produces and Distributes a Broad Array of Branded and Private Label Products Pet Products Garden Products Animal Animal Health - Health - Wild Bird Wild Bird Grass Seed Consumer Professional Dog & Cat Dog & Cat Food, Chews Fertilizers Controls Supplies & Treats Small Animal Aquatics Decor Li
Slide 6: 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 $19B of a $28B industry • Net sales of $808M in 2017 • 3 retailers represent approximately 70% of sales • 21% of segment sales from 3rd party distribution • Seaso
Slide 7: 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 $28B of a $56B industry • Net sales of $1.2B in 2017 • Fragmented customer base • Consumer and professional businesses • ~20%+ sales through major pet specialty retailers • 19
Slide 8: 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 9: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis Appendix 9 3/16/2018
Slide 10: Strong 2017 Results
Strong 2017 Results $ in millions except EPS GAAP Non-GAAP1 2016 2017 Change Change Net Sales/Organic Net Sales $1,829 $2,055 12.3% 4.8% Gross Margin % 30.2% 30.8% 60 bp Operating Income $129.4 $156.1 20.6% Operating Margin % 7.1% 7.6% 50 bp Net Income $ 44.5 $78.8 77.1% Diluted EPS1 $ 0.87 $1.52 74
Slide 11: Metrics Accelerating Over the Last Three Years
Metrics Accelerating Over the Last Three Years Net Sales Operating Margin (in billions) $2.2 8% 7.6% $2.1 7.1% 7% $2.0 $1.8 6% 5.5% $1.8 $1.7 $1.7 5% 4.4% $1.6 $1.7 $1.6 4% 3.5% 3% 2.4% $1.4 2% $1.2 1% $1.0 0% FY12 FY13 FY14 FY15 FY16 FY17 FY12 FY13 FY14 FY15 FY16 FY17 EBITDA* Diluted EPS* (in milli
Slide 12: 2018 Off to a Strong Start
2018 Off to a Strong Start $ in millions except EPS GAAP Non-GAAP1 Q1’17 Q1’18 Change Change Net Sales/Organic Net Sales $419.5 $442.0 5.4% 1.1% Gross Margin % 28.8% 29.8% 100 bp Operating Income $19.9 $22.5 13.0% Operating Margin % 4.8% 5.1% 30 bp Net Income $7.6 $26.2 244% Diluted EPS1 $0.15 $0.50
Slide 13: Competitive Advantages
Competitive Advantages • Broad product portfolio • Strong, owned distribution network • Low cost producer in many categories • Broad pet owner & garden enthusiast consumer understanding • Strategic and desired acquirer for pet & garden companies • Well-capitalized with significant growth opportuniti
Slide 14: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis Appendix 14 3/16/2018
Slide 15: Central Garden & Pet Strategy
CENTRAL GARDEN & PET STRATEGY • Manage each business differentially based on role and strategy Accelerate the Growth Momentum of Our • Seek to acquire businesses that are accretive to our growth Portfolio • Exit businesses if we cannot find a path to consistent profitability Build on Strong Customer
Slide 16: Accelerate the Growth Momentum of Our Portfolio
ACCELERATE THE GROWTH MOMENTUM OF OUR PORTFOLIO Manage Each Business Differentially Based on Role and Strategy 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 has
Slide 17: Successful M&A Model and Track Record
ACCELERATE THE GROWTH MOMENTUM OF OUR PORTFOLIO Successful M&A Model and Track Record • 50+ acquisitions over the last 25 years • Disciplined buyer • Priority on close-in opportunities in garden and pet to leverage our capabilities • Thorough due diligence and preference to acquire businesses with p
Slide 18: Seek to Acquire & Invest in Businesses Accretive to Growth
ACCELERATE THE GROWTH MOMENTUM OF OUR PORTFOLIO Seek to Acquire & Invest In Businesses that are Accretive to our Growth Recent acquisitions have made the current portfolio stronger Acquired in Acquired in April 2017 Largest producer of heated & cooled dog & cat beds in + December 2015 Industry-leadi
Slide 19: Seek to Acquire & Invest in Businesses Accretive to Growth
ACCELERATE THE GROWTH MOMENTUM OF OUR PORTFOLIO Seek to Acquire & Invest In Businesses that are Accretive to our Growth • 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 • Dedicate
Slide 20: Seek to Acquire & Invest in Businesses Accretive to Growth
ACCELERATE THE GROWTH MOMENTUM OF OUR PORTFOLIO Seek to Acquire & Invest In Businesses that are Accretive to our Growth • 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 veterina
Slide 21: Build on Strong Customer Relationships
BUILD ON STRONG CUSTOMER RELATIONSHIPS Operate with a Customer First Mindset Continued to partner with customers to grow categories & help them provide quality, value-added products to consumers • Expanded category management capabilities • Rolled out new products & packaging in private label • Thes
Slide 22: Expand our Category Management Capabilities
BUILD ON STRONG CUSTOMER RELATIONSHIPS Expand our Category Management Capabilities • Provide direction, fueled by consumer insights and specific customer understanding, on how our retail partners can grow their category sales and profits • Merchandising • Assortment • Pricing • Shelving Major food r
Slide 23: Develop More Differentiated and Defensible New Products
INCREASE INNOVATION OUTPUT AND SUCCESS RATES Develop More Differentiated and Defensible New Products AMDRO Quick Kill® Mosquito Controls Only brand to offer full line of solutions aligned with CDC recommendation ✓ Larvicide & Adulticide – control products and inhibit breeding ✓ Cross-company collabo
Slide 24: Develop More Differentiated and Defensible New Products
INCREASE INNOVATION OUTPUT AND SUCCESS RATES Develop More Differentiated and Defensible New Products Created to specifically address the solutions for dog’s lifestage Cadet® Chewing puppies have different needs than achy-jointed Unique flavors, proteins & shapes seniors Four Paws® Wee-Wee Profession
Slide 25: Increase Overall Investment in Innovation, Consumer Insights and Demand Creation
INCREASE INNOVATION OUTPUT AND SUCCESS RATES Increase Overall Investment in Innovation, Consumer Insights and Demand Creation to an Appropriate Level for Each Business • Create three year line-of-sight on inventory of innovation initiatives • Invest in consumer insights to create value-added new pro
Slide 26: Expand our Retailers' Categories
INCREASE INNOVATION OUTPUT AND SUCCESS RATES Expand our Retailers’ Categories • A leading aquatics • Wholesaler of small animals & • Joint venture investment manufacturer in U.S. aquarium fish • Global supplier of livestock • Complete line of aquatic • Offer a broad selection of small displays for r
Slide 27: Improve our Operating Efficiency with a Continuous Improvement Mindset
DRIVE COST SAVINGS AND PRODUCTIVITY IMPROVEMENTS TO FUEL GROWTH Improve our Operating Efficiency with a Continuous Improvement Mindset Sevin® New formulation Leads to Product Improvement • More efficient active ingredient • New exclusive active ingredients for liquids and granules • Best in class cl
Slide 28: Improve Coordination by Sharing Best Practices and Aligning for Scale
DRIVE COST SAVINGS AND PRODUCTIVITY IMPROVEMENTS TO FUEL GROWTH Improve Coordination by Sharing Best Practices and Aligning for Scale Best Practice Sharing & Quality System Development • Implemented product development best practices across Garden • Reduce time to market • Ensure quality • Increase
Slide 29: Central is Led by a Seasoned, Diverse Management Team
ATTRACT, RETAIN & DEVELOP EXCEPTIONAL EMPLOYEES Central is Led by a Seasoned, Diverse Management Team George Roeth President & CEO Glen Axelrod Bill Lynch Kay Scwichtenberg SVP, Dog & Cat Brands SVP of Operations EVP, Animal & Public Health, CLS Jim Heim Howard Machek Rodolfo Spielmann Pres. Pet Ind
Slide 30: And a Dedicated Staff of Over 4,200 Employees
ATTRACT, RETAIN & DEVELOP EXCEPTIONAL EMPLOYEES And a Dedicated Staff of Over 4,200 Employees Working in 64 Locations Throughout the United States and UK 30 3/16/2018
Slide 31: Central Garden & Pet Strategy
Central Garden & Pet Strategy Accelerate the Growth Momentum of Our Portfolio Build on Strong Customer Relationships Increase Innovation Output and Success Rates Drive Cost Savings and Productivity Improvements to Fuel Growth Attract, Retain and Develop Exceptional Employees 31 3/16/2018
Slide 32: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis Appendix 32 3/16/2018
Slide 33: 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 34: Questions & Answers
Questions & Answers 34 3/16/2018
Slide 35: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis Appendix 35 3/16/2018
Slide 36: 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 37: 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 38: 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 39: 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 40: 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 41: 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 42: 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 43: 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 44: 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 45: 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 46: 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 47: 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 48: 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 49: 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 50: 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 51: 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 redemption
Slide 52: 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 53: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) Organic Net Sales Reconciliation GAAP to Non-GAAP Reconciliation (in millions, except per share amounts) For the Three Months Ended December 30, 2017 Consolidated Pet Segment Percentage Percentage Change Change Reported Net Sales – Q1 FY18 (GAAP) $ 442.0 $
Slide 54: 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 55: 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 56: 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 57: 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 Three Months Ended December 30, 2017 December 24, 2016 GAAP net income attributable to Central Garden & Pet $ 26,247 $
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