Central Garden & Pet Company · NASDAQ:CENT
Central Garden & Pet — 2017 Telsey Conference
75 slides from Central Garden & Pet's conference presentation, Mar 21, 2017
Slide 1: 2017 Telsey Conference Presentation
2017 Telsey Conference Presentation George Roeth President & CEO March 21, 2017
Slide 2: Also Attending Telsey from Central Garden & Pet
Also Attending Telsey from Central Garden & Pet • Steve Zenker • Vice President, Investor Relations & Communications • Niko Lahanas • SVP & CFO, Pet Segment 2 3/10/2017
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 FY17 guidance are forward-looking statements that are sub
Slide 4: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis 4 3/10/2017
Slide 5: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis 5 3/10/2017
Slide 6: Central Garden & Pet (Nasdaq: CENT and CENTA)
Central Garden & Pet (Nasdaq: CENT and CENTA) • Net sales of $1.8B in FY 2016 • $1.7B Market cap (12/31/2016) • 96% of sales in U.S. Sales and Logistics Manufacturing Headquarters Central has a nationwide multi-category, multi-channel platform The following cities have multiple facilities Phoenix, A
Slide 7: Central Garden & Pet Evolved through a Series of Acquisitions
Central Garden & Pet Evolved through a Series of Acquisitions • Founded in 1980 as a distribution company • Formed through a series of over 40 acquisitions • Today approximately 21% in 3rd party distribution 7 3/10/2017
Slide 8: Central Garden & Pet has a Broad Array of Garden & Pet Products
Central Garden & Pet has a Broad Array of Garden & Pet Products Pet Products Garden Products Animal Health - Wild Bird Consumer Wild Bird Grass Feed Feed Seed Aquatics Animal Health - Fertilizers Professional Small Animal & Pet Bird Controls Dog & Cat Dog & Cat Decor Food, Treats & Supplies Chews Eq
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 participates in $20 billion of a $25 billion industry Garden Industry Sales* (in billions) Other Décor $3.5 Mulch $1.0 Growing Media $1.8 Packaged Fertilizer $5.3 Grass Seed Outdoor Décor Pesticides $1.6
Slide 10: Central is a Leader in Several Garden Categories
Central is a Leader in Several Garden Categories Central’s Garden Business • Net sales of $747M in 2016 • Leading brands in several categories including: Grass seed Wild bird feed Specialty controls niches • 20% of segment sales from 3rd party distribution • 2% organic growth in 2016* * See non-GAAP
Slide 11: The Pet Segment is Fragmented with Attractive Growth Rates
The Pet Segment is Fragmented with Attractive Growth Rates The Pet Industry • Central participates in $30 billion of a $51 billion industry Pet Industry Sales* Treats & (in billions) Natural Dog Chews, & Cat Food, $5.4 $9.8 Supplies, $15.2 Other Dog & Cat Food, $20.4 • Fragmented customer base • ~20
Slide 12: Central is a Leader in Key Non-Food Pet Categories
Central is a Leader in Key Non-Food Pet Categories Central’s Pet Business • Net sales of $1.1B in 2016 • Consumer and professional businesses • Leading brands in several categories including: Small animal, bird Aquatic tanks & feed & supplies Pet beds supplies Equine • 22% of segment sales from 3rd
Slide 13: Central has a Diverse Set of Competitors Across its Portfolio
Central has a Diverse Set of Competitors Across its Portfolio Garden Pet Bird & Small Animal Dog & Cat Supplies Aquatics & Reptile Dog & Cat Food, Animal Health – Animal Health – Treats & Chews Wild Bird Feed Professional Grass Seed Consumer Fertilizers Controls Décor Central Garden & Pet Scotts Spe
Slide 14: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis 14 3/10/2017
Slide 15: Strong 2016 Results
Strong 2016 Results $ in millions except EPS GAAP 2015 2016 Change Net Sales $1,651 $1,829 10.8% Gross Margin % 29.6% 30.2% 60 bp Operating Income $ 91.4 $129.4 41.5% Operating Margin % 5.5% 7.1% 160 bp Net Income $ 32.0 $ 44.5 39.0% Diluted EPS $ 0.64 $ 0.87 35.9% 12016 non-GAAP results exclude cha
Slide 16: Strong 2016 Results
Strong 2016 Results $ in millions except EPS GAAP Non-GAAP1 2015 2016 Change Change Net Sales/Organic Net Sales $1,651 $1,829 10.8% 4.2% Gross Margin % 29.6% 30.2% 60 bp Operating Income $ 91.4 $129.4 41.5% Operating Margin % 5.5% 7.1% 160 bp Net Income $ 32.0 $ 44.5 39.0% Diluted EPS $ 0.64 $ 0.87
Slide 17: P&L Metrics Accelerating Over the Last Three Years
P&L Metrics Accelerating Over the Last Three Years Net Sales SG&A as a % of Sales (in billions) $1.9 26% 25.9% $1.83 $1.8 25.1% 25.2% $1.70 25% 24.8% $1.7 $1.63 $1.65 $1.65 $1.60 $1.6 24% 23.6% $1.5 23.1% 23% $1.4 $1.3 22% $1.2 21% $1.1 $1.0 20% FY11 FY12 FY13 FY14 FY15 FY16 FY11 FY12 FY13 FY14 FY15
Slide 18: Strong Cash Flow for Additional Growth Investments & Acquisitions
Strong Cash Flow for Additional Growth Investments & Acquisitions EBITDA* Cash Provided by Operations (in millions) (in millions) $175 $169 $160 $151 $140 $126 $150 $125 $120 $125 $114 $105 $100 $89 $87 $100 $92 $80 $73 $60 $51 $75 $40 $50 $20 $25 $- -$20 FY11 FY12 FY13 FY14 FY15 FY16 $- FY11 FY12 F
Slide 19: Q1 2017 Results - Off to a Strong Start
Q1 2017 Results - Off to a Strong Start $ in millions except EPS GAAP Q1’16 Q1’17 Change Net Sales $359.8 $419.5 16.6% Gross Margin % 27.7% 28.8% 110 bp Operating Income $8.8 $19.9 127.3% Operating Margin % 2.4% 4.8% 240 bp Net Income ($8.6) $7.6 $16.2 Diluted EPS ($0.18) $0.15 $0.33 12017 Q1 non-GA
Slide 20: Q1 2017 Results - Off to a Strong Start
Q1 2017 Results - Off to a Strong Start $ in millions except EPS GAAP Non-GAAP1 Q1’16 Q1’17 Change Change Net Sales/Organic Sales $359.8 $419.5 16.6% 7.0% Gross Margin % 27.7% 28.8% 110 bp Operating Income $8.8 $19.9 127.3% Operating Margin % 2.4% 4.8% 240 bp Net Income ($8.6) $7.6 $16.2 Diluted EPS
Slide 21: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis 21 3/10/2017
Slide 22: 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 22 3/10/2017
Slide 23: 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 23 3/10/2017
Slide 24: Manage Each Business Differentially Based on Role and Strategy
Manage Each Business Differentially Based on Role and Strategy PROTECT & MAINTAIN STRATEGIC GROWTH ENGINES MANAGE FOR PROFIT BUILD HIGH POTENTIAL BRANDS Profitability OPTIMIZE FOR CASH TEST & LEARN Growth Potential • Some businesses more focused on topline growth • Some businesses more focused on im
Slide 25: Seek to Acquire Businesses that are Accretive to our Growth
Seek to Acquire Businesses that are Accretive to our Growth 25 3/10/2017
Slide 26: Successful M&A Model and Track Record
Successful M&A Model and Track Record • 40+ acquisitions to create a company with $1.7B market cap • Disciplined buyers • Focus on close-in opportunities in garden and pet to leverage our capabilities • Manageable size (DMC, IMS, Segrest) • Thorough due diligence and prefer to acquire with proven ma
Slide 27: Exit Businesses if We Cannot Find a Path to Consistent Profitability
Exit Businesses if We Cannot Find a Path to Consistent Profitability 27 3/10/2017
Slide 28: 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 29: Operate with a Customer First Mindset
Operate with a Customer First Mindset • Listen, flexible, fast, principled • Offer an array of branded manufactured and 3rd party products • Develop & market private label products like major brands Lowes Private Label 29 3/10/2017
Slide 30: Expand our Category Management Capabilities
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 30 3/27/2017
Slide 31: Central Garden & Pet Strategy
Central Garden & Pet Strategy Accelerate the Growth • Manage each business differentially based on role and strategy 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 • Operat
Slide 32: Develop More Differentiated and Defensible New Products
Develop More Differentiated and Defensible New Products Ultragreen® Plant Fertilizers • Dramatically reduces need for water Farnam® PuriShield™ Wound Products • Patented wound care technology 32 3/10/2017
Slide 33: Develop More Differentiated and Defensible New Products
Develop More Differentiated and Defensible New Products Cadet® • Unique flavors, proteins & shapes Kaytee • Unique colors, sizing & benefits 33 3/10/2017
Slide 34: Increase Overall Investment in Innovation, Consumer Insights and Demand Creation
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 Year 3 Year 2 Year 1 34 3/10/2017
Slide 35: Increase Overall Investment in Innovation, Consumer Insights and Demand Creation
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 products 35 3/10/2017
Slide 36: Increase Overall Investment in Innovation, Consumer Insights and Demand Creation
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 products • Increase digital capabilities to bett
Slide 37: Digital Marketing Initiative - AvoDerm
Digital Marketing Initiative - AvoDerm Click here to view commercial 37 3/10/2017
Slide 38: Expand our Retailer's Categories
Expand our Retailer’s Categories • A leading aquatics manufacturer in U.S. • Leading wholesaler of fresh water aquarium fish • Complete line of aquatic products from one brand • Supply pet stores, public aquariums & research institutions Leverage synergies across businesses to drive category growth
Slide 39: 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 40: Optimize our Supply Chain Footprint
Optimize our Supply Chain Footprint Current Logistics Flow 40 3/10/2017
Slide 41: Optimize our Supply Chain Footprint
Optimize our Supply Chain Footprint Future Logistics Flow 41 3/10/2017
Slide 42: Improve our Operating Efficiency with a Continuous Improvement Mindset
Improve our Operating Efficiency with a Continuous Improvement Mindset Productivity over Base Year 23% 19% 17% Lines Picked per 5% Hour Base Year 2013 2014 2015 2016 2017 Target 42 3/10/2017
Slide 43: Improve Coordination by Sharing Best Practices and Aligning for Scale
Improve Coordination by Sharing Best Practices and Aligning for Scale Consolidated truck buy 43 3/10/2017
Slide 44: Attract, retain and develop exceptional employees
Attract, retain and develop exceptional employees • 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 Buil
Slide 45: Central is Led by a Seasoned Management Team
Central is Led by a Seasoned Management Team Glen Axelrod Dan Pennington SVP, Dog & Cat Brands SVP & COO Manufacturing/Pennington Jim Heim Mike Reed President of Pet Industry & Customer EVP, Strategy and M&A Development Niko Lahanas Kay Schwichtenberg SVP, Finance Ops, & Reporting EVP, Animal & Publ
Slide 46: A Dedicated Staff of over 4,100 Employees
And a Dedicated Staff of over 4,100 Employees Working in 64 Locations Throughout the United States and UK 46 3/10/2017
Slide 47: 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 47 3/10/2017
Slide 48: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis 48 3/10/2017
Slide 49: 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 50: Questions & Answers
Questions & Answers 50 3/10/2017
Slide 51: Agenda
Agenda Company Overview Performance Track Record Strategy Investment Thesis Appendix 51 3/10/2017
Slide 52: Fertilizers
Fertilizers Fertilizer sales expected to grow 43% in the next decade* Providing a wide range of fertilizer options for its customers Fertilizer Industry Sales* Garden & Specialty, 28% Lawn Care, 72% The Central Garden & Pet Branded Fertilizer portfolio offers • Current outdoor fertilizer household p
Slide 53: 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 Fire Ants Slug & Outdoor 5% Snail 3% Lawn Fungicides expertise. Beginning with fire ant controls, we have extended Insecticides 9% Surface 2% t
Slide 54: 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 55: Décor
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: Central i
Slide 56: Wild Bird Feed
Wild Bird Feed Pennington® & Kaytee® Industry Sales Brand Segment Distribution Predominantly sold in the mass channel with additional home improvement Pennington Garden channel distribution 122M 18.5M (15%) Sold primarily in small format hardware Estimated number of US Households buy Wild (Ace, True
Slide 57: Distribution
Distribution Garden Pet • 20% of Garden revenue from 3rd party • 22% of Pet revenue from 3rd party products products • Distribution services over 12K “ship to” • Distributes products, foods and provides locations in all 50 states service to nearly 4K retailers throughout the continental US, Alaska &
Slide 58: Dog & Cat Supplies
Dog & Cat Supplies Nylabone®, Four Paws® & DMCTM Nylabone® makes the best chew toys Four Paws® provides high quality to meet all the different chew types solutions for pet parents in a wide array and chew styles of dogs and puppies of product categories, including: Stain & because all dogs need to c
Slide 59: Dog & Cat Food, Treats and Edible Chews
Dog & Cat Food, Treats and Edible Chews Nylabone®, IMS, Breeder’s Choice Edible Chews & Treats is a $4.4B category & projected to grow approximately 6% annually* Dog & Cat Treats & Chews* Nylabone® makes edible chews and Sales by Category treats for pure indulgence, with dental All Other Long Lastin
Slide 60: Small Animal & Pet Bird
Small Animal & Pet Bird Kaytee ® Kaytee has the #1 share in the combined Pet Bird & Small Animal Category 57% Kaytee is the only brand to offer consumers a Small complete solution from food, treats, bedding, Mammal Owners 38% hay and habitats CAT 66% ALSO OWN… DOG FISH Most Small Mammal Owners also
Slide 61: Aquatics
Aquatics Aqueon®, Zilla® & Segrest 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 water & cold water improves shop-ability • Complete line of aqua
Slide 62: Animal Health - Professional
Animal Health - Professional Over 35 years ago, invented insect growth regulator technology using the insect’s chemistry as a means to reduce pest populations Professional products scientifically developed with an environmental focus and applied with purpose Trusted products used in sensitive
Slide 63: Animal Health – Consumer Products
Animal Health – Consumer Products Flea & Tick Control Behavior Management F&T Category Sales by Channel Comfort Zone Sales Growth* Club, 5% Dollar, 3% Grocery, Pet 3% Specialty, 38% Mass, 42% Other, 8% 2012 2013 2014 2015 2016 ADAMS™ products take a smarter approach to pet care and make protecting y
Slide 64: 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 65: 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 non-
Slide 66: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) Non-GAAP financial measures reflect adjustments based on the following items: • Gains or losses on disposals of significant plant assets: • Q1’ 2017, we recorded a $2.0 million gain in our Garden segment from the sale of a distribution facility resulting f
Slide 67: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) Non-GAAP Adjustments FY 2016 GAAP to Non-GAAP Reconciliation (in thousands) For the Year Ended 2016 2015 Impairments of intangible assets $ 1,828 $ 7,272 (Gain)/loss on disposal of plant assets (2,363) - Incremental expenses from note redemption and issuan
Slide 68: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) SG&A Expense Reconciliation FY 2016 GAAP to Non-GAAP Reconciliation (in thousands) For the Year Ended 2016 2015 2014 2013 2012 2011 GAAP SG&A expense $423,692 $396,617 $397,811 $423,747 $439,737 $408,744 SG&A expense impact from non- GAAP adjustments 535 (
Slide 69: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) Consolidated Operating Income Reconciliation FY 2016 GAAP to Non-GAAP Reconciliation (in thousands) For the Year Ended 2016 2015 2014 2013 2012 2011 GAAP operating income $129,358 $91,435 $56,213 $40,155 $74,421 $85,175 Total operating income impact (535)
Slide 70: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) Pet Operating Income Reconciliation FY 2016 GAAP to Non-GAAP Reconciliation (in thousands) For the Year Ended 2016 2015 GAAP Pet segment operating income $119,930 $98,798 Total operating income impact from non-GAAP adjustments (535) 7,272 Non-GAAP Pet segm
Slide 71: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) Interest Expense Reconciliation FY 2016 GAAP to Non-GAAP Reconciliation (in thousands) For the Year Ended 2016 2015 GAAP interest expense $(42,847) N/A Impact from non-GAAP adjustments 14,339 - Non-GAAP interest expense $(28,508) - 71 3/10/2017
Slide 72: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) Net Income & Diluted Net Income Per Share Reconciliation Q1 2017 GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) For the Three Months Ended December 24, 2016 December 26, 2015 GAAP net income (loss) attributable to Central Garden &
Slide 73: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) Net Income & Diluted Net Income Per Share Reconciliation FY 2016 GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) For the Year Ended September 2016 2015 2014 2013 2012 2011 GAAP net income attributable to Central $44,514 $31,971 $8,
Slide 74: 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 75: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) Pet Segment Organic Reconciliation Q1 2017 GAAP to Non-GAAP Reconciliation (in thousands) For the Three Months Ended December 24, December 26, Percentage 2016 2015 Change Reported net sales – GAAP $304.0 $248.7 22.2% Effect of acquisitions and divestitures
Central Garden & Pet Company — 2017 Telsey Conference on 6ix