Central Garden & Pet(CENT) - 2022 Q2 - Quarterly Report

markdown [PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the three and six months ended March 26, 2022, including balance sheets, statements of operations, comprehensive income, cash flows, and detailed notes on accounting policies and key financial events [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Balance Sheet Items | March 26, 2022 | March 27, 2021 | September 25, 2021 | | :--- | :--- | :--- | :--- | | **Total Current Assets** | $1.62B | $1.41B | $1.54B | | Inventories, net | $888.1M | $672.9M | $685.2M | | Goodwill | $512.0M | $290.0M | $369.4M | | Other intangible assets, net | $499.3M | $128.2M | $134.4M | | **Total Assets** | **$3.35B** | **$2.85B** | **$3.12B** | | **Total Current Liabilities** | $570.7M | $536.8M | $522.3M | | Long-term debt | $1.19B | $978.9M | $1.18B | | **Total Equity** | **$1.29B** | **$1.16B** | **$1.22B** | - Significant year-over-year increases in Inventories, Goodwill, and Other intangible assets are notable, primarily driven by recent acquisitions. Total assets grew by approximately **17.6%** compared to March 27, 2021[12](index=12&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) | Income Statement (Three Months Ended) | March 26, 2022 | March 27, 2021 | | :--- | :--- | :--- | | Net sales | $954.4M | $935.3M | | Gross profit | $286.8M | $272.4M | | Operating income | $106.8M | $104.6M | | Net income attributable to Central | $69.7M | $73.0M | | Diluted EPS | $1.27 | $1.32 | | Income Statement (Six Months Ended) | March 26, 2022 | March 27, 2021 | | :--- | :--- | :--- | | Net sales | $1.62B | $1.53B | | Gross profit | $485.0M | $437.8M | | Operating income | $133.1M | $131.6M | | Net income attributable to Central | $78.7M | $78.6M | | Diluted EPS | $1.44 | $1.43 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow (Six Months Ended) | March 26, 2022 | March 27, 2021 | | :--- | :--- | :--- | | Net cash used by operating activities | ($272.1M) | ($120.2M) | | Net cash used in investing activities | ($77.2M) | ($765.4M) | | Net cash (used) provided by financing activities | ($23.0M) | $270.5M | | Net decrease in cash | ($372.8M) | ($613.9M) | - The significant decrease in cash used for investing activities in 2022 compared to 2021 is primarily due to large acquisition payments made in the prior year period. Cash from financing activities also shifted from a large inflow in 2021 (from debt issuance) to a small outflow in 2022[21](index=21&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - The company completed two key acquisitions in fiscal 2021: Green Garden Products for approximately **$571.0M** and D&D Commodities, Ltd. for approximately **$88.0M** in cash plus assumed debt. These acquisitions are part of the Garden segment[52](index=52&type=chunk)[54](index=54&type=chunk) - As of March 26, 2022, total long-term debt was approximately **$1.19B**, consisting primarily of three series of senior notes: **$300M** due 2028, **$500M** due 2030, and **$400M** due 2031[66](index=66&type=chunk) | Segment Net Sales (Three Months Ended) | March 26, 2022 | March 27, 2021 | | :--- | :--- | :--- | | Pet segment | $497.6M | $492.0M | | Garden segment | $456.7M | $443.3M | | Segment Operating Income (Three Months Ended) | March 26, 2022 | March 27, 2021 | | :--- | :--- | :--- | | Pet segment | $60.6M | $62.1M | | Garden segment | $70.5M | $66.0M | - The company is involved in a legal proceeding with Nite Glow Industries. A federal court ordered a new trial on damages for a single claim of misappropriation of confidential information, after dismissing patent infringement and breach of contract claims[113](index=113&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial results for the second quarter of fiscal 2022, highlighting a **2.0%** increase in net sales driven by acquisitions and pricing actions, partially offset by a **3.5%** decline in organic sales, detailing segment performance, liquidity, and capital resources [Results of Operations](index=32&type=section&id=Results%20of%20Operations) | Metric (Q2 FY22 vs Q2 FY21) | Value | Change | | :--- | :--- | :--- | | Net Sales | $954.4M | +2.0% | | Organic Net Sales | - | -3.5% | | Gross Margin | 30.1% | +100 bps | | Operating Income | $106.8M | +2.1% | | Net Income | $69.7M | -4.5% | | Diluted EPS | $1.27 | -3.8% | - For Q2 2022, the Pet segment's organic sales increased **1.2%** due to pricing actions. The Garden segment's sales increased **3.0%** due to acquisitions, but organic sales decreased **8.7%** primarily due to unfavorable weather delaying the start of the garden season[123](index=123&type=chunk) - The company is experiencing significant cost inflation in commodities, labor, and freight. While pricing actions have been implemented, management does not anticipate fully offsetting these cost pressures in fiscal 2022[124](index=124&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) - Net cash used by operating activities increased to **$272.1M** for the first six months of FY2022, up from **$120.2M** in the prior year, primarily due to an intentional build-up of inventory to manage supply chain disruptions and rising input costs[163](index=163&type=chunk) - Total debt outstanding was **$1.19B** at March 26, 2022. The company's primary liquidity sources are cash from operations and a **$750M** asset-based revolving credit facility, which had approximately **$652M** of availability[167](index=167&type=chunk)[179](index=179&type=chunk) - During the six months ended March 26, 2022, the company repurchased approximately **0.4 million shares** of its Class A common stock for about **$16.1M**[166](index=166&type=chunk) - On December 16, 2021, the company entered into an Amended Credit Agreement, increasing its senior secured asset-based revolving credit facility to **$750M** and extending the maturity to December 2026[178](index=178&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=51&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company states there has been no material change in its exposure to market risk from the information provided in its Annual Report on Form 10-K for the fiscal year ended September 25, 2021 - There has been no material change in the company's exposure to market risk since the last annual report[192](index=192&type=chunk) [Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on a review by the Chief Executive Officer and principal financial officer, the company's disclosure controls and procedures were deemed effective as of March 26, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the period[193](index=193&type=chunk) - No material changes to the company's internal control over financial reporting were identified during the second quarter of fiscal 2022[194](index=194&type=chunk) [PART II. OTHER INFORMATION](index=51&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in a lawsuit with Nite Glow Industries, Inc. regarding alleged patent infringement and misappropriation of confidential information, with a federal appeals court ordering a new trial limited to determining damages for the misappropriation claim - The company is engaged in an ongoing legal dispute with Nite Glow Industries. A Federal Circuit Court of Appeals ordered a new trial focused solely on the damages related to a misappropriation of confidential information claim, having dismissed other claims[196](index=196&type=chunk) [Risk Factors](index=53&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes from the risk factors that were previously disclosed in the company's Form 10-K for the fiscal year ended September 25, 2021 - No material changes to the risk factors disclosed in the last annual report have occurred[200](index=200&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company provides details on its stock repurchase activity for the second fiscal quarter of 2022, with **248,999 shares** repurchased under a **$100M** share repurchase program | Repurchase Period (FY 2022) | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Dec 26, 2021 - Jan 29, 2022 | 52,558 | **$41.94** | | Jan 30, 2022 - Feb 26, 2022 | 107,916 | **$41.75** | | Feb 27, 2022 - Mar 26, 2022 | 88,525 | **$41.21** | | **Total for Quarter** | **248,999** | **$41.60** | - As of March 26, 2022, the company had **$100M** of authorization remaining under its 2019 Repurchase Authorization program[202](index=202&type=chunk) [Exhibits](index=55&type=section&id=Item%206.%20Exhibits) This section lists all the exhibits filed with the Form 10-Q report, including amended by-laws, an employment agreement modification, guarantor subsidiaries, CEO and CFO certifications, and financial statements in Inline XBRL format - Exhibits filed include amended by-laws, executive compensation agreements, Sarbanes-Oxley certifications, and financial data in XBRL format[206](index=206&type=chunk)[208](index=208&type=chunk)[210](index=210&type=chunk)[214](index=214&type=chunk)