Financial Data and Key Metrics Changes - Net sales increased by 12% to $661 million, driven by recent acquisitions, particularly the Green Garden seed business and Hopewell live plants business [9][31] - Organic sales were in line with the prior year, with a two-year compound annual growth rate (CAGR) of 11% [32] - Gross profit increased by $33 million to $198 million, with gross margin improving by 210 basis points to 30% despite significant cost inflation [33] - Operating income declined slightly by 3% to $26 million, with operating margin decreasing by 60 basis points to 4% [11][35] - Net income grew by 61% to $9 million, with diluted GAAP earnings per share increasing by $0.06 to $0.16 [37] Business Segment Data and Key Metrics Changes Garden Segment - Garden segment sales grew by 45% to $225 million, with a 0.3% decline in organic sales excluding acquisitions [38] - Operating income for the Garden segment increased by 30% to $6 million, while operating margin decreased by 30 basis points to 2.7% [40] - Adjusted EBITDA for the Garden segment increased by 115% to $16 million [40] Pet Segment - Pet segment sales remained in line with the prior year at $436 million, with organic sales increasing at a 10% CAGR over two years [41][42] - Operating income for the Pet segment grew by 4% to $45 million, with operating margin improving by 40 basis points to 10.4% [42] Market Data and Key Metrics Changes - E-commerce now represents approximately 22% of pet branded sales, with continued investments in digital capabilities [15] - Household penetration for gardening increased by 3 percentage points to 93% compared to 2019, with notable gains in live plants and wild bird categories [17] Company Strategy and Development Direction - The company is focused on adding capacity and automation to improve service levels, managing inflation through pricing actions, and investing in brand innovation [30][49] - Continued investment in consumer insights, brand marketing, and product innovation is emphasized to attract new consumers [24] - The company remains active in seeking acquisitions that are margin accretive, with a disciplined approach to evaluating potential targets [73][94] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating challenges posed by inflation and supply chain constraints, while maintaining a focus on long-term growth strategies [30][49] - The outlook for the remainder of the year includes expectations of continued inflationary pressures and a cautious approach to consumer spending [29][48] - Despite challenges, the company maintains its full-year guidance of GAAP EPS of $3.10 or better [50] Other Important Information - Cash and cash equivalents decreased to $296 million, primarily due to cash payments for acquisitions and inventory build [43] - Total debt increased to $1.2 billion, with a leverage ratio of 2.9x, well within the target range [45] - The company repurchased approximately 153,000 shares during the quarter, with $100 million remaining under the share repurchase program [46] Q&A Session Summary Question: Insights on Pet Business Growth - Management noted that growth in the pet supplies industry is driven by favorable trends and that they are seeing mid-single-digit growth in point of sale [51][52] Question: Garden Segment Competitiveness - Management expressed optimism about consumer retention in gardening, with household penetration rates higher than pre-COVID levels [56][57] Question: Gross Margin Performance - Management highlighted that gross margin improvement was driven by pricing and favorable mix from acquisitions, with expectations to continue this trend [63][66] Question: Service Levels Impact on Shipments - Management reported improvements in service levels, particularly in the Garden segment, with estimates of low tens of millions in revenue left on the table due to service constraints [76][80] Question: Cost Inflation Expectations - Management indicated that approximately 20% of the expected $200 million in cost inflation has already impacted the first quarter, with pricing strategies in place to mitigate further impacts [86][88] Question: M&A Landscape and Valuations - Management remains active in the M&A landscape, evaluating potential deals based on their merits and synergies, while being disciplined about valuations [93][94]
Central Garden & Pet(CENTA) - 2022 Q1 - Earnings Call Transcript