CENTRAL GARDEN & PET CO Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Key Themes:
  • Fiscal 2024 achievements: Despite challenges, delivered growth in non-GAAP EPS, gross margin expansion, strong pet segment profits, and record operating cash flow.
  • Cost and Simplicity Program: Consolidated operations (closed facilities, shifted production), scaled natural dog treats production, optimized transportation, streamlined live plants operations. Embedded sustainability with measurable goals.
  • Outlook for Fiscal 2025: Stay disciplined on cost and cash, invest in critical capabilities (e-commerce, digital, innovation), pursue strategic M&A, and advance new product pipelines while navigating challenging external environment.

Segment Performance

• Pet Segment: Fourth quarter net sales decreased 10% to $435 million, with organic net sales down 14% excluding TDBBS impact. Non-GAAP operating income was $35 million (vs $48 million prior year) with a margin of 8% (vs 9.9% prior year). For fiscal 2024, pet net sales were $3.2 billion, organic net sales down 4%, non-GAAP operating income $35 million, margin 8%.
• Garden Segment: Fourth quarter net sales were $234 million, down 12% with organic net sales down 11% excluding distribution business sale. Non-GAAP operating loss was $25 million (vs $5 million prior year) with a margin of -10.6% (vs -2% prior year). For fiscal 2024, garden net sales were $3.2 billion, organic net sales down 4%, non-GAAP operating loss $25 million, margin -10.6%.

Guidance

• Fiscal 2025 non-GAAP EPS guidance: $2.20 or higher.
• Q1 2025 non-GAAP loss per share expected to be $0.05 or better.
• CapEx planned: Approximately $60 million to $70 million, mostly for maintenance or productivity initiatives.

Risks

• Macroeconomic and geopolitical uncertainties.
• Consumer pressure for value and promotions, leading to a competitive and promotion-driven marketplace.
• Volatile weather affecting garden business, especially on live plants.
• Durable pet product sales impacted by direct Asian e-commerce bypassing tariffs.

Question and Answer

Q: Bill Chappell asked about the state of the Pet segment and pricing for 2025.

A: John Hanson said durables continue to decline, consumables outperformed, with consumables expected to grow low to mid-single digits and durables mid-single digits decline. Niko Lahanas stated pricing will be tough next year due to commodity moderation and consumer value-driven behavior.

Q: Brad Thomas inquired about Garden segment spring sell-in and tariffs.

A: J.D. Walker was cautiously optimistic about spring sell-in, and Niko Lahanas discussed tariff exposure (below 5% from China now) and M&A opportunities with improved liquidity.

Q: Jim Chartier asked about garden grass seed write-down and cost outlook.

A: Niko Lahanas said the write-down was in the high end of the range, and cost outlook is good but dependent on promotional environment.

Q: Bob Labick asked about revenue headwinds and tailwinds.

A: Niko Lahanas mentioned lost low-margin garden business and tailwinds from consumer-centric approach, innovation, digital investment, and cost optimization.

Q: Brian McNamara asked about pet industry growth and Garden weather risk.

A: John Hanson said pet growth depends on live animal purchases, and J.D. Walker discussed wild bird feed as a counter-seasonal business and ideal weather for garden products.

Q: Shovana Chowdhury asked about e-commerce steps and promotions.

A: Niko Lahanas and John Hanson discussed e-commerce steps like content improvement, inventory management, and John Hanson on pet e-commerce growth. J.D. Walker talked about competitive promotions in Garden.

Q: Carla Casella asked about leverage for M&A and tariff mitigation.

A: Niko Lahanas said willing to go over 4x leverage for right deals, and ways to mitigate tariffs include insourcing, sourcing from other countries, and cost reduction.

Q: William Reuter asked about M&A valuations and targets.

A: Niko Lahanas said optimistic about M&A pipeline, open to Garden deals but durable pet side harder, and Brad Smith noted avoiding seasonality in M&A targets.

Q: Mary Ann Neil asked about M&A pipeline inning.

A: Niko Lahanas said M&A is uncertain, processes are ongoing but no guarantees on outcomes.