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Non-Tech : Central Garden & Pet Co. (Nasdaq : CENT) -- Ignore unavailable to you. Want to Upgrade?

To: Gottfried who wrote (34)	7/13/1999 2:25:00 PM
From: Dale Stempson	Read Replies (1) \| Respond to of 73

(UPDATE) Central Garden Shares Plummet On Scotts Co.'s Plans To Alter Pact Dow Jones Online News, Monday, July 12, 1999 at 16:38 NEW YORK -(Dow Jones)- Shares of Central Garden & Pet Co., a distributor and maker of garden and pet supplies, plunged Monday after the company announced that yard-products giant Scotts Co. plans to change its distribution system. Central Garden expects to post one-time charges against results for the fiscal year. At the close, the Nasdaq-listed stock (CENT) was down $1.438, or 14%, at $8.875, on volume of about 5.9 million shares, compared with average daily volume of about 383,000. After the exclusive pact ends in September, Scotts's (SMG) new distribution system will involve a combination of distributors, of which Central Garden will be the largest. Scotts also said it will handle some direct sales of its Ortho pesticides and Roundup herbicide products to major retailers and intends to sell Miracle-Gro directly to certain retailers. Scotts assumed the Central Garden agreement when it acquired Monsanto Co.'s Solaris home-and-garden division for about $300 million last year. Central Garden said the business likely to be taken over by Scotts next year is estimated to be worth about $200 million to $250 million in sales, the gross profit of which will be about $15 million to $25 million for this year. Central Garden said it expects to offset the lost profits next year through expense reductions and growth in other businesses. Central Garden, which had sales of $1.3 billion in 1998, said it expects to record "substantial" charges in the fiscal year ending in September, related to a realignment of its lawn and garden distribution operations to reflect business levels for fiscal 2000. As a result of the changes in Scotts' distribution system, Central Garden said inventory of Scotts products and the related payables are likely to be reduced by an amount estimated to be in excess of $100 million. Meanwhile, Monsanto (MTC), a St. Louis-based seed and pharmaceutical company, said it will be the exclusive marketing and distribution agent for Scotts' Roundup products in the U.S. and most major international markets. Copyright (c) 1999 Dow Jones & Company, Inc. All Rights Reserved.

To: Gottfried who wrote (34)	7/15/1999 8:50:00 PM
From: Dale Stempson	Read Replies (1) \| Respond to of 73

Latest from H&Q: Company: Central Garden & Pet Co. Price: 8.88 Recommendation: Market Perform Notes: a, b, f Date: 7/12/99 Central and Scotts End Exclusive Agreement -- Move to Market Perform CENT and Scotts have ended the exclusive Solaris distribution agreement - representing approximately $300 million in sales in FY99 with approximately $200-250 million to be taken over by Scotts next year. Based on management's ability to reduce costs relatively quickly, the loss of Scotts revenue may cost roughly $0.25 per share. We are reducing our FY00 EPS target to $1.00 from $1.65. With significant uncertainty heading into seasonally slow quarters, we move to the sidelines until we get better visibility on expense cuts. 1998 A 1999 E 2000 E Q1 EPS $(0.02) $(0.01) $-- Q2 EPS 0.42 0.51 -- Q3 EPS 0.59 0.50 -- Q4 EPS 0.22 0.14 -- FY EPS 1.35 1.15 1.00 FY REVS (M) 1,295 1,485 1,341 CY EPS 1.25 1.11 1.07 CY P/E 9 8 8 FY Ends Sep Current Price $8.88 52-Week Range $8-34 Market Cap(M) $265 Shares Out(M) 30.0 Book Value $10.42 Net Cash/Share $0.10 3-Year EPS Growth 15% CY99 P/E-to-Growth 0.6 Central and Scotts end exclusive distribution agreement: Today, Central Garden & Pet and Scotts announced changes in the distribution agreement effective until the end of September 1999 for Solaris products which include Ortho and Miracle-Gro. Currently, CENT is the exclusive distributor of Solaris products - representing approximately $300 million in sales in FY99. Scotts will continue to use Central as a lawn & garden distributor but will also use a combination of other distributors and sell directly to larger big box retailers such as Home Depot and Lowes. Importantly, Central will continue to provide services to key accounts such as Wal Mart, Orchard and Target. Significant impact to CENT's EPS in FY00: Central's management indicated that sales volume of approximately $200-250 million will be taken over by Scotts next year - leaving CENT will roughly $50-100 million in Solaris distribution revenue. The gross margin associated with these sales is in the $15-25 million range. Importantly, management believes it can cut roughly $12 million in expenses heading into FY00 with a plan based on lower sales volume. Nearly 80% of Central's cost structure is salary and related items which can be reduced by the next Spring season. Moreover, facility expenses (which represent ~2% of sales) are semi-variable as CENT will look to lease extra space and cancel some "seasonal" warehouse space. Based on management's ability to reduce costs relatively quickly, the loss of Scotts revenue may cost roughly $0.25 per share. Lastly, we expect CENT will take one-time charges of $10-20 million in Q4 to realign its lawn & garden distribution business including lease write-offs, severance costs and the reduction in capitalized Solaris inventory. The new CENT will look and act differently: Clearly a loss of 20% of Central's top line revenue is a "shock" to the system. However, Central will continue to work with Scotts and will continue to look to additional agency partners to beef up its distribution business. Moreover, we believe Central may now be able spend more time on marketing its own branded products including Pennington with its key retail partners. Additionally, we expect Central will renew its focus on its acquisition program and growing its own portfolio of branded products (which represent roughly 35% of sales on a pro forma basis with reduced Solaris sales). Reducing forward targets including Q4 FY99 adjustment: On June 8th, we reduced CENT's Q3 estimates as a "longer" garden season had not materialized with higher expense levels in the quarter. We believe the higher expense levels are continuing in Q4 - a seasonally slower quarter - which will likely push EPS below our previous $0.35 estimate. As such, we are reducing Q4 to $0.14 - moving FY99 to $1.15 from $1.33. Most importantly, with a large portion Scotts sales going away, we are taking $0.25 out of our model in FY00 while growing core earnings by 10% - moving our EPS target to $1.00 from $1.65. Our target may prove conservative as we are taking a wait and see approach ahead of the Spring 2000 selling season. CENT continuing to repurchase stock: After the close, Central announced that it increased its share repurchase program by an additionally $25 million to $130 million. To date, CENT had repurchased 8.3 million shares for $99.7 million or $12 per share. Our new model does not account for any incremental shares repurchased which could lead to significant EPS leverage going forward. Lower to MARKET PERFORM with uncertainty and weaker quarters ahead: CENT dropped roughly 15% to $8.88 on the Scotts news. At this price level there may be significant appreciation potential if Central can get expenses under control, focus on growing its branded portfolio (including future acquisitions) and efficiently execute its distribution business. However, with significant uncertainty heading into seasonally slow quarters, we move to the sidelines until we get better visibility on expense cuts. We move to a MARKET PERFORM from BUY. 1999 Copyright Hambrecht & Quist LLC. All rights reserved Note Legend: (a) Hambrecht & Quist LLC maintains a market in these stocks. (b) Hambrecht & Quist LLC has been an underwriting manager, or co-manager, or has privately placed securities of these companies within the last three years. (f) Options are available on these issues.