Blue Buffalo Appoints Billy Bishop as CEO

11/11/16

Billy Bishop

WILTON, Conn., Nov. 10, 2016 (GLOBE NEWSWIRE) -- Blue Buffalo Pet Products, Inc. (NASDAQ:BUFF), the leading natural pet food company in the United States, today announced its third quarter 2016 results.

  • Third Quarter Highlights
    • Net sales of $288 million, up 11.0%
    • Net income of $21 million, down 20.6%; Adjusted Net Income of $45 million, up 32.3%
    • Adjusted EBITDA of $74 million, up 21.4%
    • Diluted EPS of $0.11, down 21.1% ; Adjusted Diluted EPS of $0.22, up 31.5%
  • 2016 Outlook
    • Net sales between $1,140 million and $1,150 million
    • Raising Adjusted Diluted EPS outlook to $0.78 to $0.79
  • CEO Succession
    • Billy Bishop appointed CEO effective January 1, 2017
    • Kurt Schmidt retiring with transition through 2017

“Our strong performance continued into the third quarter, reflecting the high-quality execution of our strategy and our ability to drive strong pet parent demand across our channels. Given our performance through the first nine months of 2016, we are raising our EPS guidance for the year,” said CEO Kurt Schmidt. “It’s been an honor for me to lead Blue Buffalo for the last four years. Passing the baton to Billy has always been part of our succession plan, so on behalf of the Board, it is my pleasure to announce the appointment of Billy as our new CEO.”

“It’s a real honor to lead the Company my family and I founded in the back of a barn many years ago. I look forward to continuing our growth and success for years to come,” said Billy Bishop. “I want to thank Kurt for his guidance, contributions and leadership of the Herd.”

Third Quarter of 2016 Compared to Third Quarter of 2015

Net sales increased $28.6 million, or 11.0%, to $288.0 million, driven primarily by volume growth. Net sales of Dry Foods increased $24.2 million, or 11.6%, to $232.4 million while net sales of Wet Foods, Treats and Other Products increased $4.4 million, or 8.6%, to $55.6 million.

Gross profit increased $24.9 million, or 23.0%, to $133.2 million and gross margin was 46.3%, up 460 bps compared with 41.7% in the third quarter of 2015. The increase in gross margin was driven primarily by supply chain efficiencies including lower input costs, the benefit from pricing, as well as favorable mix.

Selling, general, and administrative expenses increased $6.8 million, or 11.6%, to $65.5 million. Adjusted SG&A, which excludes litigation expenses and costs incurred for our public offerings, increased $11.6 million, or 23.0%. This increase was primarily due to our ongoing investment in advertising and marketing consistent with our brand building and investments in our strategic initiatives.

On November 2, 2016, Blue Buffalo Company, Ltd. ("BBC"), a wholly owned subsidiary of the Company, entered into a settlement agreement (the "Settlement Agreement") with respect to previously disclosed Nestlé Purina lawsuit. In connection with the Settlement Agreement, the Company has recorded a non-cash, pre-tax charge of $32.0 million.

Net income decreased $5.6 million, or 20.6%, to $21.5 million in the third quarter of 2016, as compared to $27.1 million in the third quarter of 2015. Adjusted Net Income, which excludes litigation expenses and costs incurred for our public offerings, increased $10.9 million, or 32.3%, to $44.7 million in the third quarter of 2016, compared to $33.8 million in the third quarter of 2015. Diluted Earnings Per Share in the third quarter of 2016 decreased 21.1% to $0.11, compared to $0.14 in the third quarter of 2015. Adjusted Diluted Earnings Per Share in the third quarter of 2016 increased 31.5% to $0.22, compared to $0.17 in the third quarter of 2015.

First Nine Months of 2016 Compared to the First Nine Months of 2015

Net sales increased $92.5 million, or 12.1%, to $854.7 million, driven primarily by volume growth. Net sales of Dry Foods increased $71.6 million, or 11.6%, to $690.8 million while net sales of Wet Foods, Treats and Other Products increased $20.9 million, or 14.6%, to $163.9 million.

Gross profit increased $76.1 million, or 24.7%, to $383.7 million and gross margin was 44.9%, up 450 bps compared with 40.4% in the first nine months of 2015. The increase in gross margin was driven primarily by supply chain efficiencies including the ramp-up of our Heartland facility and lower input costs, favorable mix, as well as a benefit from pricing.

Selling, general, and administrative expenses increased $25.1 million, or 15.2%, to $190.8 million. Adjusted SG&A, which excludes litigation expenses and costs incurred for our public offerings, increased $33.3 million, or 22.2%. This increase was primarily due to our investments in our strategic initiatives and our ongoing investment in advertising and marketing consistent with our brand building strategy.

As mentioned above, the Company recorded a non-cash, pre-tax charge of $32.0 million related to the Settlement Agreement.

Net income increased $15.7 million, or 19.7%, to $95.4 million as compared to $79.8 million in the first nine months of 2015. Adjusted Net Income, which excludes litigation expenses and costs incurred for our public offerings, increased $30.1 million, or 33.0%, to $121.3 million in the first nine months of 2016, compared to $91.2 million in the first nine months of 2015. Diluted Earnings Per Share in the first nine months of 2016 increased 18.9% to $0.48 compared to $0.40 in the first nine months of 2015. Adjusted Diluted Earnings Per Share in the first nine months of 2016 increased 32.2% to $0.61, compared to $0.46 in the first nine months of 2015.

Net cash provided by operating activities was $111.5 million in the first nine months of 2016 compared with $94.0 million in the first nine months of 2015. Net cash provided by operating activities for the first nine months of 2016 was reduced by $20.0 million, net of $12.0 million in tax savings, related to our settlement agreement in the U.S. consumer class action lawsuits. Cash and cash equivalents were $316.4 million as of September 30, 2016 as compared to $224.3 million as of December 31, 2015. Capital expenditures for the first nine months of 2016 and 2015 were $17.9 million and $5.4 million, respectively.

Full Year 2016 Outlook

For the full year 2016, the Company expects to deliver net sales between $1,140 million and $1,150 million. Given our strong gross margin performance during the quarter, the Company is taking up its gross margin expectations to approximately 45% for the year. With the strong top-line performance, expanding gross margins, and a favorable tax rate, the Company now expects Adjusted Diluted Earnings Per Share to be between $0.78 and $0.79 for the full year. The outlook for full year 2016 Adjusted Earnings Per Share excludes costs related to litigation and the Company's public offerings. The Company expects 2016 capital expenditures to be between $50 to $60 million. The full year 2016 effective tax rate is expected to be between 36.6% and 36.8%.

Important Information Regarding Non-GAAP Financial Measures

The Company presents non-GAAP financial measures, including Adjusted Net Income, Adjusted EBITDA, Adjusted Diluted EPS, Adjusted SG&A, Adjusted Operating Income and Adjusted Gross Profit, in this press release as management uses these measures in assessing our operating performance, and we believe they are helpful to investors, securities analysts and other interested parties, in evaluating the performance of companies in our industry. We also believe that these non-GAAP financial measures are useful to management and investors, securities analysts and other interested parties as measures of our comparative operating performance from period to period. These non-GAAP financial measures are not measurements of financial performance under GAAP. They should not be considered as alternatives to cash flow from operating activities, as measures of liquidity, or as alternatives to net income as a measure of our operating performance or any other measures of performance derived in accordance with GAAP. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies. Please see the schedules to this press release for additional information and reconciliations of such non-GAAP financial measures to the nearest GAAP measure. With respect to our expectations under “Full Year 2016 Outlook” above, for Adjusted Diluted EPS a reconciliation to the closest corresponding GAAP financial measure is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to litigation expenses and public offering costs excluded from this non-GAAP financial measure. We expect the variability of these charges to have a potentially unpredictable, and potentially significant, impact on our future GAAP financial results.

About Blue Buffalo

Blue Buffalo, based in Wilton, CT, is the nation's leading natural pet food company, providing natural foods and treats for dogs and cats under its BLUE Life Protection Formula, BLUE Wilderness, BLUE Basics, BLUE Freedom and BLUE Natural Veterinary Diet lines. Paying tribute to its founding mission, the Company, through the Blue Buffalo Foundation, is a leading sponsor of pet cancer awareness and of critical research studies of pet cancer, including causes, treatments and the role of nutrition, at leading veterinary medical schools and clinics across the United States. For more information about Blue Buffalo, visit the Company’s website at www.BlueBuffalo.com.

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