Moody's Lifts Central Garden & Pet's (CENT) Corp. Family Rating to 'B1'; Outlook Stable

Moody's Investors Service today upgraded Central Garden & Pet Company's ("Central Garden") Corporate Family Rating to B1 from B2 due to the company's improved operating performance and credit metrics and Moody's view that the improvements will continue in the near to mid-term. This concludes a review for upgrade initiated on June 16, 2015. The outlook is stable.

"The upgrade reflects our view that company's strategy of reducing SKUs and repurposing its advertising spending is paying off as evidenced by higher margins, increased cash flow and better credit metrics," said Kevin Cassidy, Senior Credit Officer at Moody's Investors Service. The upgrade also reflects the reduction in adjusted debt due to changes in Moody's approach for capitalizing operating leases. The updated approach for standard adjustments for operating leases is explained in the cross-sector rating methodology Financial Statement Adjustments in the Analysis of Non-Financial Corporations, published on June 15, 2015.

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Ratings upgraded:

Corporate Family Rating to B1 from B2;

Probability of Default Rating to B1-PD from B2-PD;

$450 million senior subordinated notes ($400 million outstanding) to B2 (LGD 5) from B3 (LGD 5);

Rating unchanged:

Speculative grade liquidity rating at SGL 2

RATINGS RATIONALE

Central Garden's B1 Corporate Family Rating reflects its moderate leverage at around 4.5 times (Moody's adjusted and including seasonal borrowings -- 3.5 times without seasonal borrowings), thin but improving EBIT margins and stabilized operating performance. The rating is supported by the company's strong market position in pet and lawn & garden, moderate size with revenue around $1.6 billion, solid brand recognition among consumers and moderate financial policies. The ratings are constrained by the seasonality of earnings and cash flows, weather dependency, exposure to volatile raw materials prices, the somewhat discretionary nature of its products and by its highly concentrated customer base. They are also tempered by its history of operating performance missteps although Moody's believes the operational issues are largely resolved.

The stable outlook reflects Moody's view that the company's operating performance and credit metrics will modestly improve in the next year or two.

The ratings could be upgraded if the company is able to achieve most of its expected cost savings and meaningfully improve earnings, cash flow and credit metrics. Sustained credit metrics (outside of seasonal borrowings) necessary for an upgrade include debt/EBITDA below 3 times and EBIT margins approaching the high single digits.

The ratings could be downgraded if Central's operating performance and/or credit metrics unexpectedly deteriorate. Sustained credit metrics (outside of seasonal borrowings) necessary for a downgrade include debt/EBITDA approaching 4 times and EBIT/interest below 1.5 times.

Moody's subscribers can find further details in the Central Garden Credit Opinion published on Moodys.com.

The principal methodology used in these ratings was Global Packaged Goods published in June 2013. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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