Blue Buffalo Pet Products Inc. reported net income of US$37 million in the first quarter of 2016, up 24.3%. Adjusted net income was US$38 million, up 23.2%

The company said net sales in the first quarter were US$280 million, up 12.5%.

“We’re off to a great start for the year,” said CEO Kurt Schmidt. “I’m pleased with both our top-line and bottom-line performance for the first quarter, which was consistent with our expectations.” 

As a result of the strong year-to-date performance, the company is raising the low end of its revenue and EPS guidance for the full year.

Breakdown by segment

Net income increased US$7.3 million, or 24.3%, to $37.3 million, or $0.19 per diluted share in the first quarter of 2016, as compared to US$30.0 million, or US$0.15 per diluted share, in the first quarter of 2015. Adjusted net income, which excludes litigation expenses and costs incurred in preparing for the initial public offering, increased US$7.2 million, or 23.2%, to US$38.3 million in the first quarter of 2016, compared with US$31.1 million in the first quarter of 2015. Adjusted diluted earnings per share in the first quarter of 2016 increased 23.0% to US$0.19, compared with US$0.16 in the first quarter of 2015.

Net sales of Dry Foods increased US$25.2 million, or 12.4%, to US$229.2 million, while net sales of Wet Foods, Treats and Other Products increased US$5.8 million, or 13.1%, to US$50.6 million.

Gross profit increased US$23.7 million, or 23.8%, to US$123.2 million, and gross margin was 44.0%, up 400 bps compared with 40.0% in the first quarter of 2015.  The increase in gross margin was driven primarily by supply chain efficiencies including the ramp-up of the company’s Heartland facility and lower input costs, as well as a benefit from net pricing.

Selling, general, and administrative (SG&A) expenses increased US$12.4 million, or 26.1%, to US$59.8 million. Adjusted SG&A, which excludes litigation expenses and costs incurred in preparing for the initial public offering, increased US$12.5 million, or 27.3%. This increase was primarily due to Blue Buffalo’s ongoing investments in advertising and marketing, as well as investments made in strategic initiatives.

Net cash provided by operating activities was US$42.5 million in the first three months of 2016 compared with US$56.4 million in the first three months of 2015. Net cash provided by operating activities for the first three months of 2016 was reduced by the US$32 million cash payment related to the company’s settlement agreement in the US consumer class action lawsuits. Cash and cash equivalents were US$265.1 million as of March 31, 2016, as compared to US$224.3 million as of December 31, 2015.

Full-year outlook

For the full year 2016, the company expects to deliver net sales between US$1,125 million and US$1,140 million. The company expects its gross margin to be between 43% and 44% for the year. Given this gross margin outlook, the company will continue its planned investments in strategic initiatives and brand building. The company expects its adjusted diluted earnings per share to be between US$0.73 and US$0.74. The outlook for full year 2016 adjusted earnings per share excludes costs related to litigation. The company expects 2016 capital expenditures to be approximately US$70 million to US$80 million.