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Central Garden & Pet (CENT) Q4 Earnings Lag, Guides FY18

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Central Garden & Pet Company (CENT - Free Report) reported mixed fourth-quarter fiscal 2017 results, wherein earnings missed the Zacks Consensus Estimate but revenues lagged the same. Notably, the company’s bottom-line missed the consensus mark after beating the same in the trailing 12 quarters. Adjusted earnings of 8 cents per share lagged the Zacks Consensus Estimate by a couple of cents and also declined 38.5% year over year.

However, the top line continues to impress investors, beating the consensus estimate for fourth quarter in a row. Net sales of this leading producer of branded lawn & garden and pet supplies products grew 18.6% year over year to $490.5 million and also came ahead of the Zacks Consensus Estimate of $440 million. The increase in sales was driven by buyouts, robust performance of dog & cat as well as controls & fertilizer categories. It was further aided by an additional week compared to the prior year. The company’s organic sales, after excluding an additional week, increased 3.6%.

Organic growth, value accretive acquisitions such as that of the pet bedding business and Segrest along with divestment of non-strategic assets have been aiding the company to enhance portfolio. During the reported quarter, both the Pet and Garden segments delivered robust results.

Gross profit increased 20.9% to $145.3 million, while gross margin expanded 50 basis points (bps) to 29.6%. Central Garden & Pet reported adjusted operating income of $14.4 million, compared with $14.8 million in the year-ago quarter. Operating margin shriveled 70 bps to 2.9% in the quarter under review.

Following mixed quarterly numbers, not much movement was witnessed on the stock. However, shares have gained 10.9% in the past three months, against the industry’s decline of 4.9%.

Segment Details    

The Pet segment’s net sales gained 22.1% year over year to $330.5 million on the back of the acquisitions and an additional week. Moreover, Pet organic sales increased 3.4% primarily owing to robust performance of the dog & cat businesses. Sales across the segment’s branded product and other manufacturers’ products came in at $267.4 million and $63.1 million, reflecting an increase of 24.7% and 12.3%, respectively.

The segment’s operating income increased 21.8% year over year to $27.5 million, while operating margin came in at 8.3%, flat year over year. The segment’s operating income was negatively impacted by charges related to buyouts and rise in warehouse costs.

Net sales at the Garden segment advanced 12% to $160 million. Sales across the segment’s branded product came in at $126.1 million, up 9.4%; while other manufacturers’ reported revenues of $33.9 million, up 23.3% year over year. Meanwhile, organic sales including an additional week increased 4.1% buoyed by solid performance of controls & fertilizer category and other manufacturers' products.

The segment recorded an operating income of $0.2 million, in comparison with $2.7 million registered in the prior-year quarter.

Financial Details

Central Garden & Pet ended the quarter with cash and cash equivalents of $32.4 million, long-term debt of $395.3 million and shareholders’ equity of $635.7 million, excluding non-controlling interest of $1.5 million.

Central Garden & Pet Company Price, Consensus and EPS Surprise

2018 Guidance

The company anticipates 2018 earnings on a GAAP basis to be $1.62 per share or higher, reflecting an increase of 6.6% year over year. Moreover, management expects adjusted earnings per share to increase by 8% or higher. Capital expenditure for fiscal 2018 is project to be nearly $40 million. The Zacks Consensus Estimate for 2018 is currently pegged at $1.66.

Zacks Rank

Central Garden currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks worth considering from the retail space are American Eagle Outfitters, Inc. (AEO - Free Report) , Boot Barn Holdings, Inc. (BOOT - Free Report) and The Children's Place, Inc. (PLCE - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Eagle Outfitters delivered an average positive earnings surprise of 3.9% in the trailing four quarters and has a long-term earnings growth rate of 8.7%.

Boot Barn Holdings has an impressive long-term earnings growth rate of 15.7%.

Children's Place delivered an average beat of 14% in the last four quarters.

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