Earnings Preview: Central Garden

Central Garden & Pet Company ( CENT - Analyst Report ) , one of the leading producers and marketers of premium and value-oriented products, is slated to report its third-quarter 2011 financial results on August 3, 2011. The current Zacks Consensus Estimate for the quarter is 47 cents a share. For the quarter to be reported, the Zacks Consensus Estimate for revenue is $489 million.

Second-Quarter 2011, a Synopsis

Central Garden & Pet Company delivered a quarterly income of 54 cents a share, beating the Zacks Consensus Estimate and prior-year quarter’s income of 49 cents.

Central Garden & Pet witnessed total revenue increase of 10.0% to $485.7 million, reflecting significant sales growth in garden products segment. The company’s total branded product sales climbed 13.0% to $417.3 million, whereas sales of other manufacturers’ products went down 7.6% to $68.4 million.

The reported net sales also surpassed the Zacks Consensus Revenue Estimate of $457.0 million.

Third-Quarter 2011 Zacks Consensus

Analysts considered by Zacks expect Central Garden to post third-quarter 2011 earnings of 47 cents a share. The current Zacks Consensus Estimate is 17.5%, up from the prior-year quarter earnings. The current Zacks Consensus Estimates for the quarter ranges between 45 cents and 48 cents.

Zacks Agreement & Magnitude

None of the analysts revised the estimates in the last 7 and 30 days keeping the Zacks Consensus Estimate stable for the third quarter of 2011.

Mixed Earnings Surprise History

With respect to earnings surprises, Central Garden has missed as well as topped the Zacks Consensus Estimate over the last four quarters in the range of negative 114.3% to positive 10.2%. The average remained at negative 43.3%.

Our View

Central Garden’s diversified portfolio of brands has helped it to develop a healthy commercial relationship with giant retailers, such as Wal-Mart Stores Inc. ( WMT - Analyst Report ) and The Home Depot Inc. ( HD - Analyst Report ) . This provides a significant upside potential to the company.

The company’s effective inventory management is helping it to optimize merchandise levels in accordance with the sales trends. Further, Central Garden & Pet is implementing an enterprise-wide information technology platform, which is expected to improve working capital management.

The company has been focusing on improving its gross and operating margins. To achieve its goal, Central Garden & Pet has tried every means to improve its sales, consolidate manufacturing facilities and logistics centers. Further, the company has made prudent capital investments while focusing on improving manufacturing efficiencies.

However, the discretionary spending environment continues to remain sluggish amid high unemployment levels and tight credit markets. This is especially a matter of concern for the company as a significant portion of its product portfolio consists of premium offerings.

Currently, we maintain a long-term Outperform recommendation on the stock. Moreover, Central Garden & Pet holds a Zacks #3 Rank, which translates into a short-term Hold rating.