Back to top

Analyst Blog

Central Garden & Pet Company’s (CENT - Analyst Report) second-quarter 2013 earnings came in at 46 cents a share that missed the Zacks Consensus Estimate of 53 cents a share but rose 2.2% year over year. 

Total sales increased approximately 7% year over year to $498.2 million, reflecting higher sales across the Pet and Garden segments. Moreover total sales surpassed the Zacks Consensus Estimate of $495 million.

Consolidated gross profit increased 3.7% year over year to $153.2 million, while gross margin decreased approximately 90 basis points to 30.7%, reflecting lower margins in the Garden segment. The company reported an operating income of $46.7 million, up 3.4% year over year. However, operating margin contracted 30 basis points to 9.4% during the quarter.  

Segment Details

Pet segment net sales increased 6% year over year to $234.8 million, reflecting enhanced sales in bird feed, professional sales and dog and cat care business. The segment’s branded product sales increased 7% to $193.1 million, whereas sales of other manufacturers’ products decreased 2% to $41.7 million in the quarter. Pet segment’s operating income rose 31% year over year to $27.5 million, whereas operating margin improved 230 basis points, reflecting increased sales of higher margin products and lower selling and marketing expenses.  

Revenue at the Garden segment rose 8% year over year to $263.4 million, reflecting increased sales of bird feed and Amdro Powerflex and Pennigton Smart Feed products. The Garden segment’s branded product sales increased 8% to $229.2 million, whereas sale of other manufacturers’ products escalated 5% to $34.2 million during the quarter.  The segment reported an operating income of $34 million, down 7.1% year over year, whereas operating margin declined 210 basis points, reflecting lower gross margins and higher promotional costs.

Other Financial Details

Central Garden & Pet ended the quarter with cash and cash equivalents of $11.3 million, total long-term debt of $593.7 million and shareholders’ equity of $474.6 million, excluding non-controlling interest of $1 million. The leverage ratio was 5.1x for the quarter. The company repurchased $1.5 million worth of shares during the quarter under its $100 million share repurchase authorization.

Our Take

Central Garden & Pet’s primary focus is on streamlining its cost structure, increasing operating efficiencies in order to improve its margins and concentrating on revenue enhancement through marketing and brand-building initiatives.

Alongside, being the leading producer of garden and pet supplies products in the U.S. and with a diversified portfolio of brands, Central Garden & Pet developed 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 for the company.

However, the discretionary spending environment continues to remain sluggish amid high unemployment levels and tight credit markets. This is a looming concern for the company as a significant portion of its product portfolio consists of premium offerings. Moreover, the company expects its third-quarter results to decline year over year.

Consequently, shares of Central Garden & Pet carry a Zacks Rank #3 (Hold).

Other Stocks to Consider

Besides Central Garden, the other stock in the consumer goods sector worth considering includes Jarden Corp. (JAH - Snapshot Report), which holds a Zacks Rank #2 (Buy) and is expected to continue with its upbeat performance.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%