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Here's Why Central Garden & Pet (CENT) Trims FY22 Earnings View

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A challenging operating environment and softness in the Garden portfolio are making things tough for Central Garden & Pet Company (CENT - Free Report) . Despite undertaking concerted efforts to tide over the unwarranted situation, these factors compelled management to trim the fiscal 2022 GAAP earnings view. The Walnut Creek, CA-based company, now expects earnings to be at or above prior year GAAP earnings of $2.75 per share. The company had earlier guided fiscal 2022 GAAP earnings to be $3.10 or better.

Continued inflation in commodities, labor and freight coupled with geopolitical tensions have been impacting the business. Management cited unfavorable weather conditions, lower foot traffic and changing inventory expectations from customers behind sluggishness in the Garden segment. Poor Garden season was the primary reason for lowering the outlook.

The company’s lawn and garden businesses are highly seasonal in nature. Roughly 69% of the Garden segment’s net sales occur during the second and third quarters. In early May, management had informed that the garden season had a late start. This was evident from an 8.7% decline in organic sales in the second quarter.

Central Garden & Pet Company’s current guidance takes into account rising costs for key commodities, freight and labor and a return to more normalized consumer demand patterns following exceptional demand spanning two fiscal years. The projection considers anticipated pricing actions as well as investments in capacity expansion, brand building, consumer insights, innovation and e-commerce.

 

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Despite near-term headwinds, the company believes that its Central to Home strategy and strategic investments should drive growth and help capture opportunities in both the Pet and Garden space. Central Garden & Pet Company has been reinforcing its position through strategic buyouts.

Some of the notable acquisitions in the past include that of D&D Commodities Ltd., a leading provider of premium bird feed; Green Garden Products, a leading provider of vegetable, herb and flower seed packets, seed starters and plant nutrients; and Hopewell Nursery, a leading live goods grower. The company had also acquired DoMyOwn.com, a leading and fast-growing online retailer of professional-grade control products.

Shares of this Zacks Rank #2 (Buy) company have fallen 4.3% in the past three months compared with the industry’s decline of 10.2%.

3 Stocks Looking Red Hot

We have highlighted three better-ranked stocks, namely Dollar Tree (DLTR - Free Report) , Sysco Corporation (SYY - Free Report) and United Natural Foods (UNFI - Free Report) .

Dollar Tree, which operates discount variety retail stores, flaunts a Zacks Rank #1 (Strong Buy) at present. DLTR has a trailing four-quarter earnings surprise of 13.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Dollar Tree’s current financial-year sales and EPS suggests growth of 6.7% and 40.5%, respectively, from the year-ago reported numbers. DLTR has an expected EPS growth rate of 15.5% for three-five years.

Sysco Corporation, which is engaged in the marketing and distribution of various food and related products, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 9.1%, on average.

The Zacks Consensus Estimate for Sysco Corporation’s current financial year sales and EPS suggests growth of 32.6% and 124.3%, respectively, from the year-ago period. SYY has an expected EPS growth rate of 11% for three-five years.

United Natural Foods, one of the premier grocery wholesalers delivering the widest variety of fresh, branded, and owned brand products, carries a Zacks Rank #1 at present. UNFI has a trailing four-quarter earnings surprise of 29.9%, on average.

The Zacks Consensus Estimate for United Natural Foods’s current financial-year sales and EPS suggests growth of 7.2% and 4.9%, respectively, from the year-ago reported numbers.