It has been about a month since the last earnings report for Central Garden (
CENT Quick Quote CENT - Free Report) . Shares have lost about 7.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Central Garden due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Central Garden & Pet Posts Q4 Loss, Sales Decline Y/Y
Central Garden & Pet Company posted lower-than-expected fourth-quarter fiscal 2022 results, wherein the top and bottom lines declined year over year. Softness in the garden segment, high inflation, changing consumer behavior and unfavorable retailer inventory dynamics acted as deterrents.
Nonetheless, the company has been taking steps to strengthen its position in the pet supplies and lawn and garden supplies space. It has been simplifying the portfolio, developing new products, advancing digital capabilities and automation and focusing on cost reduction. Let’s Delve Deeper
Central Garden & Pet reported a quarterly loss of 4 cents a share, narrower than a loss of 6 cents posted in the year-ago period. The Zacks Consensus Estimate for earnings was pegged at 3 cents a share.
The company generated net sales of $707.4 million, falling short of the Zacks Consensus Estimate of $724 million. The metric declined 4% from the year-ago period. The gross profit decreased 6.1% to $199.7 million. Also, the gross margin contracted 60 basis points to 28.2%. The positive effect of pricing actions was more than offset by substantial inflationary cost pressure and lower sales volumes. SG&A expenses of $186.8 million declined 8.1% year over year. As a percentage of net sales, SG&A expenses contracted 110 basis points to 26.4%. The operating income totaled $12.9 million, up from the $9.6 million reported in the year-ago period. The operating margin expanded 50 basis points to 1.8%. Segment Details
Net sales in the Pet segment were $440 million, down 4% from the year-ago period. The metric declined due to the unfavorable impact of SKU rationalization and the purposeful decision to exit low-profit private label product lines.
The segment’s operating income came in at $40 million, up 28% year over year. Meanwhile, the operating margin increased 230 basis points to 9.2%. Favorable pricing actions, coupled with lower commercial expenses and variable compensation, contributed to margin expansion. In the Garden segment, net sales decreased 4% year over year to $268 million due to sluggishness across most of the Garden portfolio. This was partly mitigated by continued strength in wild bird, packet seeds and grass seeds. The segment’s operating income came in at $1.8 million, up from the $1.1 million reported in the year-ago period. The operating margin expanded 30 basis points to 0.7%, driven by lower variable compensation compared with the prior year. Financial Details
Central Garden & Pet ended the quarter with cash and cash equivalents of $177.4 million, long-term debt of $1,186.2 million and shareholders’ equity of $1,333.7 million, excluding the non-controlling interest of $1 million. For fiscal 2023, management anticipates capital expenditures in the band of $70 million-$80 million.
Central Garden & Pet foresees fiscal 2023 GAAP earnings between $2.60 and $2.80 per share. The projection indicates macroeconomic uncertainty, further cost inflation, changing customer behavior and unfavorable retailer inventory dynamics. It also suggests anticipated pricing actions and productivity initiatives to mitigate the impact of inflationary headwinds.
For the first quarter of fiscal 2023, management estimates a loss of 15 cents to 20 cents per share against earnings of 16 cents. This implies soft sales and higher cost inventories. How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -160.17% due to these changes.
At this time, Central Garden has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Central Garden has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Central Garden belongs to the Zacks Consumer Products - Discretionary industry. Another stock from the same industry, Spectrum Brands (
SPB Quick Quote SPB - Free Report) , has gained 21.1% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
Spectrum reported revenues of $749.5 million in the last reported quarter, representing a year-over-year change of -1.1%. EPS of $0.48 for the same period compares with $0.38 a year ago.
Spectrum is expected to post a loss of $0.14 per share for the current quarter, representing a year-over-year change of -133.3%. Over the last 30 days, the Zacks Consensus Estimate has changed -72%.
Spectrum has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.