Central Garden & Pet Company (CENT Quick QuoteCENT - Free Report) came up with fourth-quarter fiscal 2023 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. Markedly, both net sales and earnings improved year over year.

Management has been taking steps to strengthen its position in the pet supplies and lawn and garden supplies space. Central Garden & Pet Company is focusing on brand building, containing costs, lowering complexity and improving margins. The company has been expanding its manufacturing capacity and simplifying its portfolio. The sale of the independent garden center distribution business is the best example of the same.

Let’s Delve Deeper

Central Garden & Pet reported adjusted quarterly earnings of 10 cents a share, which came ahead of the Zacks Consensus Estimate of 8 cents. The bottom line improved sharply from a loss of 4 cents a share reported in the year-ago period. On a GAAP basis, the company posted quarterly earnings of 5 cents a share.

The company generated net sales of $750 million, which came ahead of the Zacks Consensus Estimate of $732 million. The metric improved 6% from the year-ago period.

The adjusted gross profit came in at $199.2 million compared with $199.7 million reported in the year-ago period. The adjusted gross margin shriveled 160 basis points to 26.6%. The contraction was due to inflation and lower volumes, resulting in unfavorable overhead absorption, partly mitigated by improved pricing and productivity efforts.

Adjusted SG&A expenses of $187.2 million increased from $186.8 million in the prior-year quarter. However, as a percentage of net sales, it decreased 140 basis points to 25%. We had anticipated a 2.4% year-over-year increase in adjusted SG&A expenses.

The adjusted operating income totaled $12 million, down from the $12.9 million reported in the year-ago period. The operating margin shrunk 20 basis points to 1.6%. Adjusted EBITDA came in at $41.6 million compared with $42.5 million in the prior-year period.

Segment Details

Net sales in the Pet segment came in at $483 million, up 10% year over year and faring better than our estimate of $446.6 million. The growth can be attributed to the additional week compared to the prior year and stellar consumer demand. Sales continue to increase in the pet consumables business across all categories, including dog and cat, which had a record quarter.

The segment’s adjusted operating income came in at $47.8 million, up from $40.4 million reported in the prior-year quarter. Meanwhile, the adjusted operating margin expanded 70 basis points to 9.9%, driven by improved pricing and productivity efforts, partially offset by unfavorable overhead absorption.

In the Garden segment, net sales of $267 million came almost in line with the year-ago period. We had expected segment revenues to be $273.3 million. Softness across most of the Garden portfolio was partly mitigated by strength in controls & fertilizer, live goods and grass seed.

The segment’s adjusted operating loss came in at $5.3 million, down from an operating income of $1.8 million reported in the prior-year quarter. The decrease was due to inflation, partially offset by improved pricing and productivity efforts.

Financial Details

Central Garden & Pet ended the quarter with cash and cash equivalents of $488.7 million, long-term debt of $1,188 million and shareholders’ equity of $1,451.4 million, excluding the non-controlling interest of $1.5 million. The company repurchased about 65,268 shares worth $2.4 million in the quarter under review. Management incurred capital expenditures of $54 million during fiscal 2023. It expects to incur a capital expenditure of $70 million in fiscal 2024.

Outlook

Central Garden & Pet now estimates fiscal 2024 adjusted earnings to be $2.50 per share or better compared with the $2.59 reported in fiscal 2023. The projection indicates deflationary pressure in some of the commodity businesses, changing consumer behavior and unfavorable retailer inventory dynamics in an environment of macroeconomic and geopolitical uncertainty. It also suggests productivity initiatives already under way and modest pricing actions to help mitigate inflationary headwinds.

Shares of this Zacks Rank #2 (Buy) stock have risen 18.1% in the past six months against the industry’s decline of 12.4%.

3 More Stocks Looking Red Hot

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Lamb Weston, a leading supplier of frozen potato products to restaurants and retailers, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings indicates growth of 28.3% and 24.8%, respectively, from the year-ago reported numbers. Lamb Weston has a trailing four-quarter earnings surprise of 46.2%, on average.

Ollie's Bargain, which operates as a retailer of brand-name merchandise, currently has a Zacks Rank #2.

The Zacks Consensus Estimate for Ollie's Bargain’s current financial-year sales and earnings suggests growth of 14.2% and 67.9%, respectively, from the year-ago reported numbers. Ollie's Bargain has a trailing four-quarter earnings surprise of 1.3%, on average.

Post Holdings, a consumer packaged goods holding company, currently carries a Zacks Rank #2. Post has a trailing four-quarter earnings surprise of 59.2%, on average.

The Zacks Consensus Estimate for Post Holdings’ current financial-year sales implies growth of 10.9% from the year-ago reported numbers.