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Central Garden (CENT) Up 23% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Central Garden (CENT - Free Report) . Shares have added about 23% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Central Garden due for a pullback? 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 Q4 Earnings Top Estimates, Rise Y/Y
Central Garden 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.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -97.22% due to these changes.
VGM Scores
Currently, Central Garden has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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 is part of the Zacks Consumer Products - Discretionary industry. Over the past month, Kellanova (K - Free Report) , a stock from the same industry, has gained 1.6%. The company reported its results for the quarter ended September 2023 more than a month ago.
Kellanova reported revenues of $3.94 billion in the last reported quarter, representing a year-over-year change of -0.2%. EPS of $1.03 for the same period compares with $1.01 a year ago.
Kellanova is expected to post earnings of $0.74 per share for the current quarter, representing a year-over-year change of -21.3%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.2%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Kellanova. Also, the stock has a VGM Score of A.
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Central Garden (CENT) Up 23% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Central Garden (CENT - Free Report) . Shares have added about 23% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Central Garden due for a pullback? 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 Q4 Earnings Top Estimates, Rise Y/Y
Central Garden 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.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -97.22% due to these changes.
VGM Scores
Currently, Central Garden has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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 is part of the Zacks Consumer Products - Discretionary industry. Over the past month, Kellanova (K - Free Report) , a stock from the same industry, has gained 1.6%. The company reported its results for the quarter ended September 2023 more than a month ago.
Kellanova reported revenues of $3.94 billion in the last reported quarter, representing a year-over-year change of -0.2%. EPS of $1.03 for the same period compares with $1.01 a year ago.
Kellanova is expected to post earnings of $0.74 per share for the current quarter, representing a year-over-year change of -21.3%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.2%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Kellanova. Also, the stock has a VGM Score of A.