Central Garden & Pet Company (CENT - Free Report) commenced fiscal 2019 on a soft note, with both the top and bottom line missing the Zacks Consensus Estimate when the company reported its first-quarter results. Although, its top line improved on a year-over-year basis during the quarter, the bottom line declined from the year-ago period number. Per management, the company’s recent acquisitions of General Pet Supply and Bell Nursery aided sales growth but negatively impacted margins and profitability.
Markedly, shares of this Zacks Rank #3 (Hold) company decreased approximately 5% during the after-market trading session on Feb 6. However, the stock has gained approximately 24.9% against the industry’s 3% decline in the past three months.
Let’s Delve Deep
The producer and distributor of products for the lawn and garden and pet supplies markets delivered earnings of 3 cents a share, which lagged the Zacks Consensus Estimate of 9 cents and decreased substantially from 19 cents reported in the year-ago period. We note that higher cost of goods sold and occupancy, increased SG&A expenses and rise in interest expenses might have weighed upon the bottom line.
This California-based company, which recently acquired the remaining stake of 55% in Arden Companies, reported net sales of $462 million that fell short of the Zacks Consensus Estimate of $482.7 million. This marked the company’s first sales miss in the trailing nine quarters. Nevertheless, the metric rose 4.5% from the year-ago period. The uptick can primarily be attributed to recent buyouts of Bell and General Pet. Meanwhile, organic sales declined 1.7% during the quarter under review.
Central Garden & Pet Company Price, Consensus and EPS Surprise
Gross profit slipped 1.3% to $130.2 million, whereas gross margin contracted 160 basis points to 28.2%. Operating income reduced to $10.2 million, down from $22.5 million registered in the prior-year quarter. In the meantime, operating margin contracted 290 basis points to 2.2%. Adjusted EBITDA plunged 33.2% to $22.5 million, while adjusted EBITDA margin expanded 270 basis points to 4.9%. Operating margins and EBITDA declined due to buyouts as well as higher freight, labor and raw material costs.
Net sales at the Pet segment increased 4.7% year over year to $340.4 million driven by the acquisition of General Pet. Organic sales decreased 0.6% due to decline in animal health sales, partially offset by gains in wild bird and aquatics businesses. Sales across the segment’s branded product fell 0.3% to $262 million, while across manufacturers’ products the metric increased 26.1% to $78.5 million.
The segment’s operating income decreased 17.7% year over year to $29.8 million, while operating margin contracted 240 basis points to 8.7%.
At the Garden segment, net sales advanced 4% to $121.6 million backed by inclusion of Bell Nursery. Organic sales declined 4.6%. The Garden segment’s branded product sales came in at $92.5 million, up 6.3%, while sales of other manufacturers’ products declined 2.8% to $29.1 million.
The segment incurred operating loss of $4.6 million compared to operating income of $2.3 million in the year-ago quarter. Operating margin contracted 580 basis points to 3.8% on account of higher raw material, freight and labor costs.
Central Garden & Pet ended the quarter with cash and cash equivalents of $478.7 million and total long-term debt of $692.3 million, up from $283.5 million and $691 million, respectively, in the prior-year period. Shareholders’ equity at the end of the period was $956.3 million, excluding non-controlling interest of $221,000.
Net interest expenses rose to $8.1 million during the reported quarter, up from $7.2 million in the prior-year period. Management highlighted that higher interest expenses were due to the issuance of new notes in December 2017.
Management incurred capital expenditures of $8 million during the quarter under review, unchanged from last year.
For fiscal 2019, the company continues to expect earnings per share of $1.80 or higher. Management stated that the company’s second-quarter results may be impacted by certain factors. Central Garden & Pet stated that historically Bell Nursery has recorded profits in the third quarter. Moreover, it may face tough year-over-year comparison in organic sales.
Central Garden & Pet highlighted that the second half of fiscal 2019 is likely to benefit from the alleviation of inflationary pressures, higher prices, favorable sales mix and cost savings initiatives.
Deckers Outdoor Corporation (DECK - Free Report) delivered average positive earnings surprise of 67.8% in the trailing four quarters. It has a long-term earnings growth rate of 11.9% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Under Armour, Inc. (UAA - Free Report) delivered average positive earnings surprise of 27.1% in the trailing four quarters. It has a long-term earnings growth rate of 22.8% and a Zacks Rank #2 (Buy).
Ollie's Bargain Outlet Holdings, Inc. (OLLI - Free Report) delivered an average positive earnings surprise of 7.3% in the trailing four quarters. It has a long-term earnings growth rate of 24.7% and a Zacks Rank #2.
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