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Here's Why Central Garden Declines More Than 15% in 3 Months

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Shares of Central Garden & Pet Company have underperformed the industry in the past three months. This California-based company has lost 18.1% in the said time period compared with the industry’s decline of 4.7%.


This Zacks Rank #3 (Hold) stock’s sluggish run on the bourses can be attributable to lower-than-expected first-quarter fiscal 2019 results, wherein both top and bottom lines missed the consensus mark. Although the top line grew year over year, the bottom line declined. Per management, the company’s recent acquisitions of General Pet Supply and Bell Nursery aided sales growth but negatively impacted margins and profitability.

Management highlighted that second-quarter earnings are likely to be impacted by these buyouts and tough year-over-year comparison in organic sales. Additionally, higher tax rate and increase in the number of shares outstanding may also weigh on the bottom line. Nevertheless, the second half of fiscal 2019 is likely to benefit from the alleviation of inflationary pressures, higher prices, favorable sales mix and cost-saving initiatives.

Nevertheless, Central Garden is revamping both Pet and Garden segments. The company also intends to launch several products that appeal to customers and upgrade customer service. Also, growth in e-commerce and cost-containment efforts bode well. These ongoing transformation efforts are expected to yield results in the days ahead.

Also, Central Garden has been a disciplined buyer in the garden and pet space. The company, through buyouts, also looks to enhance manufacturing capabilities and operating synergies, or develop distribution network. In this regard, Central Garden has acquired General Pet Supply and Bell Nursery. Further, the company purchased two small wholesale distributors of fish and small animals during fiscal 2018.

All said, we hope that the above-mentioned initiatives will provide cushion to the stock and help it revive in the near term.

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