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Sluggish 2Q for Central Garden

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Central Garden & Pet Company (CENT - Free Report) recently reported sluggish second-quarter 2012 results. The company’s quarterly earnings of 45 cents a share were down 16.7% from the prior-year quarter’s earnings of 54 cents due to short-term execution issues on account of transformational initiatives undertaken. The analyst covered by Zacks had expected the company to deliver earnings of 54 cents per share in the reported quarter.

Moreover, total revenue for the quarter decreased 4% to $466.9 million, reflecting sales decline in garden and pet products segment. Moreover, the company’s reported net sales fell well short of the Zacks Consensus Estimate of $503 million.

During the reported quarter, gross profit shrinked 9.5% to $147.7 million, whereas gross margin contracted approximately 200 basis points to 31.6%. The decline reflected a rise in raw material costs and lower sales of high margin products. Operating profit for the quarter was $45.2 million, indicating a decline of 24.2% from the year-ago quarter.

Central Garden & Pet, one of the leading producers and marketers of premium and value-oriented products, focuses on the lawn & garden and pet supplies markets in the U.S.

Garden Products segment sales declined 6% year over year to $244.4 million, reflecting lower sales of grass seed and wild bird feed coupled with delay in filling orders. The segment reported an operating profit of $36.6 million during the quarter, down 22% from the year-ago quarter.  

According to the company, the Garden Products segment’s branded product sales came in at $211.7 million, whereas sales of other manufacturers’ products came in at $32.7 million during the quarter.

Pet Products segment sales inched down 1% to $222.5 million, reflecting decreased sales of wild bird feed. Moreover, the segment’s operating income decreased 10.3% year over year to $21 million.

The segment’s branded product sales came in at $179.8 million, whereas sales of other manufacturers’ products were $42.7 million during the quarter.

Central Garden & Pet, which faces stiff competition from The Scotts Miracle-Gro Company (SMG - Free Report) , ended the quarter with cash and cash equivalents of $10.3 million, long-term debt of $566.6 million and shareholders’ equity of $448.8 million, excluding non-controlling interest of $173,000. The leverage ratio was 5.5x for the quarter. Capital expenditures for the quarter were $8 million. Management expects capital expenditure of $30 million for fiscal 2012.

Currently, we maintain a long-term ‘Neutral’ recommendation on the stock. However, Central Garden & Pet has a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating.

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