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Central Garden's (CENT) Q2 Earnings & Sales Beat Estimates
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Central Garden & Pet Company (CENT - Free Report) reported better-than-expected second-quarter fiscal 2020 results, wherein both top and bottom lines improved on a year-over-year basis. Although uncertain impacts of COVID-19 remain a drag, gains from acquisitions contributed to quarterly results.
Despite such robust results, management withdrew its fiscal 2020 view on expectations of unprecedented impacts form the ongoing COVID-19 situation.
Delving Deeper
The company reported adjusted earnings of 78 cents per share, up 6.8% from 73 cents in the year-ago period. Moreover, the figure surpassed the Zacks Consensus Estimate of 76 cents.
The California-based company reported net sales of $703.2 million, beating the Zacks Consensus Estimate of $693 million. Further, the metric rose 4.4% from the year-ago period, driven by acquisitions of Arden and C&S. Meanwhile, organic sales grew 0.5% on the back of solid performance of the Pet business.
Gross profit increased 0.5% to $207.1 million, whereas gross margin contracted 110 basis points to 29.5%. Gross margin contraction can be attributable to a decline in volumes in certain categories as well as unfavorable mix in product sales.
Operating income was $66.1 million, up 6.3% from the prior-year quarter, while operating margin expanded 20 basis points to 9.4%. The uptick in operating margin mainly driven by gains from acquisitions and declining SG&A expenses.
Additionally, SG&A expenses came in at $141 million for the quarter under review, down 2% from $143.9 million reported in the last year quarter. This might be due to reduced administrative spending and transportation costs in the base business, somewhat offset by a rise in inorganic and corporate spending. Further, SG&A expenses, as a percent of sales, contracted 130 basis points to 20.1%.
Segment in Detail
Net sales at the Pet segment advanced 6.7% year over year to $360.8 million, driven by the acquisition of C&S. Organic sales increased 3.8%, driven by strength in dog treats and chews, pet distribution, small animal supplies, and animal health categories. This was partly offset by weak live fish sales due to major retailers exiting the category during fiscal 2019, shipment issues for live animals stemming from the COVID-19 situation and adverse impacts of lower pet bedding sales.
The segment’s operating income (excluding a $2.5 million cost related to live fish business, incurred in the last year quarter) grew 13.9% year over year to $33.6 million, backed by the C&S acquisition and organic sales growth. Meanwhile, operating margin expanded 130 basis points to 9.3% on the back of higher volumes and lower administrative costs.
At the Garden segment, net sales advanced 2.1% year over year to $342.4 million, driven by the acquisition of Arden. Organic sales decreased 2.8% due to the company’s exit from the fashion decor pottery product line. Also, lower sales in grass seed and controls businesses acted as deterrents. On the flip side, Garden distribution, wild bird feed and live plant categories performed well.
The segment reported an operating income of $53 million, down 0.7% from $53.4 million in the year-ago quarter. Also, operating margin contracted 40 basis points to 15.5%.
Central Garden Pet Company Price, Consensus and EPS Surprise
Central Garden & Pet ended the quarter with cash and cash equivalents of $331.6 million and total debt of $693.6 million compared with $329.7 million and $697.8 million, respectively, in the prior-year period. Shareholders’ equity at the end of the quarter was $993 million, excluding non-controlling interest of $429,000.
Cash used in operating activities was $74.6 million in the reported quarter. Moreover, the company bought back shares worth $25 million during the fiscal second quarter. As of Mar 28, it had $100 million remaining under its share repurchase program. Additionally, it has 800,000 shares remaining under the board's equity dilution authorization.
Net interest expenses increased to $9.3 million in the reported quarter, up from $8.4 million in the prior-year period. Management incurred capital expenditure of $10 million in the quarter under review.
Looking Ahead
Although the company’s performance was in line with its full-year guidance and it witnessed positive momentum till February, the impacts of COVID-19 became more pronounced from March due to store closures, reduced traffic and restrictions on specialty areas, such as outdoor garden or live animals. This negatively impacted the Garden segment, particularly the Bell Nursery live plant business. However, changes in consumer preference, which led to a rise in pet ownership, temporary hoarding of consumables and shift from a mix of channels to e-commerce worked in favor of Central Garden & Pet.
The company also noted that the ongoing pandemic coincides with the peak garden season, which usually starts from mid-March till June. Apart from this, management envisions COVID-19-related impacts to show on the company’s results in the third and fourth quarters of fiscal 2020.
Price Performance
Shares of this Zacks Rank #2 (Buy) company have gained 9% year to date, outperforming the industry’s growth of 1.5%.
Some Other Top-Ranked Consumer Discretionary Stocks
Netflix Inc. (NFLX - Free Report) has an expected long-term earnings growth rate of 30% and a Zacks Rank #2.
Roku Inc. (ROKU - Free Report) , also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 11.5%.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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Central Garden's (CENT) Q2 Earnings & Sales Beat Estimates
Central Garden & Pet Company (CENT - Free Report) reported better-than-expected second-quarter fiscal 2020 results, wherein both top and bottom lines improved on a year-over-year basis. Although uncertain impacts of COVID-19 remain a drag, gains from acquisitions contributed to quarterly results.
Despite such robust results, management withdrew its fiscal 2020 view on expectations of unprecedented impacts form the ongoing COVID-19 situation.
Delving Deeper
The company reported adjusted earnings of 78 cents per share, up 6.8% from 73 cents in the year-ago period. Moreover, the figure surpassed the Zacks Consensus Estimate of 76 cents.
The California-based company reported net sales of $703.2 million, beating the Zacks Consensus Estimate of $693 million. Further, the metric rose 4.4% from the year-ago period, driven by acquisitions of Arden and C&S. Meanwhile, organic sales grew 0.5% on the back of solid performance of the Pet business.
Gross profit increased 0.5% to $207.1 million, whereas gross margin contracted 110 basis points to 29.5%. Gross margin contraction can be attributable to a decline in volumes in certain categories as well as unfavorable mix in product sales.
Operating income was $66.1 million, up 6.3% from the prior-year quarter, while operating margin expanded 20 basis points to 9.4%. The uptick in operating margin mainly driven by gains from acquisitions and declining SG&A expenses.
Additionally, SG&A expenses came in at $141 million for the quarter under review, down 2% from $143.9 million reported in the last year quarter. This might be due to reduced administrative spending and transportation costs in the base business, somewhat offset by a rise in inorganic and corporate spending. Further, SG&A expenses, as a percent of sales, contracted 130 basis points to 20.1%.
Segment in Detail
Net sales at the Pet segment advanced 6.7% year over year to $360.8 million, driven by the acquisition of C&S. Organic sales increased 3.8%, driven by strength in dog treats and chews, pet distribution, small animal supplies, and animal health categories. This was partly offset by weak live fish sales due to major retailers exiting the category during fiscal 2019, shipment issues for live animals stemming from the COVID-19 situation and adverse impacts of lower pet bedding sales.
The segment’s operating income (excluding a $2.5 million cost related to live fish business, incurred in the last year quarter) grew 13.9% year over year to $33.6 million, backed by the C&S acquisition and organic sales growth. Meanwhile, operating margin expanded 130 basis points to 9.3% on the back of higher volumes and lower administrative costs.
At the Garden segment, net sales advanced 2.1% year over year to $342.4 million, driven by the acquisition of Arden. Organic sales decreased 2.8% due to the company’s exit from the fashion decor pottery product line. Also, lower sales in grass seed and controls businesses acted as deterrents. On the flip side, Garden distribution, wild bird feed and live plant categories performed well.
The segment reported an operating income of $53 million, down 0.7% from $53.4 million in the year-ago quarter. Also, operating margin contracted 40 basis points to 15.5%.
Central Garden Pet Company Price, Consensus and EPS Surprise
Central Garden Pet Company price-consensus-eps-surprise-chart | Central Garden Pet Company Quote
Financial Details
Central Garden & Pet ended the quarter with cash and cash equivalents of $331.6 million and total debt of $693.6 million compared with $329.7 million and $697.8 million, respectively, in the prior-year period. Shareholders’ equity at the end of the quarter was $993 million, excluding non-controlling interest of $429,000.
Cash used in operating activities was $74.6 million in the reported quarter. Moreover, the company bought back shares worth $25 million during the fiscal second quarter. As of Mar 28, it had $100 million remaining under its share repurchase program. Additionally, it has 800,000 shares remaining under the board's equity dilution authorization.
Net interest expenses increased to $9.3 million in the reported quarter, up from $8.4 million in the prior-year period. Management incurred capital expenditure of $10 million in the quarter under review.
Looking Ahead
Although the company’s performance was in line with its full-year guidance and it witnessed positive momentum till February, the impacts of COVID-19 became more pronounced from March due to store closures, reduced traffic and restrictions on specialty areas, such as outdoor garden or live animals. This negatively impacted the Garden segment, particularly the Bell Nursery live plant business. However, changes in consumer preference, which led to a rise in pet ownership, temporary hoarding of consumables and shift from a mix of channels to e-commerce worked in favor of Central Garden & Pet.
The company also noted that the ongoing pandemic coincides with the peak garden season, which usually starts from mid-March till June. Apart from this, management envisions COVID-19-related impacts to show on the company’s results in the third and fourth quarters of fiscal 2020.
Price Performance
Shares of this Zacks Rank #2 (Buy) company have gained 9% year to date, outperforming the industry’s growth of 1.5%.
Some Other Top-Ranked Consumer Discretionary Stocks
BJs Wholesale Club Holdings (BJ - Free Report) has an expected long-term earnings growth rate of 11% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Netflix Inc. (NFLX - Free Report) has an expected long-term earnings growth rate of 30% and a Zacks Rank #2.
Roku Inc. (ROKU - Free Report) , also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 11.5%.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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