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Central Garden Held at Underperform

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We have maintained our long-term Underperform recommendation on Central Garden & Pet Company (CENT - Free Report) with a target price of $8.00, as it continues to perform disappointingly as evident from its sluggish quarterly results.

Why the Reiteration?

Lower sales along with increased promotional and innovation costs continue to take a toll on Central Garden & Pet Company’s results. The company reported a loss of 32 cents per share in the first quarter 2013, widening from the Zacks Consensus Estimate of a loss of 28 cents a share. Moreover, the reported loss increased 5 cents on a year-over-year basis.

A look at the company’s earnings surprise history implies that CentralGarden has missed the Zacks Consensus Estimate in 3 of the trailing 4 quarters. The average surprise over the last 4 quarters remained negative at 12%.

Total sales for this Zacks Rank #4 (Sell) company decreased 3% year over year to $292.5 million, reflecting lower sales across the Pet and Garden segment. However, total sales came marginally ahead of the Zacks Consensus Estimate of $292 million.

Consolidated gross profit decreased 4.7% year over year to $77 million, while gross margin decreased approximately 40 basis points to 26.3%. CentralGardenreported an operating loss of $13.1 million that widened from an operating loss of $11.3 million in the prior-year quarter.

Following a dismal bottom-line performance in the first quarter, the Zacks Consensus Estimates have been showing a downward trend. For fiscal 2013 and 2014, the Zacks Consensus Estimate dropped by 3 cents to 76 cents and $1.00 per share, respectively, in the last 60 days.

Going forward, we believe that the macroeconomic headwinds, rising costs and competitive pressures will continue to deter the results of CentralGarden.

Other Stocks to Consider

Until any further upward revision in Central Garden & Pet’s rating, other stocks in the consumer goods and pet products universe with a favorable Zacks Rank worth considering include Spectrum Brands Holdings, Inc. (SPB - Free Report) and PetMed Express, Inc. (PETS - Free Report) , both of which hold a Zacks Rank #1 (Strong Buy) and are expected to continue with its upbeat performance. Prestige Brands Holdings, Inc. (PBH - Free Report) carrying a Zacks Rank #2 (Buy) is also worth considering.

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