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Central Garden & Pet Company CENT continued with its stellar performance in first-quarter fiscal 2021, wherein both the top and the bottom line not only surpassed the Zacks Consensus Estimate but also improved year over year.
Notably, the quarter marked the fifth straight earnings beat. The performance primarily benefited from strong organic growth across all segments. Also, solid execution and strong consumer demand across the Pet and Garden segments drove the quarterly performance. Also, the company’s ‘Central to Home’ strategy bodes well. Management is encouraged about the recent buyouts, which are expected to build scale in the Garden segment as well as enhance its omnichannel and digital capabilities.
Let’s Delve Deeper
The CA-based company delivered adjusted earnings of 29 cents a share, which compared favorably with the Zacks Consensus Estimate of break-even earnings. Moreover, the figure compared favorably with a loss of 8 cents reported in the year-ago period.
Central Garden & Pet Company generated net sales of $592.2 million, beating the Zacks Consensus Estimate of $556 million. Further, the top line improved 22.7% from the year-ago period, benefiting from organic growth in both segments. Meanwhile, e-commerce accounted for 20% of the company’s branded pet consumer business. Notably, point-of-sales trends were outstanding in e-commerce and robust in the brick-and-mortar channel.
Central Garden & Pet Company Price, Consensus and EPS Surprise
Central Garden & Pet Company price-consensus-eps-surprise-chart | Central Garden & Pet Company Quote
Gross profit surged 26% to $165.4 million. Also, gross margin expanded 70 basis points to 27.9% owing to favorable mix of product sales and volume efficiencies, somewhat offset by persistent supply-chain constraints and inflationary pressure. Operating income jumped to $27 million from $2.1 million in the year-ago quarter. Markedly, operating margin increased 420 basis points to 4.6% due to gross margin gains and operating efficiencies.
SG&A expenses were $138.4 million, up 7.1% year over year. As a percentage of net sales, SG&A expenses contracted 340 basis points to 23.4%.
Shares of this Zacks Rank #2 (Buy) company have gained 29% in the past year against the industry’s decline of 5%.
Segment in Detail
Net sales at the Pet segment increased 19% year over year to $436.4 million, driven by significant contributions from dog and cat, distribution and small animal supplies.
The segment’s operating income grew 51.5% year over year to $43.5 million. Notably, operating margin expanded 220 basis points to 10%, courtesy of robust sales contribution and improved operating leverage.
At the Garden segment, net sales advanced 34.1% year over year to $155.8 million mainly owing to solid growth in distribution, wild bird feed, grass seed, controls and fertilizers, and live plants.
The segment’s operating income of $4.7 million increased sharply from an operating loss of $6.9 million in the year-ago period. Operating margin expanded 890 basis points to 3%, driven by organic growth, higher gross margins and lower SG&A.
Central Garden & Pet ended the quarter with cash and cash equivalents of $608.3 million, total debt of $789 million and shareholders’ equity of $1,086.6 million, excluding non-controlling interest. Cash provided by operations during the quarter was $36.1 million compared with $18 million a year ago. Management incurred capital expenditures of $15 million during the quarter under review.
On Dec 18, 2020, Central Garden & Pet concluded the acquisition of DoMyOwn, a key fast-growing online retailer of professional-grade control products. This buyout will fortify the company's position in the control product category. On Jan 8, it closed the buyout of a major provider of live plants, Hopewell Nursery. Further, the acquisition of Green Garden Products is likely to conclude in the second quarter of fiscal 2021.
Central Garden & Pet continues to anticipate fiscal 2021 earnings of $1.90 per share or better. This outlook excludes the impact of the recent or additional buyouts that may close in fiscal 2021. We note that the company reported earnings $2.20 per share in fiscal 2020. The year-over-year decline indicates higher investments related to capacity expansion, brand building and e-commerce, and increases in labor and freight cost as well as key commodity costs. Adjusted earnings for fiscal 2021 are envisioned to be $2.09 or higher.
Management also estimates second-half challenges associated with uncertainty of the ideal weather for the gardening season and the COVID-19 tailwinds for fiscal 2021. The company forecasts continued supply chain pressure, including lack of labor along with higher freight and raw materials costs for fiscal 2021.
Other Key Consumer Discretionary Bets
Reynolds Consumer Products REYN has a trailing four-quarter earnings average of 5.7% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Party City Holdco PRTY, also a Zacks Rank #2 stock, delivered an earnings surprise of 121.7% in the last-reported quarter.
Rent-A-Center RCII has an expected long-term earnings growth rate of 4% and currently holds a Zacks Rank #2.
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