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Central Garden & Pet (CENT) Q1 Earnings Beat, Sales Up Y/Y

·5 min read

Central Garden & Pet Company CENT posted better-than-expected first-quarter fiscal 2022 results, thanks to the sustained demand for Garden and Pet brands. While the top line grew year over year, the bottom line declined from the year-ago period.

The California-based company is on track with its ‘Central to Home’ strategy and investing in digital marketing and innovation as well as customer insights and brand building to drive growth. The company is also expanding its manufacturing capacity and investing in automation.

Let’s Delve Deeper

Central Garden & Pet Company reported quarterly earnings of 16 cents a share that handily beat the Zacks Consensus Estimate of 1 cent. However, the figure exhibited a decline from earnings of 29 cents reported in the year-ago period.

The company generated net sales of $661.4 million that surpassed the Zacks Consensus Estimate of $619.7 million. The metric improved 12% from the year-ago period, benefiting from recent acquisitions, which contributed $70 million. Organic sales were almost in line with the prior-year quarter.

Gross profit increased 20% to $198.2 million. Meanwhile, the gross margin expanded 210 basis points to 30%. Pricing and favorable product mix helped offset cost inflation in key commodities, freight and labor.

Operating income totaled $26.2 million, down 3% from the year-ago period. The operating margin shrunk 60 basis points to 4% due to continued inflation and increased investment spending.

SG&A expenses amounted to $172 million, up 24% year over year on acquisitions, higher investment, and a rise in logistics costs. As a percentage of net sales, SG&A expenses increased 260 basis points to 26%.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Segment in Detail

In the Garden segment, net sales advanced 45% to $225 million, courtesy of a $70 million contribution from recent buyouts. However, on an organic basis, net sales declined 0.3%. Strength in wild bird, chemicals & fertilizer, as well as live plants, was more than offset by softness in garden distribution and grass seed. The company grew market share in wild bird and distribution share in live plants and packaged seeds. We note that e-commerce rose in mid-teens on top of triple-digit growth in the prior year. The segment’s operating income surged 30% to $6 million. However, operating margin shriveled 30 basis points to 2.7% primarily due to inflation and investment spending, which more than offset contributions from acquisitions and improved pricing.

Net sales in the Pet segment were $436 million, in line with the year-ago period. Contributions from animal health, dog and cat and the pet distribution businesses were offset by sluggishness in pet beds, small animal and aquatic supplies. The company increased its market share in dog toys, rawhide, equine, reptile and health & wellness. We note that e-commerce now represents 22% of Pet branded sales. The segment’s operating income rose 4% to $45 million, while the operating margin increased 40 basis points to 10.4%. Pricing actions and favorable product mix helped offset inflationary pressure and heightened investment spending.

Financial Details

Central Garden & Pet ended the quarter with cash and cash equivalents of $296 million, long-term debt of $1,185.1 million and shareholders’ equity of $1,228.2 million, excluding non-controlling interest of $0.7 million. The company repurchased about 153,000 shares of worth $6.7 million during the quarter under review. Management incurred capital expenditures of $24 million during the quarter. The company envisions capital expenditures of $80 million or more in fiscal 2022.

Outlook

Management reiterated fiscal 2022 GAAP EPS projection of $3.10 or better. The guidance includes anticipated pricing actions as well as investments in capacity expansion, brand building, consumer insights, innovation and e-commerce. The guidance takes into account rising costs for key commodities, freight and labor, return to normalize consumer demand patterns following exceptional demand in the last two fiscal years, and resuming more historical levels of promotional activity.

Shares of this Zacks Rank #4 (Sell) company have gained 2.5% in the past six months against the industry’s decline of 26.8%.

3 Stocks Hogging the Limelight

Here are three more favorably ranked stocks — Archer-Daniels-Midland ADM, Tractor Supply TSCO and Costco COST.

Archer-Daniels-Midland, one of the renowned companies in the food production industry, sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 21.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Archer-Daniels-Midland’s current financial year sales suggests growth of 3.4% from the year-ago period. ADM has an expected EPS growth rate of 1.8% for three-five years.

Tractor Supply Company, a rural lifestyle retailer in the United States., carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 22%, on average.

The Zacks Consensus Estimate for Tractor Supply Company’s current financial year sales and EPS suggests growth of 8.2% and 6.3%, respectively, from the year-ago period. TSCO has an expected EPS growth rate of 9.8% for three-five years.

Costco, which operates membership warehouses, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 8.3%, on average.

The Zacks Consensus Estimate for Costco’s current financial year sales and EPS suggests growth of 10.9% and 14%, respectively, from the year-ago period. COST has an expected EPS growth rate of 8.8% for three-five years.


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