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Central Garden & Pet (CENT) Q2 Earnings Beat, Sales Up Y/Y

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·5 min read
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Central Garden & Pet Company CENT posted better-than-expected second-quarter fiscal 2022 results, driven by favorable consumer trends. 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 expanding its manufacturing capacity and investing in automation.

Let’s Delve Deeper

Central Garden & Pet Company reported quarterly earnings of $1.27 per share that handily beat the Zacks Consensus Estimate of $1.18. However, the figure reflected a decline from earnings of $1.32 reported in the year-ago period.

The company generated net sales of $954.4 million, surpassing the Zacks Consensus Estimate of $935.1 million. The metric improved 2% from the year-ago period, benefiting from recent acquisitions, which contributed $52 million. Organic net sales declined 3.5% from the prior-year quarter.

Gross profit increased 5.3% to $286.8 million. Meanwhile, the gross margin expanded 100 basis points to 30.1%. Pricing and favorable product mix coupled with productivity improvements helped offset cost inflation in commodities, freight and labor.

Operating income totaled $106.8 million, up 2.1% from the year-ago period. Operating margin of 11.2% was even with the year-ago period despite continued inflation and heightened investment spending.

SG&A expenses of $179.9 million rose 7.2% year over year. As a percentage of net sales, SG&A expenses increased 100 basis points to 18.9%.

Central Garden & Pet Company Price, Consensus and EPS Surprise

Central Garden & Pet Company Price, Consensus and EPS Surprise
Central Garden & Pet Company Price, Consensus and EPS Surprise

Central Garden & Pet Company price-consensus-eps-surprise-chart | Central Garden & Pet Company Quote

Segment in Detail

In the Garden segment, net sales increased 3% year over year to $456.7 million, courtesy of contributions from recent buyouts. However, on an organic basis, net sales declined 8.7%. Organic strength in wild bird was more than offset by declines in chemicals & fertilizer, garden distribution, controls and grass seed. Unfavorable weather conditions resulted in a late start to the garden season. We note that e-commerce has advanced more than 20%. The segment’s operating income rose 7% to $71 million. We note that operating margin expanded 50 basis points to 15.4%, owing to contributions from recent buyouts and improved pricing, partly offset by inflationary pressures and higher investment spending.

Net sales in the Pet segment were $497.7 million, up 1.2% from the year-ago period. Contributions from dog and cat, outdoor cushions, professional and pet distribution businesses were negated by sluggishness in pet beds. The company increased its market share in health & wellness, dog toys/treats, equine. We note that e-commerce now represents 22% of Pet branded sales. The segment’s operating income declined 2% to $61 million while operating margin contracted 40 basis points to 12.2%. Pricing actions and favorable product mix were more than offset by inflationary pressure and heightened investment spending.

Financial Details

Central Garden & Pet ended the quarter with cash and cash equivalents of $54.1 million, long-term debt of $1,185.5 million and shareholders’ equity of $1,293.1 million, excluding non-controlling interest of $1.2 million. The company repurchased about 227,000 shares worth $9.4 million during the quarter under review.

Outlook

Management reiterated the 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 more normalized consumer demand patterns following exceptional demand spanning two fiscal years, and resumption of more historical levels of promotional activity.

Shares of this Zacks Rank #3 (Hold) company have fallen 22.3% in the past six months compared with the industry’s decline of 36.3%.

3 Stocks Hogging the Limelight

Here we highlight three better-ranked stocks, namely, Kroger KR, Target TGT and Tractor Supply Company TSCO.

Kroger, the renowned grocery retailer, carries a Zacks Rank #2 (Buy) at present. The company has an expected EPS growth rate of 9.9% for three-five years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Kroger’s current financial-year sales and EPS suggests growth of 2.4% and 1.9%, respectively, from the year-ago reported number. KR has a trailing four-quarter earnings surprise of 22.1%, on average.

General merchandise retailer Target currently carries a Zacks Rank #2. TGT has an expected EPS growth rate of 16.5% for three-five years.

The Zacks Consensus Estimate for Target’s current financial-year sales and EPS suggests growth of 3.7% and 7.3%, respectively, from the corresponding year-ago period’s levels. TGT has a trailing four-quarter earnings surprise of 21.3%, on average.

Tractor Supply Company, a rural lifestyle retailer in the United States, carries a Zacks Rank of 2 at present. TSCO has an expected EPS growth rate of 9.8% for three-five years.

The Zacks Consensus Estimate for Tractor Supply Company’s current financial-year sales and EPS suggests growth of 8.8% and 10.2%, respectively, from the corresponding year-ago period’s actuals. TSCO has a trailing four-quarter earnings surprise of 12.4%, on average.


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