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

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Central Garden & Pet Company CENT posted impressive second-quarter fiscal 2021 results, wherein both top and bottom lines improved year over year. Notably, the quarter marked the sixth straight earnings beat. Results gained from continued strength in Pet and Garden segments. Management raised its fiscal 2021 bottom-line view.

Further, the company is on track with its ‘Central to Home’ strategy and remains optimistic about gains from its recent acquisitions. Notably, it successfully concluded its recent buyouts, including the Garden space, DoMyOwn, Hopewell and Green Garden. Also, Central Garden & Pet is making efforts to lower costs in a bid to improve margins and fuel growth.

Shares of this Zacks Rank #2 (Buy) company have gained 22.7% in the past three months against the industry’s decline of 20%.

Let’s Delve Deeper

The CA-based company delivered adjusted earnings of $1.32 per share, which compared favorably with the Zacks Consensus Estimate of $1.08. Moreover, the figure surged 69% year over year from 78 cents reported in the year-ago period. The uptick can be attributable to organic growth and gains of 7 cents from acquisitions.

Central Garden & Pet Company generated net sales of $935 million, beating the Zacks Consensus Estimate of $875 million. Further, the top line improved 33% from the year-ago period, benefiting from organic growth in both segments along with contributions from recent buyouts to the tune of $76 million. Moreover, e-commerce accounted for 21% of the company’s branded pet consumer business.

Gross profit grew 26% to $165.4 million. Meanwhile, gross margin contracted 40 basis points to 29.1% due to higher commodity, labor and freight costs as well as adverse impacts from initial purchase accounting adjustments related to buyouts.

Operating income jumped 58% year over year to $105 million in the quarter under review. Moreover, operating margin increased 180 basis points to 11.2% due to gross margin gains and operating efficiencies.

SG&A expenses were $167.8 million, up 19% year over year. As a percentage of net sales, SG&A expenses contracted 220 basis points to 18%.

Segment in Detail

Net sales in the Pet segment increased 21% year over year to $492 million, driven by significant contributions from dog and cat, distribution, small animal supplies, outdoor pillows and cushions.

The segment’s operating income grew 43% year over year to $62 million. Notably, operating margin expanded 190 basis points to 12.6%, courtesy of robust sales volume, positive product mix and overhead efficiencies.

In the Garden segment, net sales advanced 49% year over year to $443 million, mainly owing to solid growth in distribution, wild bird feed, grass seed, controls and fertilizers, and live plants along with contributions from recent buyouts.

The segment’s operating income grew 53% to $66 million and operating margin expanded 40 basis points to 14.9% in the reported quarter.

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

Financial Details

Central Garden & Pet ended the quarter with cash and cash equivalents of $40 million, total debt of $979 million and shareholders’ equity of $1,160.6 million, excluding non-controlling interest. Cash used in operations during the quarter was $120.2 million compared with $92.7 million a year ago. As of Mar 27, 2021, the company has $100 million remaining under its existing share repurchase program. Also, management issued $400 million in senior notes following the end of the fiscal second quarter.

Outlook

Driven by solid fiscal second-quarter results, management raised its fiscal 2021 earnings of $1.90 per share or better to $2.25 or better. This view includes investments to expand capacity, brand awareness and the e-commerce business along with elevated commodity, labor and freight costs and improved promotions. Further, adjusted earnings are likely to be $2.42, up from earlier guided view of $2.09. Also, the company expects the first half of fiscal 2021 to witness a strong performance.

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