Central Garden & Pet Co. CENT posted mixed results for the second quarter of fiscal 2015, wherein the bottom line exceeded expectations, while the top line lagged the same.
The company’s quarterly earnings of 47 cents a share were 9.3% higher than both the year-ago figure and the Zacks Consensus Estimate of 43 cents. Results benefitted from profitable performance at various businesses of both segments of the company, partly offset by the expected weakness in the wild bird feed business.
On the contrary, net sales inched down 0.8% year over year to $497.6 million, falling short of the Zacks Consensus Estimate of $500 million.
Gross profit climbed 1.7% to $150.1 million due to decline in cost of goods sold and occupancy, while gross margin expanded 80 basis points (bps) to 30.2%, backed by improvements across the company’s Pet and Garden segments.
Central Garden & Pet reported operating income of $50 million, up 11.6% year over year, while operating margin improved 110 bps to nearly 10% in the reported quarter.
Segment Details
Net sales at the Garden segment declined nearly 3% to $276.1 million, mainly due to soft grass seed sales, partly compensated by higher fertilizer and control product sales. Sales across the segment’s branded product and other manufacturers’ products came in at $236.7 million and $39.4 million, respectively.
The segment recorded operating income of $39.3 million compared with $36.8 million in the prior-year quarter. Moreover, the segment operating margin grew 100 bps, driven by improvements in the fertilizer, controls, and decor categories, partially offset by weakness witnessed in the grass seed and wild bird feed businesses.
The Pet segment’s net sales rose 2% year over year to $221.5 million, reflecting increased sales of other manufacturers’ products, and a rise in professional revenues, somewhat offset by soft wild bird feed and dog & cat revenues. Sales across the segment’s branded product and other manufacturers’ products came in at $168.4 million and $53.1 million, respectively.
The segment’s operating income came in at $27.1 million, up 12% from the prior-year quarter, on the back of enhanced profitability in the flea & tick category. This factor, coupled with improved margins in the dog & cat categories, facilitated the segment’s operating margin to expand 100 bps.
Financial Details
Central Garden & Pet ended the quarter with cash and cash equivalents of $11.9 million, long-term debt of $514.9 million and shareholders’ equity of $489.2 million, excluding non-controlling interest.
Further, cash used in operations during the quarter amounted to $114.4 million, compared with $90.1 million in the prior-year period. Also, the company repurchased 1.1 million shares worth $10 million during the quarter.
Looking Ahead
Management seems pleased with the progress made in the second quarter. Going forward, it intends to keep this momentum alive by focusing on achieving growth via acquisitions as well as organically. The company expects improvement in revenues and profits in fiscal 2015 and ahead, on the back of its solid financial status and operational efficiency.
Consequently, the company envisions earnings per share in the third quarter to range from flat to down, while for the fourth quarter, it expects earnings to be favorable year over year. For fiscal 2015, management anticipates earnings per share to exceed 55 cents, compared with 33 cents posted in fiscal 2014.
Zacks Rank
Central Garden & Pet currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Nutrisystem, Inc. NTRI, with a Zacks Rank #1 (Strong Buy) and Summer Infant, Inc. SUMR, with a Zacks Rank #2 (Buy). Also, a top-ranked stock in the broader consumer discretionary sector is JAKKS Pacific, Inc. JAKK, with a Zacks Rank #1.
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