Central Garden & Pet Company CENT continued with its positive earnings surprise streak for the fifth consecutive quarter as both the top and bottom lines for fourth-quarter fiscal 2015 surpassed the Zacks Consensus Estimate. Following the results, the company’s share price increased 2.3% in the after hour trading session.
The company’s earnings came in at 1 cent per share, contrary to the Zacks Consensus Estimate of a loss of 9 cents per share. Moreover, the reported figure was better than the previous year figure of a loss of 12 cents per share. This is the first time the company reported positive earnings in the fourth quarter since 2009. Results were driven by increase in sales at the company’s Pet segment.
Net sales of this leading producer of branded lawn & garden and pet supplies products advanced 3.2% year over year to $386.4 million and surpassed the Zacks Consensus Estimate of $385 million.
Gross profit increased 0.4% to $108 million, while gross margin contracted 80 basis points (bps) to 27.9%, both Garden and Pet segments were responsible for the decline.
Central Garden & Pet reported operating income of $1.3 million, down from $1.4 million reported in the year-ago quarter. Operating margin declined 10 bps to 0.3% in the reported quarter.
Segment Details
Net sales at the Garden segment decreased 4.1% to $150.8 million, mainly due to weakness in grass seed as well as décor revenue. Sales across the segment’s branded product and other manufacturers’ products came in at $128.5million and $22.3 million, respectively.
The segment recorded operating income of $0.9 million compared with $6.4 million in the prior-year quarter. Moreover, the segment’s operating margin fell 350 bps to 0.6%, primarily due to decrease in profitability in the décor category. On an adjusted basis operating income came in at $3.6 million, while segment operating margin declined 2.3%.
The Pet segment’s net sales rose 8.5% year over year to $235.6 million, reflecting increased sales at dog and cat and professional categories. The dog and cat category gained as the company included two months’ revenue from its IMS acquisition, which was closed during the fiscal fourth quarter. Sales across the segment’s branded product and other manufacturers’ products came in at $180.9 million and $54.8 million, respectively.
The segment’s operating income came in at $18.2 million, down 13.7% from the prior-year quarter. However, on an adjusted basis, operating income increased 17.3% to $25.5 million, primarily due to increase in sales as well as lower SG&A expenses in the fourth quarter of fiscal 2015. This, coupled with improved margins in the dog & cat categories, higher professional business volume and sales, and reduced marketing expenses in the flea & tick business, facilitated the segment’s operating margin to expand 110 bps.
Financial Details
Central Garden & Pet ended the quarter with cash and cash equivalents of $47.6 million, long-term debt of $399.8 million and shareholders’ equity of $505.3 million, excluding non-controlling interest.
Further, cash flow from operations during the quarter amounted to $30.8 million, compared with $57.6 million in the prior-year period.
Other Developments
Central Garden & Pet announced that it has acquired the pet bedding business and certain other assets from National Consumers Outdoors Corp. (previously known as Dallas Manufacturing Company) for $61 million.
Central Garden & Pet expects the acquired dog and cat bedding business to be a valuable asset for the company. According to the company, bedding, which is the fifth leading category in dog and cat supplies, is gaining popularity at a vigorous rate. Further, Central Garden & Pet presumes that this acquisition is in line with its strategy of constructing a portfolio of budding businesses and categories, while complementing its broad pet products portfolio
Guidance
For fiscal 2016, management expects to achieve adjusted earnings per share of at least 95 cents or an increase of 28%. However, for the first quarters of fiscal 2016, the company expects earnings to be flat on a year-over-year basis, primarily due to revenue timing differences.
Zacks Rank
Central Garden & Pet currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in retail space include Nutrisystem, Inc. NTRI, Prestige Brands Holdings, Inc. PBH and The Kroger Co. KR. All these stocks hold a Zacks Rank #2 (Buy).
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