On Jun 20, 2014, we issued an updated research report on Central Garden & Pet Company (CENT) following the company’s second quarter fiscal 2014 results.
Central Garden & Pet’s quarterly earnings of 43 cents per share missed the Zacks Consensus Estimate of 47 cents and fell 6.5% year over year. However, the company’s top line inched up 1% year over year to $501.6 million and surpassed the Zacks Consensus Estimate of $499 million. The rise in sales was facilitated by favorable performance at the company’s Garden segment, partly offset by weakness at the Pet segment.
Lower-than-expected earnings and constant lower revenues from the Pet segment made analysts less constructive on the stock’s future performance, triggering a downward revision in the estimates over the last 60 days. Estimates for fiscal 2014 and 2015 fell 33.3% and 20.6%, to 28 cents and 50 cents, respectively. Seasonality of the Garden segment and stiff competition remain added concerns.
To mitigate its troubles, Central Garden & Pet is on an overhauling drive. The company intends to evolve into an integrated, multi-brand company from a portfolio of stand-alone businesses, by restructuring and reorganizing operating units and consolidating facilities.
Central Garden & Pet is revamping its Pet and Garden segments to drive profitability. The company aims for a balanced approach to encompass revenue growth as well as cost reduction. It also intends to launch several products that appeal to customers, and upgrade its customer service at the same time. Management expects its ongoing transformation efforts to yield results, though not linear, and hopes for the one-year window to gain maximum momentum.
Moreover, the company is counting on its healthy commercial relationships with mega retailers such as Wal-Mart Stores Inc. (WMT) to drive profitability.
Central Garden & Pet currently carries a Zacks Rank #4 (Sell).
Key Picks from the Sector
Other better-ranked retail stocks worth investing include Prestige Brands Holdings, Inc. (PBH) and Summer Infant, Inc. (SUMR), both of which sport a Zacks Rank #1 (Strong Buy).
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