Central Garden & Pet Company CENT continued with its positive earnings surprise streak for the fourth consecutive quarter as top and bottom line results for third-quarter fiscal 2015 cruised ahead of the Zacks Consensus Estimate. The better-than-expected performance prompted management to provide an upbeat earnings outlook for fiscal 2015.
The company’s quarterly earnings of 38 cents a share were 35.7% higher than both the year-ago figure and the Zacks Consensus Estimate of 28 cents. Results benefitted from profitable performance at both segments, partly offset by the weakness in the flea and tick and wild bird feed business.
Net sales of this leading producer of branded lawn & garden and pet supplies products advanced 4.9% year over year to $459.4 million and surpassed the Zacks Consensus Estimate of $456.1 million.
Gross profit climbed 19.2% to $142 million due to higher sales and decline in cost of goods sold and occupancy, while gross margin expanded 370 basis points (bps) to 30.9%, backed by improvement across the company’s Garden segment.
Central Garden & Pet reported operating income of $39 million, up from $18.4 million reported in the year-ago quarter. Operating margin improved 430 bps to 8.5% in the reported quarter.
On an adjusted basis (due to discontinuance of two Garden products in the year-ago quarter) net sales increased 3%, gross margin expanded 30 bps from 30.6% and operating margin expanded 100 bps from 7.5%.
Segment Details
Net sales at the Garden segment increased 4.9% to $221.3 million, mainly due to greater control product revenues and higher manufacturers’ products sales, partly offset by soft wild bird feed sales. On an adjusted basis sales improved 1.6%. Sales across the segment’s branded product and other manufacturers’ products came in at $180.4 million and $40.9 million, respectively.
The segment recorded operating income of $23.5 million compared with $4 million in the prior-year quarter. Moreover, the segment operating margin grew 870 bps, driven by improvements in fertilizer, grass seed and private label controls, partially offset by weakness witnessed in the décor and wild bird feed businesses. On an adjusted basis operating income increased 24.3%, while segment operating margin grew 190 bps.
The Pet segment’s net sales rose 4.8% year over year to $238.1 million, reflecting increased sales of other manufacturers’ products and a rise in professional revenues, somewhat offset by soft flea and tick and wild bird revenues. Professional revenues increased due to higher sales in the Envincio division (acquired last year) whereas sales of other manufacturers’ products benefitted from increased online sales. Sales across the segment’s branded product and other manufacturers’ products came in at $183.3 million and $54.8 million, respectively.
The segment’s operating income came in at $32.9 million, up 15.8% from the prior-year quarter on the back of greater sales. 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 130 bps.
Financial Details
Central Garden & Pet ended the quarter with cash and cash equivalents of $43.8 million, long-term debt of $399.9 million and shareholders’ equity of $510.3 million, excluding non-controlling interest.
Further, cash flow from operations during the quarter amounted to $155.1 million, compared with $128.9 million in the prior-year period. The company did not repurchase any outstanding shares during the quarter.
Other Developments
Concurrent with this press release, Central Garden & Pet announced the resignation of senior vice president & chief financial officer (CFO) Lori Varlas. Further, the company disclosed that it has appointed Mr. David N. Chichester as acting CFO.
Looking Ahead
Management seems pleased with the progress made in the third 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 the remaining fiscal year and ahead, on the back of its cost cutting initiatives and operational efficiency.
Consequently, the company envisions improved earnings in the fourth quarter. For fiscal 2015, management raised its earnings per share outlook to 63 cents or higher, compared with 55 cents or higher projected earlier.
Zacks Rank
Central Garden & Pet currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry are Nutrisystem, Inc. NTRI, Spectrum Brands Holdings, Inc. SPB and The Container Store Group, Inc. TCS. While Nutrisystem holds a Zacks Rank #1 (Strong Buy), Spectrum Brands and The Container Store carry a Zacks Rank #2 (Buy).
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