Central Garden & Pet Rakes in Impressive Q1 Earnings, Margins Flourish

Updated On: February 8, 2024 9:23 am

Central Garden & Pet Company’s (CENT) first-quarter fiscal 2024 results have left investors brimming with optimism. Against all odds, the company managed to surpass the Zacks Consensus Estimate for both top and bottom lines, delivering a stunning year-over-year improvement in net sales and earnings. Even in a storm, Central Garden & Pet is proving to be a sturdy ship, navigating through the challenging business environment.

The company’s bold strides in fortifying its position in the pet supplies and lawn and garden supplies segment are not going unnoticed. By reinforcing its brands, tightening its purse strings, reducing complexity, and enhancing margins, Central Garden & Pet is shaping itself into a financial colossus. The company has also been bolstering its manufacturing capabilities and simplifying its product portfolio, all pointing to a bright future.

Taking a Closer Look at the Numbers

Central Garden & Pet posted earnings of 1 cent per share for the quarter, a stark contrast to the Zacks Consensus Estimate of an 18-cent loss. This represents a significant leap from a 16-cent loss per share reported in the same period last year. The company’s bottom line was uplifted by an expanded gross margin and robust early-season shipments.

Moreover, the company churned out net sales of $634.5 million, beating the Zacks Consensus Estimate of $620 million. This metric reflects a 1.1% surge from the previous year. Organic net sales witnessed a respectable 0.5% growth.

Not to be outdone, the company’s gross profit reached $178.8 million, up from $171.7 million in the year-ago period, while the gross margin expanded by 80 basis points to 28.2%. This expansion was primarily propelled by cost containment initiatives and a slowdown in inflation.

Additionally, Central Garden & Pet’s SG&A expenses dropped to $170.4 million from $171.3 million in the prior-year quarter. As a percentage of net sales, it shrunk by 40 basis points to 26.9%. An expected 1.1% year-over-year decrease in SG&A expenses speaks to the company’s agile management.

The company raked in operating income of $8.4 million, a far cry from the $0.4 million reported in the same quarter last year, resulting in an impressive 120-basis-point expansion of operating margin to 1.3%. Furthermore, Central Garden & Pet recorded an Adjusted EBITDA of $37 million, up from $28.7 million in the prior-year period.

Unveiling Central Garden & Pet Company’s Price, Consensus, and EPS Surprise

The company’s performance in terms of price, consensus, and EPS surprise over time is a testament to its unwavering commitment to success. Against this backdrop, the stock has surged by 2% in the last six months, while the broader industry has slumped by 8.2%, indicating the company’s ability to outperform its peers.

Segments Under the Microscope

Central Garden & Pet’s Pet segment witnessed net sales of $409.2 million, marking a 1.6% downturn year over year. Though we anticipated a 2.1% dip, the segment’s impressive performance in Health & Wellness and Aquatics was counterbalanced by double-digit declines in pet beds, small animals, and distribution. Organic net sales took a 4.8% dip, excluding the recent acquisition of TDBBS.

The segment’s operating income surged to $43.4 million from $39.6 million reported in the prior-year quarter. The adjusted operating margin expanded by 110 basis points to 10.6%, driven by Central’s Cost and Simplicity program, coupled with a reduction in commercial spend.

The Garden segment recorded net sales of $225.3 million, reflecting a 6.3% increase year over year, surpassing our estimate of $214.4 million. Growth in Controls & Fertilizer, Grass, and Packet Seeds in early-season shipments buoyed the results. However, sales in Wild Bird took a hit due to unfavorable warmer weather conditions. Organic net sales, however, witnessed a commendable 11.3% surge.

The segment’s operating loss improved to $8.9 million from $10.8 million reported in the year-ago period.

Unveiling Financial Details

The company concluded the quarter with $341.4 million in cash and cash equivalents, $1,189.1 million of long-term debt, and shareholders’ equity of $1,451.9 million, excluding the non-controlling interest of $0.7 million. Additionally, the company repurchased about 39,576 shares worth $1.4 million in the quarter and incurred capital expenditures of $10 million during the same period. Management projects capital expenditures of $70 million in fiscal 2024.

Insight into the Future

Central Garden & Pet projects adjusted earnings of $2.50 per share or better for fiscal 2024, compared with $2.59 reported in fiscal 2023. The company’s projection takes into account deflationary pressure in certain commodity businesses, evolving consumer behavior, and unfavorable retailer inventory dynamics amid macroeconomic and geopolitical uncertainty. The company also indicated modest pricing actions to counter inflationary headwinds.

3 Stocks on Fire

Chewy (CHWY), a trusted name for pet parents and partners, currently holds a Zacks Rank #1 (Strong Buy). With an average trailing four-quarter earnings surprise of 234.1%, CHWY is poised for an upward trajectory. The Zacks Consensus Estimate hints at a 10.3% sales growth and an 11.3% earnings growth for the ongoing financial year, painting a promising picture for the company.

Casey’s General Stores (CASY), the third largest convenience retailer and fifth largest pizza chain in the United States, also flaunts a Zacks Rank #1. The company has consistently delivered an average trailing four-quarter earnings surprise of 17.8%. The Zacks Consensus Estimate suggests a growth of approximately 0.3% in sales and 9% in earnings for the current financial year, indicating a positive trajectory for the company.

Lamb Weston Holdings (LW), a leading supplier of frozen potato products, currently boasts a Zacks Rank #2 (Buy). The company has been delivering an average trailing four-quarter earnings surprise of 28.8%. The Zacks Consensus Estimate indicates growth of approximately 28.3% in sales and 26.9% in earnings for the ongoing financial year, painting a promising picture for the company.

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