Central Garden & Pet Company
) disappointing performance compelled us to take a bearish stance
on the stock, and hence we downgrade our recommendation to
Underperform with a price target of $8.25. Earlier, we had an
Outperform view on the stock.
The company posted fiscal fourth-quarter 2012 loss of 21 cents
a share that remained flat with the prior-year quarter loss but
was wider than the Zacks Consensus Estimate of a loss of 20
cents. The company hinted that increased promotional and
innovation expenses and lower revenues from the decor business
negatively impacted the results.
Central Garden missed the Zacks Consensus Estimate in three of
the trailing four quarters in the range of negative 16.7% to
0.0%. The average surprise over the last four quarters remained
negative at 8.5%. Following dismal bottom-line performance for
the fourth quarter, the Zacks Consensus Estimates has been
showing a downward trend.
For fiscal 2013 and 2014, the Zacks Consensus Estimate dropped
by 6 cents and 14 cents to 80 cents and 99 cents a share in the
last 7 days, respectively. For the first quarter of fiscal 2013,
the Zacks Consensus Estimate of a loss widened by 5 cents to 27
cents, whereas earnings estimate for the second quarter dropped
by 2 cents to 52 cents a share over the same time frame.
Management now anticipates the sales and earnings for the
first quarter of fiscal 2013 to be lower than the comparable
prior-year period due to the adverse impact of Hurricane Sandy
that to a great extent negatively impacted the Pet segment.
Central Garden & Pet's business is seasonal in nature and
generates a high proportion of sales during the second and third
quarters, which are characterized by the spring and the summer
seasons. As a result, the company is exposed to significant risks
from unseasonably cool or hot weather, which may adversely affect
its operating performance.
The company is now primarily focusing on streamlining its cost
structure, increasing operating efficiencies in order to improve
its margins and concentrating on revenue growth through marketing
and brand-building initiatives. The company also maintains a
healthy commercial relationship with giant retailers, such as
The Home Depot Inc.
Lowe's Companies Inc.
The above analysis advocates our bearish stand on the stock,
which is well defined through our Zacks #5 Rank that translates
into a short-term Strong Sell rating. However, the company has
undertaken a slew of measures, which have yet to show
CENTRAL GARDEN (CENT): Free Stock Analysis
HOME DEPOT (HD): Free Stock Analysis Report
LOWES COS (LOW): Free Stock Analysis Report
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