Central Garden Q2 Earnings Miss, Revs Beat - Analyst Blog

By Zacks Equity Research,

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Central Garden & Pet Co. ( CENT ) recorded earnings per share of 43 cents in second-quarter fiscal 2014. The reported quarterly earnings fell 6.5% year over year and missed the Zacks Consensus Estimate of 47 cents.  

This leading lawn, garden and pet supplier recorded a net income of $20.9 million for the second quarter of fiscal 2014, which dropped 5.9% on a year-over-year basis.

Going Deeper

To bring in some optimism, 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 a favorable performance at the company's Garden segment, partly offset by weakness in the Pet segment.

Gross profit slipped 3.6% to $147.6 million, while gross margin shriveled 130 basis points (bps) to 29.4%. Selling, general and administrative (SG&A) expenses as a percentage of sales contracted 90 bps to 20.5%.

The fall in gross profit negated the improved SG&A, leading the operating income to slide 4.1% to $44.8 million, with the operating margin shrinking 50 bps to 8.9%.

Segment Details

Revenues at the Garden segment advanced 8% year over year to $284.9 million on the back of robust after-Spring buying coupled with enhanced distribution at various Garden businesses of the company. Sales were also favorably impacted by the shift of April sales to the second quarter. However, this shift is likely to weigh on the segment's third-quarter sales.

The segment's branded product revenues jumped 8% to $247.3 million, while sale of other manufacturers' products was up 10% to $37.6 million in the quarter. The segment's operating income declined to $36.8 million from $34 million in the prior-year quarter. Operating margin remained flat year over year at 12.9%, as a decrease in gross margin was compensated by lower SG&A.

The Pet segment's net sales decreased 8% year over year to $216.7 million due to soft customer takeaways in the regions where Central Garden takes part and lower retail distribution of few products.

The segment's branded product sales were down 12% to $169.8 million while sales of other manufacturers' products surged 12% to $46.9 million in the quarter. The segment's operating income slumped nearly 12% year over year to $24.2 million and its operating margin contracted 50 bps to 11.2%.

Other Financial Details

The company, which competes with NUTRISYSTEM, INC. ( NTRI ), ended the year with cash and cash equivalents of $16.7 million, total debt of $545.3 million and shareholders' equity of $484.3 million, excluding non-controlling interest of $1.2 million.

As of Mar 29, 2014, the company had outstanding borrowings of $95 million and had an available borrowing capacity of $295 million under the senior secured asset-based revolving credit facility.

Glancing Through the First Half of Fiscal 2014

During the first half of fiscal 2014, the company's earnings improved to 17 cents a share, compared to 14 cents earned in the same period last year. Further, net sales for the period climbed marginally to $792.1 million from $790.7 million last year.

Closing comment

Overall, during the second quarter, Central Garden benefitted from several initiatives like costs curtailment, management restructuring, customer care enhancments and hike in fill rates. However, the company still remains susceptible to various operating challenges. Also, management believes that it still has a year or more to go, before it is able to deliver a consistent performance by leveraging its latest product pipeline.

Other Stocks to Consider

Currently, Central Garden carries a Zacks Rank #3 (Hold). However, other better-ranked stocks in the same industry include Prestige Brands Holdings, Inc. ( PBH ), with a Zacks Rank #1 (Strong Buy) and Summer Infant, Inc. ( SUMR ), holding a Zacks Rank #2 (Buy).

CENTRAL GARDEN (CENT): Free Stock Analysis Report

NUTRI/SYSTEM (NTRI): Free Stock Analysis Report

PRESTIGE BRANDS (PBH): Free Stock Analysis Report

SUMMER INFANT (SUMR): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: CENT , NTRI , PBH , SUMR

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