It has been about a month since the last earnings report for Central Garden (CENT). Shares have added about 2.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Central Garden due for a pullback? Well, first let's take a quick look at the most recent earnings report in order to get a better handle on the recent drivers for Central Garden & Pet Company before we dive into how investors and analysts have reacted as of late.
CENT Q2 Earnings Beat Estimates on Strong Pet and Garden Sales
Central Garden & Pet turned in a strong second-quarter fiscal 2026, with adjusted earnings of $1.29 per share, up 24% from $1.04 a year ago. The results beat the Zacks Consensus Estimate of $1.08 by 19.4%.
Net sales of $906.2 million increased 8.7% year over year and topped the consensus mark of $838 million by 8.1%. The strong top-line performance was driven by growth across both operating segments, shipment timing shifts from the first quarter into the second and continued strength in higher-margin consumables categories.
CENT Lifts Margins on Better Leverage
Gross profit rose to $299.6 million from $273.1 million a year ago. The gross margin expanded 30 basis points to 33.1%. CENT’s gross profit trends reflected improved scale, even as the company managed mix and cost dynamics. Adjusted gross profit rose to $299.6 million from $277.5 million a year ago, supported by higher volume across both segments.
The adjusted gross margin was 33.1% versus 33.3% in the prior-year quarter. Management attributed the margin profile to productivity gains and a favorable mix in Pet, which helped offset higher manufacturing costs and a lower-margin sales mix in Garden.
Central Garden & Pet converted the quarter’s gross profit into improved operating performance through tighter cost control and SG&A leverage. Operating income rose sharply to $113.9 million from $93.3 million in the prior-year period, while the operating margin improved to 12.6% from 11.2%. Adjusted operating income increased to $114.2 million from $98.7 million in the year-ago quarter. The adjusted operating margin improved to 12.6% from 11.8%.
Adjusted EBITDA increased to $139 million from $123 million, while the adjusted EBITDA margin expanded 60 basis points year over year to 15.4%.
Adjusted SG&A expenses were $185.5 million, beating our estimate of $182.4 million and rising 3.7% year over year. However, as a percentage of sales, adjusted SG&A improved to 20.5% from 21.6%, reflecting sales leverage and continued simplification initiatives.
CENT’s Segment-Wise Performance
The Pet segment generated net sales of $477 million, increasing 5% year over year from $454 million. Operating income for the Pet segment increased significantly to $78 million from $61 million in the prior-year quarter. The operating margin expanded to 16.3% from 13.4%, benefiting from a favorable mix, portfolio optimization, sales leverage and productivity gains. Adjusted EBITDA increased to $89 million from $75 million, while the adjusted EBITDA margin improved to 18.6% from 16.6%.
The Garden segment reported net sales of $429 million, increasing 13% year over year from $380 million. Adjusted EBITDA in the Garden segment rose to $76 million from $69 million in the prior-year quarter. However, the adjusted EBITDA margin declined to 17.7% from 18.2%. Segment operating income was $66 million, up from $59 million and the operating margin remained relatively stable at 15.4% compared with 15.5% a year ago.
CENT Highlights Liquidity & Share Repurchases
Central Garden & Pet ended the quarter with solid balance-sheet flexibility. Cash and cash equivalents totaled $653.2 million compared with $516.7 million in the prior-year period. Long-term debt remained stable at $1.19 billion, while total shareholders’ equity stood at $1.65 billion. Gross leverage improved to 2.8X from 2.9X last year and remained below management’s target of 3-3.5X. The company also reported no outstanding borrowings under its asset-based lending facility at the quarter end.
Cash used in operating activities totaled $50 million during the quarter compared with $47 million in the prior-year period, primarily reflecting seasonal working capital timing. Capital expenditure was approximately $10 million during the quarter. Central also repurchased roughly 110,000 shares for $3.4 million, with $128 million remaining under its current share repurchase authorization.
Sneak Peek Into CENT’s Outlook
Management reaffirmed its fiscal 2026 adjusted earnings guidance of $2.70 or better, supported by continued margin discipline, productivity improvements, portfolio optimization initiatives, and targeted investments in innovation and growth categories.
The outlook incorporates assumptions for a competitive and promotional retail environment, value-focused consumer spending trends, tariffs and inflationary pressures across certain commodities. Capital expenditure for fiscal 2026 is expected between $50 million and $60 million, focused on maintenance, productivity and targeted growth initiatives across both operating segments.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -11.11% due to these changes.
VGM Scores
Currently, Central Garden has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a score of A on the value side, putting it in the top quintile for value investors.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Central Garden has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
