Central Garden & Pet (CENT) Tops Q2 Earnings, Raises '17 View

Central Garden & Pet Company (NASDAQ:CENT) continued with its positive earnings surprise streak for the eleventh consecutive quarter, when it reported second-quarter fiscal 2017 results. The company posted adjusted earnings of 67 cents per share that beat the Zacks Consensus Estimate of 64 cents and also increased 3.1% year over year.

Organic growth, value accretive acquisitions such as that of the pet bedding business and Segrest along with divestment of non-strategic assets have been aiding the company to enhance portfolio, consequently resulting in improved performance.

Net sales of this leading producer of branded lawn & garden and pet supplies products grew 5.3% year over year to $569.9 million and coming marginally ahead of the Zacks Consensus Estimate of $566 million. Revenue growth was driven by the company’s recent Segrest acquisition.

Gross profit increased 8.4% to $183.5 million, while gross margin expanded 90 basis points (bps) to 32.2%. Central Garden & Pet reported operating income of $63.9 million, compared with $59.4 million in the year-ago quarter. Operating margin expanded 20 bps to 11.2% in the quarter under review.

Following the results, not much movement was noticed in after-hours trading session. However, in the past one year, the stock has displayed a tremendous run in the index, soaring 88.6% compared with the Zacks categorized Consumer Product-Miscellaneous Discretionary industry’s gain of only 1.3%.

Segment Details

The Pet segment’s net sales gained 8.4% year over year to $298.4 million on the back of acquisitions as well as organic growth. Sales across the segment’s branded product and other manufacturers’ products came in at $240.5 million and $57.9 million, reflecting an increase of 10.9% and decline of 0.9%, respectively. Moreover, Pet organic sales increased 1.3%.
The segment’s operating income rose 6.9% year over year to $34.6 million, while operating margin contracted 20 bps to 11.6%.

Net sales at the Garden segment were up 2.1% to $271.5 million. The segments revenues were driven by increase in sales of other manufacturers’ products rise in control and fertilizer sales. Sales across the segment’s branded product came in at $216.7 million, up 0.4% year over year, while other manufacturers’ reported revenues of $54.8 million, up 9.4% year over year.

The segment recorded an operating income of $46 million, in comparison with $44.4 million recorded in the prior-year quarter.

Financial Details

Central Garden & Pet ended the quarter with cash and cash equivalents of $11 million, long-term debt of $495.9 million and shareholders’ equity of $593.2 million, excluding non-controlling interest of $1.3 million.

2017 Guidance

In an effort to deliver sustainable growth, the company is increasing investment. However, costs related to initiatives may hurt 2017 net income but will drive top-line growth in second-half fiscal 2017.

Central Garden has raised earnings projections. The company expects fiscal 2017 earnings per share of $1.37 or higher, up approximately 8.7% or above from the prior year. The company had earlier projected 2017 earnings per share of $1.34.

Other Stocks to Consider

Central Garden currently carries a Zacks Rank #2 (Buy). Other top ranked stocks, which warrant a look includes The Children's Place, Inc. (NASDAQ:PLCE) , PCM, Inc. (NASDAQ:PCMI) and Essendant Inc. (NASDAQ:ESND) . All these three stocks sport a Zacks Rank #1 (Strong buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Children's Place has an average positive earnings surprise of 39% in the trailing four quarters. The stock has a long-term growth rate of 8%.

PCM has a long-term earnings growth rate of 30% and the company’s earnings have surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 74.4%.

Shares of Essendant have gained 16.5% in the past one month.

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