Central Garden & Pet (CENT) Q2 Earnings: What's In Store?

Central Garden & Pet Company (NASDAQ:CENT) is likely to register a decline in the bottom line when it reports second-quarter fiscal 2019 numbers. The company has underperformed the Zacks Consensus Estimate in two of the trailing four quarters, the average being 13%. In the last reported quarter, this producer and marketer of lawn & garden products and pet supplies witnessed a negative earnings surprise of 66.7%. Let’s see what awaits this quarterly release.

How Are Estimates Faring?

The Zacks Consensus Estimate for second-quarter earnings is pegged at 69 cents, reflecting a sharp decline from 86 cents per share reported in the year-ago quarter. Notably, the consensus mark has remained stable over the past 30 days. For revenues, the consensus mark stands at $654.5 million, indicating an improvement of approximately 7% from the year-ago quarter.

Factors to Consider

Central Garden & Pet is revamping both the Pet and Garden segments. The company’s focus on launch of new and innovative products, enhancement of customer service, cost containment and e-commerce are expected to yield quarterly results.

Further, the company’s efforts to gain market share in home centers, mass market, grocery, specialty pet store and other independent channels are likely to have favorable impact on the quarter under review. The Zacks Consensus Estimate for revenues of the Garden and Pet segments is pegged at $308 million and $346 million for the to-be-reported quarter, which reflects a year-over-year increase of 5.8% and 7.5%, respectively.

Also, Central Garden has been a disciplined buyer in the garden and pet space. The company, through buyouts, looks to enhance manufacturing capabilities and operating synergies, or develop distribution network. In this regard, buyouts of General Pet Supply and Bell Nursery are noteworthy.

However, management had earlier highlighted that inclusion of Bell Nursery in its results for the second quarter will be a hindrance. Notably, Bell Nursery has traditionally exhibited profit in the company's third quarter. Moreover, the company may face tough year-over-year comparison in organic sales. The company had recorded organic sales growth of 6% during the second quarter of fiscal 2018. Additionally, higher tax rate and increase in the number of shares outstanding may also weigh upon the bottom line.

Other factors such as rise in cost of goods sold and occupancy, higher interest expenses and seasonality of garden business remain concerns. Higher costs may keep margins under pressure. Moreover, interest expenses are anticipated to be higher owing to the timing of debt issuance. These will have a cumulative impact on the bottom line, which is likely to be lower from the prior-year number.

What Does the Zacks Model Say?

Our proven model does not conclusively show that Central Garden & Pet is likely to beat estimates in the quarter under review. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Central Garden & Pet has an Earnings ESP of 0.00% and a Zacks Rank #3, which makes surprise prediction difficult.

3 Stocks With Favorable Combination

Here are three companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Estee Lauder (NYSE:EL) has an Earnings ESP of +0.77% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hanesbrands (NYSE:HBI) has an Earnings ESP of +3.18% and a Zacks Rank #3.

Dollar General (NYSE:DG) has an Earnings ESP of +1.51% and a Zacks Rank #3.

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