Central Garden & Pet (CENT) Stock Surges On Q3 Earnings Beat

Central Garden & Pet Company (NASDAQ:CENT) delivered yet another impressive performance, with both the top and bottom lines surpassing the Zacks Consensus estimate for the third time in row, when it posted third-quarter fiscal 2017 results. The company posted adjusted earnings of 62 cents per share that beat the Zacks Consensus Estimate of 50 cents and also increased 21.6% year over year. Subsequently, it raised adjusted earnings per share guidance for the fiscal year.

Investors gave thumbs up to the company’s spectacular performance, sending the stock higher by 14.5% during the after-hours trading session. Moreover, the stock has displayed a tremendous run in the index in the past one year, surging 17.7% against the industry’s decline of 11.7%.

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. During the reported quarter, both the Pet and Garden segments delivered robust results.

Net sales of this leading producer of branded lawn & garden and pet supplies products grew 11.7% year over year to $574.6 million and also came ahead of the Zacks Consensus Estimate of $541 million. The increase in sales was driven by the robust organic growth in Garden segment. The company’s organic sales, after excluding the impact of Segrest and K&H businesses, increased 7.6%.

Gross profit increased 11.9% to $183.3 million, while gross margin expanded 10 basis points (bps) to 31.9%. Central Garden & Pet reported operating income of $57.9 million, compared with $48.2 million in the year-ago quarter. Operating margin expanded 70 bps to 10.1% in the quarter under review.

Segment Details

The Pet segment’s net sales gained 9.1% year over year to $313.4 million on the back of the Segrest and K&H acquisitions. Moreover, Pet organic sales increased 1.7% primarily owing to robust performance of the company’s consumer businesses. Sales across the segment’s branded product and other manufacturers’ products came in at $254.3 million and $59 million, reflecting an increase of 11.7% and decline of 0.8%, respectively.

The segment’s operating income declined 6.9% year over year to $36.1 million, while operating margin contracted 200 bps to 11.5%. The segment’s operating income was negatively impacted by rise in expenses, unfavorable sales mix in the animal health business and due to recent buyouts.

Net sales at the Garden segment were up 14.9% to $261.2 million. Sales improved on account of increase in market share and robust performance of all categories expect bird feed. Sales across the segment’s branded product came in at $207.7 million, up 18.1%, while other manufacturers’ reported revenues of $53.5 million, up 4% year over year.

The segment recorded an operating income of $38.3 million, in comparison with $26.5 million registered in the prior-year quarter.

Financial Details

Central Garden & Pet ended the quarter with cash and cash equivalents of $14.5 million, long-term debt of $435.1 million and shareholders’ equity of $627.1 million, excluding non-controlling interest of $1.9 million.

2017 Guidance

Following robust quarterly numbers, Central Garden has raised earnings projections. The company expects fiscal 2017 earnings per share of $1.44 or more, up approximately 14.3% or higher from the prior year. The company had earlier projected earnings per share of $1.37. The Zacks Consensus Estimate for fiscal 2017 is currently pegged at $1.42.

Zacks Rank

Central Garden currently carries a Zacks Rank #4 (Sell), which is subject to change following the earnings announcement. Better-ranked stocks, worth considering include includes G-III Apparel Group, Ltd. (NASDAQ:GIII) , Gildan Activewear Inc. (TO:GIL) and Guess', Inc. (NYSE:GES) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1Rank stocks here.

G-III Apparel Group has an impressive long-term earnings growth rate of 15%.

Gildan Activewear has long-term earnings growth rate of 13.5% and also surpassed the Zacks Consensus Estimate in the trailing two quarters.

Guess', Inc. has an impressive long-term earnings growth rate of 17.5%.

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