Central Garden & Pet Company (CENT) recently announced healthy second-quarter 2011 results. The company delivered a quarterly income of 54 cents a share, beating the Zacks Consensus Estimate and prior-year quarter’s income of 49 cents.

With respect to earnings surprises, Central Garden & Pet has missed the Zacks Consensus Estimate in three of the last four quarters. Compared with the Zacks Consensus Estimate, the earnings surprise ranges from a negative 114.3% to a positive 10.2%, the average being negative 43.3%. This signifies that Central Garden & Pet has underperformed the Zacks Consensus Estimate by 43.3% on an average in the last four quarters.

As per Central Garden & Pet, total revenue for the quarter increased 10.0% to $485.7 million, reflecting significant sales growth in garden products segment. The company’s total branded product sales climbed 13.0% to $417.3 million, whereas sales of other manufacturers’ products went down 7.6% to $68.4 million.

The reported net sales also surpassed the Zacks Consensus Revenue Estimate of $457.0 million.

During the reported quarter, gross profit inched up 1.3% to $163.3 million, whereas gross margin contracted 290 basis points to 33.6%. The decline in margin reflected a 14.9% rise in input costs. Total operating income for the quarter was $59.6 million, down 1.5% from $60.5 million in the year-ago quarter, reflecting the company’s increased spending on brand building coupled with accelerating commodity prices.

Central Garden & Pet, one of the leading producers and marketers of premium and value-oriented products, is focused on the lawn & garden and pet supplies markets in the U.S.

Garden Products segment sales jumped 19.0% to $260.3 million driven by the growth in its grass seed business coupled with the sales rise in garden chemicals and control business. The segment reported an operating income of $46.9 million compared with $36.8 million posted in the previous-year quarter.

Pet Products segment sales inched up 1.0% to $225.4 million and the segment’s operating income plunged 33.0% to $23.3 million, reflecting a continued rise in raw material costs.

Central Garden & Pet, which faces stiff competition from The Scotts Miracle-Gro Company (SMG), ended the quarter with cash and cash equivalents of $11.2 million, total long-term debt of $517.1 million and shareholders’ equity of $502.9 million, excluding a non-controlling interest of $0.5 million.

On July 15, 2010, the company’s board authorized a new $100 million share repurchase program. During the quarter under review, the company bought back $39.0 million of its shares.

Followed by a broad evaluation, we prefer to maintain our long-term ‘Underperform’ recommendation on the stock. Moreover, Central Garden & Pet holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

CENTRAL GARDEN (CENT): Free Stock Analysis Report
SCOTTS MIRCL-GR (SMG): Free Stock Analysis Report
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