Central Garden & Pet Earnings Rise – Analyst Blog

Despite a high-single digit decline in the top-line, Central Garden & Pet Company’s (CENT) second-quarter 2010 results beat the Zacks expectations on the heels of higher gross margins and lower operating expenses.

 

The quarterly earnings of 49 cents a share outpaced the Zacks Consensus Estimate of 47 cents and rose 4.3% year over year.

 

The quarterly earnings outperformed the Zacks Consensus Estimate by 4.3%. With respect to earnings surprises, the stock has fluctuated in the last four quarters (including the reported quarter) in the range of approximately flat to 51.7%, with the average being 25.3%. This implies that Central Garden & Pet has outperformed the Zacks Consensus Estimate by 25.3% on an average in the last four quarters.

 

Central Garden & Pet’s gross profit climbed 0.4% to $161.2 million, whereas gross margin expanded 280 basis points to 36.5%. The higher margin was mainly the result of lower cost of goods sold and occupancy (down 11.1%), irrespective of a 7.2% drop in total revenue to $441.9 million.

 

The company’s total branded product sales fell 10% to $368 million, whereas sales of other manufacturers’ products soared 10% to $74 million. Total operating income rose 5.9% to $60.5 million, whereas the operating margin increased 170 basis points to 13.7%.

 

The company has long been trying to improve its gross and operating margins. To achieve its goal, Central Garden & Pet has tried out several strategies to improve sales, consolidate manufacturing facilities and logistics centers, make prudent capital investments and improve manufacturing efficiencies.

 

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

 

Garden Products segment sales dipped 11.3% to $219.6 million due to a fall in unit sales and lower price. Operating income for the segment inched up 0.2% to $36.8 million. Pet Products segment sales dropped 2.8% to $222.4 million due to a fall in sales of animal health products. Segment operating income rose 9% to $34.8 million.

 

Central Garden & Pet ended the quarter with cash and cash equivalents of $27 million, total long-term debt of $415 million and shareholders’ equity of $540 million. Management expects capital expenditures under $30 million for fiscal 2010.