Central Garden & Pet Reports Loss - Analyst Blog

Central Garden & Pet Company's (CENT) swung to a loss during the fourth quarter of 2010. The company delivered a quarterly loss of 2 cents a share that remained well below the Zacks Consensus Earnings Estimate of 14 cents and the prior-year quarter's profit of 12 cents. The Zacks Consensus Estimate was stable prior to the earnings announcement.

On a reported basis, including one-time items, Central Garden & Pet posted a loss of 14 cents a share.

With respect to earnings surprises, Central Garden & Pet has missed the Zacks Consensus Estimate in some quarters and topped it in others over the last four quarters. The range is from a negative 9.1% to a positive 20%, the average being positive 5.1%. This implies that Central Garden & Pet has outperformed the Zacks Consensus Estimate by 5.1% on an average in the last four quarters.

Central Garden & Pet said that total revenue for the quarter tumbled 4.5% to $347 million, and also fell short of the Zacks Consensus Estimate of $377 million. The company said that total branded product sales declined 7% to $291 million, whereas sales of other manufacturers' products climbed 8% to $56 million.

Despite a fall of 1.4% in cost of goods sold and occupancy, gross profit fell 11% to $103.4 million, whereas gross margin contracted 220 basis points to 29.8% due to a fall in contribution from the Garden Products segment. Total adjusted operating income for the quarter was $7.4 million, significantly down from $19.9 million in the year-ago quarter, whereas operating margin dropped to 2.1% from 5.5% in the prior-year quarter.

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

Garden Products segment sales dipped 17% to $133 million due to a fall in unit sales, reflecting lower demand and lower prices on account of lower commodity costs. The segment reported an operating loss of $7.6 million compared with an operating income of $4.7 million posted in the previous-year quarter.

Pet Products segment sales grew 5% to $214 million due to an increase in sales of animal health products. Segment operating income, excluding one-time items, tumbled 10% to $24.9 million.

Central Garden & Pet ended the quarter with cash and cash equivalents of $91.5 million, total long-term debt of $400.3 million and shareholders' equity of $532.1 million, including a non-controlling interest of $1.4 million.

On July 15, 2010, the company's board authorized a new $100 million share repurchase program. During the quarter, the company bought back 2 million shares, aggregating approximately $19 million. Central Garden & Pet currently has $81 million at its disposal under its share repurchase authorization.

Currently, we have a Neutral rating on Central Garden & Pet. The Zacks #3 Rank, which translates into a short-term ‘Hold' recommendation, also correlates with our long-term view.