Central Garden & Pet Misses - Analyst Blog

Central Garden & Pet Company’s (CENT) third-quarter 2010 results fell short of the Zacks’ expectations. The quarterly earnings of 40 cents a share missed the Zacks Consensus Estimate of 44 cents and dropped 9.1% from the prior-year quarter.
 
The quarterly earnings underperformed the Zacks Consensus Estimate by 9.1%. With respect to earnings surprises, the stock has fluctuated in the last four quarters (including the reported quarter) in the range of approximately negative 9.1% to positive 20%, with 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 notified that gross profit fell 1.4% to $162.8 million. However, gross margin expanded 80 basis points to 35%. The higher margin was mainly the result of lower cost of goods sold and occupancy (down 4.5%), irrespective of a 3.5% drop in total revenue to $465.5 million. Total revenue also missed the Zacks Consensus Revenue Estimate of $474 million.
 
The company said that total branded product sales tumbled 6% to $382 million, whereas sales of other manufacturers’ products soared 10% to $83 million. Total operating income rose 2.1% to $52.6 million, whereas the operating margin increased 60 basis points to 11.3%.
 
The company has long been trying to improve its gross and operating margins. To achieve its goal Central Garden & Pet has tried every means to improve sales, consolidate manufacturing facilities and logistics centers, made prudent capital investments and improved 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 supplies markets in the U.S.
 
Garden Products segment sales dipped 9.1% to $242.8 million due to a fall in unit sales, reflecting lower demand, and lower prices on account of lower commodity costs. Operating income for the segment slipped 14.6% to $30.1 million. Pet Products segment sales grew 3.6% to $222.7 million due to an increase in sales of animal health products. Segment operating income jumped 9.4% to $32.6 million.
 
Central Garden & Pet ended the quarter with cash and cash equivalents of $91.6 million, total long-term debt of $400.3 million and shareholders’ equity of $558 million. Management expects capital expenditures under $30 million for fiscal 2010.
 
During the first-nine months, the company bought back 2 million voting shares at $9.98 each, aggregating approximately $19.6 million, and 2.8 million non-voting shares at $9.52 each, aggregating approximately $27 million. In 2005, Central Garden & Pet’s board authorized the repurchase of up to $100 million worth of shares, of which approximately $99.7 million has been bought back. Recently, on July 15, 2010, the company’s board authorized a new $100 million share repurchase program.
 

 
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