Central Garden & Pet Q3 Earnings Beat Estimates, Sales Fall Y/Y

Central Garden & Pet Company CENT delivered its third-quarter fiscal 2025 results, wherein the top line missed the Zacks Consensus Estimate and declined year over year. Meanwhile, earnings surpassed the Zacks Consensus Estimate and improved from the same period last year. The company’s continued focus on operational efficiency through its Cost and Simplicity program helped drive margin expansion and earnings growth. Management reiterated its full-year earnings outlook.

CENT’s third-quarter results highlight effective execution in a complex retail environment and reflect the company's ability to manage costs, improve productivity and sustain profitability even in the face of soft demand and macroeconomic uncertainty. Central Garden & Pet began winding down its operations in the U.K. in the second quarter and is transitioning to a direct-export model. It also began the consolidation of two garden distribution facilities into a modern facility in Salt Lake City.

CENT’s Q3 Performance: Key Metrics & Insights

Central Garden & Pet posted adjusted earnings of $1.56 per share, which surpassed the Zacks Consensus Estimate of $1.34. Also, the figure increased from $1.32 reported in the prior-year period.

Net sales of $960.9 million fell 4% from the prior year and missed the consensus estimate of $987 million. The top-line decline was mainly due to assortment rationalization, softer demand in certain categories and the exit of lower-margin product lines.

Despite this, the gross profit rose 5% to $332 million, with the gross margin expanding 280 basis points to 34.6%, primarily driven by productivity improvements from Central's Cost and Simplicity program. On an adjusted basis, the gross margin also widened 190 basis points year over year to 34.6%.

Adjusted SG&A expenses fell 2.7% to $193.2 million, demonstrating ongoing cost discipline. As a percentage of net sales, adjusted SG&A rose 20 basis points to 20.1%.

The adjusted operating income was $139 million, up 9% from the year-ago period. The adjusted operating margin expanded 170 bps to 14.5%. Adjusted EBITDA rose to $166.6 million, up from $156 million a year ago.

Central Garden & Pet Company Price, Consensus and EPS Surprise

Central Garden & Pet Company price-consensus-eps-surprise-chart | Central Garden & Pet Company Quote

CENT’s Segment-Wise Performance Snapshot

Net sales for the Pet segment came in at $493 million, down 3% year over year and fell short of our estimate of $500.6 million. The year-over-year decline in sales was due to the exit of lower margin durable products, sluggish demand, heightened pricing pressure and the onset of new tariffs. However, Pet achieved market share gains in dog chews, flea & tick and pet bird categories, with e-commerce contributing 27% to segment sales. The Professional and Distribution business also showed growth. 

The segment’s adjusted operating income dipped 6% to $77.9 million, while the adjusted operating margin contracted 60 basis points to 15.8%. The segment’s adjusted EBITDA totaled $88.3 million, down $6 million from the prior year.

Garden segment net sales were $468 million, a decline of 4%, largely due to the exit of two product lines in the third-party distribution business and adverse weather impacting seasonally sensitive categories. Growth continued in Wild Bird, Grass Seed, Packet Seeds and Fertilizer, supported by strong eCommerce performance in these categories. We had projected net sales of $476.2 million for the segment.

The segment’s adjusted operating income improved 16% to $85.2 million, reflecting strong productivity execution. The adjusted operating margin jumped 310 basis points to 18.2%. Adjusted EBITDA for the segment was $95.6 million, up $11 million from the prior year.

CENT’s Financial Health Snapshot

Central Garden & Pet ended the quarter with cash and cash equivalents of $713 million, long-term debt of $1,191.2 million and shareholders’ equity of $1,588.2 million, excluding the non-controlling interest of $2.3 million. The company’s gross leverage ratio improved to 2.9, versus 3.0 in the prior-year period.

During the quarter, the company repurchased 1.7 million shares worth $55 million. As of quarter-end, $46 million remained under the share repurchase authorization.

Sneak Peek Into CENT’s Outlook

Central Garden & Pet continues to estimate fiscal 2025 adjusted earnings to be $2.60 per share. This forecast considers factors such as shifting consumer behavior amid ongoing macroeconomic and geopolitical uncertainty, challenges in the traditional retail market and unpredictability in weather patterns. The outlook excludes any potential effects from further changes in tariff rates, acquisitions, divestitures or restructuring activities, including initiatives related to the Cost and Simplicity program.

Shares of this Zacks Rank #1 (Strong Buy) company have risen 13.9% in the past three months compared to the industry’s decline of 1.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks to Consider

Sprouts Farmers, Inc. SFM, which is engaged in the retailing of fresh, natural and organic food products, currently carries a Zacks Rank #2 (Buy). 

SFM has a trailing four-quarter earnings surprise of 13.4%, on average. The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year sales and earnings implies growth of around 15.7% and 38.7%, respectively, from the year-ago reported numbers.

The Chefs' Warehouse, Inc. CHEF, a premier distributor of specialty food products in the United States, currently carries a Zacks Rank #2. CHEF has a trailing four-quarter earnings surprise of 11.3%, on average. 

The Zacks Consensus Estimate for CHEF’s current financial-year sales and earnings suggests growth of 6.4% and 19.1%, respectively, from the year-ago reported numbers.

Ingredion Incorporated INGR, a leading global provider of ingredient solutions to the food and beverage manufacturing industry, carries a Zacks Rank of 2. INGR has a trailing four-quarter earnings surprise of 11.1%, on average. 

The Zacks Consensus Estimate for Ingredion’s current financial-year earnings indicates growth of 6.7% from the year-ago reported numbers.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research