(CENT) Central Garden & Pet Company Reports Weak Third Quarter

Central Garden & Pet Company (CENT) reported depressive third-quarter 2011 results driven by Incremental input costs, adverse weather conditions, altered product mix along with the company’s sustained investments in brand building and marketing.

The company’s quarterly earnings of 31 cents a share came well below the Zacks Consensus Estimate of 47 cents and dropped 22.5% from the prior-year quarter’s earnings of 40 cents a share.

As per Central Garden & Pet, total revenue for the quarter inched up 4% to $484.3 million, reflecting sales growth in garden products segment. The company’s total branded product sales climbed 7% to $407.7 million, whereas sales of other manufacturers’ products went down 7.7% to $76.6 million.

However, the reported net sales missed the Zacks Consensus Revenue Estimate of $489 million.

During the reported quarter, gross profit plummeted 8.2% to $149.4 million, whereas gross margin contracted 412 basis points to 30.8%. The decline in margin reflected a 10.6% rise in input costs. Total operating income for the quarter was $36.6 million, down 30.4% from $52.6 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 6% to $257 million. The segment reported an operating income of $18 million, which plunged 40.2% from $30.1 million posted in the previous-year quarter.

Pet Products segment sales crept up 2% to $227.3 million. However, the segment’s operating income declined 16.6% to $27.2 million, reflecting 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, long-term debt of $450.3 million and shareholders’ equity of $492.5 million, excluding a non-controlling interest of $0.6 million.

On June 16, 2011, the company’s board authorized a new $100 million share repurchase program. During the quarter under review, the company bought back $30.1 million of its shares.

Further, On June 9, 2011, the company expanded its five-year senior secured revolving credit facility by $100 million to $375 and extended the maturity by approximately one year to June 2016. The modified facility bears lower interest rates and commitment fees.

Currently, we maintain a long-term ‘Outperform’ 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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