Loss Widens at Central Garden - Analyst Blog

Central Garden & Pet Company (CENT) recently reported sluggish first-quarter 2012 results, battered by higher input costs, altered product mix and the seasonal nature of the lawn and garden category.

The company’s quarterly loss of 27 cents a share widened from a loss of 16 cents per share delivered in the prior-year quarter. The analyst covered by Zacks had expected the company to deliver a loss of 26 cents per share in the reported quarter.

However, total revenue for the quarter increased 7% to $302.1 million, reflecting sales growth in garden and pet products segment. Moreover, the company’s reported net sales surpassed the Zacks Consensus Revenue Estimate of $290 million.

During the reported quarter, gross profit shrinked 2.8% to $80.7 million, whereas gross margin contracted 280 basis points to 26.7%. The decline reflected a rise in raw material costs and sales of lower margin products. Total operating loss for the quarter was $11.3 million, indicating a significant widening of loss from the year-ago quarter.

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

Garden Products segment sales increased 8% year over year to $102.8 million. However, due to high raw material costs for bird feed and by product mix, the segment reported an operating loss of $11.1 million during the quarter. The reported operating result was even worst from the prior-year quarter, where it reported a loss of $8 million.

According to the company, the Garden Products segment’s branded product sales came in at $89.9 million, whereas sales of other manufacturers’ products came in at $12.9 million during the quarter.

Pet Products segment sales increased 7% to $199.3 million. However, the segment’s operating income decreased 14.9% to $9.7 million from $11.4 million, reflecting a continued rise in raw material costs and higher trade and consumer spending.

The segment’s branded product sales came in at $156.6 million, whereas sales of other manufacturers’ products were $42.7 million during the quarter.

Central Garden & Pet, which faces stiff competition from The Scotts Miracle-Gro Company (SMG), ended the quarter with cash and cash equivalents of $10.3 million, long-term debt of $460.3 million and shareholders’ equity of $424.5 million.

The company bought back 2.6 million shares for $20.9 million during the quarter under review, under its $100 million share repurchase program approved in June 2011.

Currently, we maintain a long-term ‘Neutral’ recommendation on the stock. Moreover, Central Garden & Pet has a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.

CENTRAL GARDEN (CENT): Free Stock Analysis Report

SCOTTS MIRCL-GR (SMG): Free Stock Analysis Report

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