Zacks_Analysts' Blog : Central Garden Ups Value - Analyst Blog

Central Garden & Pet Company (CENT), the leading producer of garden and pet supplies products in the U.S., recently announced a new $100.0 million share buyback program.

Share buybacks reflects the company’s sound financial position and well-defined future prospects. The signs of recovery in the economy have made share buybacks and dividend increases a common factor among companies sitting on extra cash. These strategies enhance shareholders’ return and boost the market value of the stock.

The newly announced program would take place through open market or private transactions.

Central Garden’s diversified portfolio of brands has helped it to develop a healthy commercial relationship with giant retailers, such as Wal-Mart Stores Inc. (WMT) and The Home Depot Inc. (HD). This provides a significant upside potential to the company.

The company recently posted better-than-expected second-quarter 2011 results. The quarterly earnings of $0.54 per share beat the Zacks Consensus Estimate of $0.49 and rose 10.2% from the prior-year quarter. Total net sales climbed 10%, surpassing the Zacks Consensus Revenue Estimate of $457.0 million.

The company’s effective inventory management is helping it to optimize merchandise levels in accordance with the sales trends. Further, Central Garden & Pet is implementing an enterprise-wide information technology platform, which is expected to improve working capital management.

The company has been focusing on improving its gross and operating margins. To achieve its goal, Central Garden & Pet has tried every means to improve its sales, consolidate manufacturing facilities and logistics centers. Further, the company made prudent capital investments while focusing on improving manufacturing efficiencies.

However, the discretionary spending environment continues to remain sluggish amid high unemployment levels and tight credit markets. This is especially a matter of concern for the company as a significant portion of its product portfolio consists of premium offerings.

Currently, wemaintain a long-term ‘Outperform’ recommendation on the stock. Moreover, Central Garden & Pet holds a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ rating.