Zacks_Analysts' Blog : Sluggish 4Q for Central Garden - Analyst Blog

Central Garden & Pet Company (CENT) recently reported sluggish fourth-quarter 2011 results, battered by higher input costs, altered product mix along with the company’s sustained investments in brand building and marketing.

The company’s quarterly loss of 21 cents a share widened from a loss of 2 cents per share delivered in the prior-year quarter. The analyst covered by Zacks expected the company to deliver a loss 6 cents per share in the reported quarter.

However, total revenue for the quarter increased 8.6% to $376.9 million, reflecting sales growth in garden products segment. Moreover, the reported net sales surpassed the Zacks Consensus Revenue Estimate of $360 million.

During the reported quarter, gross profit shrinked 5.1% to $98.2 million, whereas gross margin contracted 370 basis points to 26.1%. The decline reflected a 14.4% rise in cost of goods sold. Total operating loss for the quarter was $4.6 million, indicating a significant decline from an operating income of $7.4 million in the year-ago quarter. The decline resulted from increased commodity prices and lower sales of high margin products.

CentralGarden& 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 24% to $165.1 million. However, due to increased input costs, the segment reported an operating loss of $6.9 million during the quarter. The reported operating result marks an improvement from the prior-year quarter, reporting a loss of $7.4 million.

According to the company, the Garden Products segment’s branded product sales registered a growth of 27% to $148.5 million, whereas sales of other manufacturers’ products remained flat at $16.6 million during the quarter.

Pet Products segment sales inched down 1% to $211.8 million. Moreover, the segment’s operating income plunged 37.3% to $15.6 million from $24.9 million, reflecting a continued rise in raw material costs.

CentralGarden& Pet, which faces stiff competition from The Scotts Miracle-Gro Company (SMG), ended the quarter with cash and cash equivalents of $12 million, long-term debt of $435.3 million and shareholders’ equity of $456.8 million, excluding non-controlling interest of $0.6 million.

The company bought back 3.2 million shares for $24.6 million during the quarter under review within 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 holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.