Central Garden & Pet Beats on Q3 Earnings, Raises FY26 EPS Outlook

Net sales of $882.4 million beat the Zacks Consensus Estimate of $877 million by 0.66%. Reported sales declined 8.2% year over year, primarily reflecting the exit of the pet distribution business. Organic net sales, excluding the impact of acquisitions and divestitures, increased 2% from the prior-year quarter to $862 million, supported by growth in both operating segments.

CENT’s Margins Expand Despite Lower Sales

Gross profit decreased 4.5% year over year to $316.9 million. However, the gross margin expanded 130 basis points (bps) to 35.9% from 34.6%, benefiting from a favorable business mix, primarily due to the exit of the lower-margin pet distribution business.

On an adjusted basis, gross profit was $318.1 million compared with $332.3 million a year ago. Adjusted gross margin expanded 140 bps to 36% from 34.6%.

SG&A expenses declined 3% to $191.1 million from $196.9 million in the prior-year quarter. Adjusted SG&A expenses fell 5.7% year over year to $182.1 million. However, adjusted SG&A as a percentage of sales increased to 20.6% from 20.1%, primarily because the exited pet distribution business had a lower SG&A rate than the remaining portfolio.

Operating income dropped 6.9% year over year to $125.8 million. The operating margin improved 20 bps to 14.3%.

Adjusted operating income declined 2.2% to $136 million from $139 million in the year-ago quarter. Nevertheless, the adjusted operating margin expanded 90 bps to 15.4%, reflecting continued productivity improvements and favorable business mix, partially offset by higher corporate spending related to the TRIXIE acquisition and investments in data capabilities.

Adjusted EBITDA totaled $161.9 million compared with $166.6 million in the prior-year quarter. The adjusted EBITDA margin improved 100 bps to 18.3%.

CENT’s Segmental Performance

Net sales in the Pet segment declined 18.7% year over year to $400.5 million, reflecting the exit of the pet distribution business. Organic Pet sales increased 1.7% to $380.3 million, driven by broad-based gains across most categories, partly offset by lower dog and cat sales due to promotional timing. Online sales rose 10%, aided by a record Prime Day, while the Professional business delivered another record quarter. The company continued to hold overall market share in Pet, with share gains across several categories, including Professional, Dog Treats, Rawhide and Flea & Tick.

Pet segment operating income plunged to $66.8 million from $76.2 million in the prior-year quarter. The operating margin expanded to 16.7% from 15.5%.

On an adjusted basis, Pet operating income totaled $76.2 million versus $77.9 million a year ago. The adjusted operating margin rose significantly to 19% from 15.8%, benefiting from improved product mix and productivity initiatives despite higher freight and material costs. Adjusted EBITDA was $85.6 million compared with $88.3 million in the prior-year period.

The Garden segment generated net sales of $481.9 million, up 3% year over year, driven by strength in Wild Bird, Fertilizer, Controls and Grass Seed categories. The segment also maintained strong e-commerce momentum, with third-quarter online sales increasing more than 40% year over year, reflecting robust growth across both pure-play and omnichannel retail partners. 

Garden operating income increased 8.5% to $90.1 million from $83 million a year ago, while the operating margin expanded 100 bps to 18.7%.

Adjusted Garden operating income jumped to $90.8 million from $85.2 million in the year-ago quarter. The adjusted operating margin improved to 18.9% from 18.2%, supported by favorable product mix and productivity gains that more than offset higher freight and digital marketing costs. Adjusted EBITDA rose to $100.8 million from $95.6 million.

CENT Strengthens Balance Sheet

Central Garden & Pet ended the quarter with cash and cash equivalents of $996.7 million compared with $713 million in the year-ago period. Total debt remained stable at approximately $1.2 billion.

Cash provided by operating activities increased to $327 million from $265 million in the prior-year quarter, reflecting favorable seasonal working-capital movements. Capital expenditures totaled $13 million during the quarter.

Gross leverage improved to 2.8X from 2.9X a year ago, while net leverage was 0.5X. The company repurchased about 26,000 shares during the quarter and had $128 million remaining under its current share repurchase authorization.

CENT: Strategic Updates

During the quarter, Central Garden & Pet continued to execute its Project Horizon logistics initiative, which is now approximately 95% complete. The project has consolidated Garden logistics into a unified national network by closing 13 facilities and opening two new locations, improving productivity, service levels and customer responsiveness.

Subsequent to quarter-end, the company announced an agreement to acquire an 80% stake in TRIXIE, Europe's leading pet supplies and pet snacks company, for up to €400 million, including earn-out payments. The acquisition is expected to close in the first half of fiscal 2027 and is expected to expand Central's international presence, with approximately 10% of combined sales generated outside the United States, while creating a leading global pet supplies platform.

Management also highlighted continued momentum from recent product innovation, including Nylabone dog chews made with real meat, Farnam's Endure Gold Fly Killer & Mosquito Control Spray, the Rebel Sun & Shade grass seed extension and new private-label programs.

CENT Raises FY2026 Outlook

Reflecting strong year-to-date execution and improved visibility into the remainder of the fiscal year, Central Garden & Pet raised its fiscal 2026 adjusted earnings guidance to $2.85 per share or better from the prior expectation of $2.70 per share or better. The improved outlook is driven by sustained margin discipline, continued investment in growth endeavors and ongoing portfolio optimization.

The outlook continues to assume a competitive promotional environment, value-conscious consumer spending, existing tariffs and inflation in select commodities. Capital expenditures are still expected to be approximately $50 million, focused on maintenance, productivity initiatives and targeted growth investments.

Shares of Central Garden & Pet have advanced 14.4% over the past three months compared with the industry’s rise of 14.1%. CENT currently carries a Zacks Rank #4 (Sell). 

Stocks to Consider

Darling Ingredients Inc. DAR develops, produces and sells sustainable natural ingredients from edible and inedible bio-nutrients. At present, Darling Ingredients sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus estimate for Darling Ingredients’ current fiscal-year sales and earnings implies growth of 12.8% and 926.5%, respectively, from the year-ago figures. DAR delivered a trailing four-quarter earnings surprise of 38.9%, on average.

The Chefs' Warehouse, Inc. CHEF, a premier distributor of specialty food products, currently carries a Zacks Rank #2 (Buy). CHEF delivered a trailing four-quarter earnings surprise of 30.4%, on average. 

The Zacks Consensus Estimate for CHEF’s current fiscal-year sales and earnings calls for growth of 10.8% and 24.7%, respectively, from the year-ago figures. 

The J. M. Smucker Company SJM, which manufactures and markets branded food and beverage products, carries a Zacks Rank #2 at present. SJM delivered a trailing four-quarter earnings surprise of 1.5%, on average.

The Zacks Consensus Estimate for J. M. Smucker’s current fiscal-year earnings indicates growth of 10% from the year-ago figures.

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