Central Garden & Pet Company (NASDAQ: CENT), a leading provider of pet and garden products, has reported its fiscal 2024 second quarter results, showcasing solid financial performance and continued progress on its strategic initiatives.
Business Overview
In fiscal 2023, Central Garden & Pet generated net sales of $3.31 billion and net income of $125.6 million, with operating cash flow of $381.6 million and free cash flow of $327.7 million. The company's diverse portfolio of trusted brands, including Pennington, Kaytee, and Nylabone, has allowed it to navigate the evolving consumer landscape and capitalize on the growing demand for pet and garden products.
Financials
For the second quarter of fiscal 2024, the company reported net sales of $900.1 million, a slight decrease of 1.0% compared to the prior-year period. Organic net sales, which exclude the impact of acquisitions and divestitures, declined 0.7%. The Pet segment saw a 1.1% increase in net sales to $480.2 million, while the Garden segment experienced a 3.0% decline to $419.9 million.
Despite the modest top-line performance, Central Garden & Pet delivered strong profitability in the quarter. Gross profit increased 7.4% to $278.9 million, with gross margin expanding by 240 basis points to 31.0%. This margin expansion was driven by the company's ongoing cost and simplicity initiatives, which include the exit from low-margin private label pet product lines and the sale of its independent garden channel distribution business.
Operating income increased 19.7% to $93.4 million, with operating margin expanding from 8.6% to 10.4%. The Pet segment's operating income grew 13.4% to $62.7 million, while the Garden segment's operating income increased 15.1% to $57.1 million. The company's focus on cost management and operational efficiency has been a key driver of this improved profitability.
On the bottom line, Central Garden & Pet reported GAAP earnings per share of $0.93, up from $0.72 in the prior-year quarter. On a non-GAAP basis, which excludes the impact of facility closures and consolidation, earnings per share were $0.99, a significant improvement from the $0.72 reported in the second quarter of fiscal 2023.
CEO Commentary
"We delivered a solid quarter, with GAAP earnings per share of $0.93 and non-GAAP earnings per share of $0.99, well ahead of the prior year," said Beth Springer, Interim Chief Executive Officer. "Our focus on cost management helped rebuild our margins, and we grew e-commerce sales and expanded market share across most of our pet and garden categories."
Recent Developments
The company's progress on its Cost and Simplicity program has been a key highlight, enabling it to invest in the business and offset sustained cost increases. Central Garden & Pet recently announced the closure of a manufacturing facility in Chico, California, and the consolidation of four distribution locations in the Southeast into a single modern facility. These initiatives are expected to drive significant savings and efficiencies, further strengthening the company's competitive position.
Outlook
Looking ahead, Central Garden & Pet's outlook for fiscal 2024 remains unchanged, with the company expecting non-GAAP earnings per share of $2.00 or better, post the February 2024 stock dividend. The company anticipates moderating inflation, softer consumption in certain categories, and lower foot traffic in key retailers, as well as an environment of macroeconomic and geopolitical volatility.
"While we announced solid Q2 results today, keep in mind that a large part of the garden season is still in front of us," Springer added. "For the balance of the fiscal year, we expect softer consumption in durable pet product categories, lower foot traffic in key retailers, and retailer pressure for price concessions to persist."
Liquidity
Central Garden & Pet's strong balance sheet and available credit facility provide the company with the financial flexibility to pursue strategic acquisitions and continue investing in its business. The company remains focused on executing its long-term strategy, leveraging its portfolio of trusted brands and innovative products to drive sustainable growth in the pet and garden industries.
Conclusion
Overall, Central Garden & Pet's solid second-quarter performance, coupled with its ongoing cost savings initiatives and strategic investments, position the company well to navigate the current market environment and capitalize on the positive long-term trends in the pet and garden sectors.