Bullish on Central Garden & Pet - Analyst Blog
13 August 2012 - 11:45PM
Zacks
Buoyed by impressive third-quarter
2012 results and strategies undertaken to reposition itself in an
economy that is witnessing an uneven recovery, we have adopted a
bullish stance on Central Garden & Pet Company
(CENT). We upgrade our recommendation to Outperform from Neutral
with a target price of $11.00.
Central Garden & Pet Company is
a leading producer and marketer of premium and value-oriented
products focused on the lawn and garden as well as pet supplies
markets in the U.S.
Fabulous
Quarter
The company’s diversified portfolio
of brands has helped Central Garden & Pet establish a healthy
commercial relationship with giant retailers such as
Wal-Mart Stores Inc. (WMT), The Home Depot
Inc. (HD) and Lowe’s Companies Inc.
(LOW). This provides a significant upside potential for the
company, evident from the company’s third-quarter 2012 results.
Central Garden & Pet Company’s
quarterly earnings of 47 cents a share came in line with the Zacks
Consensus Estimate, and surged 51.6% from 31 cents earned in the
prior-year quarter on the back of increased marketing efforts,
brand-building initiatives, and product innovation that helped
drive consumer demand.
The company’s top line registered an
increase of 10% to $533.8 million, reflecting sales increase across
Garden and Pet segments. Moreover, the reported net sales surpassed
the Zacks Consensus Estimate of $506 million. Pet segment sales
jumped 19% year over year to $271.3 million, whereas Garden segment
sales climbed 2% to $262.5 million.
Strategies to Step
Up
For 2012, the company’s primary
focus is on streamlining its cost structure and increasing
operating efficiencies in order to improve its margins and
concentrate on revenue growth through promotions. The company’s
long-term target is to attain growth of at least 10% in the top
line, and achieve operating margins in the range of 10% to 15%. The
company also targets a $30 million yearly savings in cost as it
exits 2012.
The company intends to transform
into an integrated, multi-brand company from a portfolio of
stand-alone businesses, by restructuring and reorganizing operating
units and consolidating manufacturing facilities and logistics
centers.
Central Garden & Pet has lowered
the count of sales and logistics warehouses to 27 in fiscal 2011
from 34 in fiscal 2008. The company has closed 1
manufacturing facility and 5 warehouses, and hinted at closing 2
more facilities in the fourth quarter.
The company also intends to manage
its inventory level efficiently in order to systematically manage
working capital. Another significant area of savings is the SKU
rationalization, and the company aims to lower its total SKU count
by at least 30% to 35% by the end of 2014. Since, the beginning of
the year, the company has lowered its SKU count by 13%.
Closing
Comment
The above analysis supports our
unbiased view, and advocates our bullish stance on the Central
Garden & Pet, which is well defined through our Zacks #2 Rank
that translates into a short-term “Buy” rating.
CENTRAL GARDEN (CENT): Free Stock Analysis Report
HOME DEPOT (HD): Free Stock Analysis Report
LOWES COS (LOW): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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