Central Garden & Pet Company (CENT Quick QuoteCENT - Free Report) came up with third-quarter fiscal 2023 results, wherein the top line missed the Zacks Consensus Estimate, while the bottom line beat the same. Markedly, both net sales and earnings increased year over year.

Management has been taking steps to strengthen its position in the pet supplies and lawn and garden supplies space. Central Garden & Pet Company is focusing on brand building, containing costs, lowering complexity and improving margins. The sale of the independent garden center distribution business is the best example of the same. The company has been expanding its manufacturing capacity and simplifying the portfolio.

Shares of the company rallied 11.9% during the after-market trading session on Aug 2. This Zacks Rank #2 (Buy) stock has risen 3.9% in the past three months against the industry’s decline of 38.4%.

Let’s Delve Deeper

Central Garden & Pet reported adjusted quarterly earnings of $1.75 per share, which came ahead of the Zacks Consensus Estimate of $1.45. The bottom line improved sharply from earnings of $1.39 per share reported in the year-ago period. On a GAAP basis, the company posted quarterly earnings of $1.56 per share.

The company generated net sales of $1,023 million, which fell short of the Zacks Consensus Estimate of $1,026 million. However, the metric improved 1% from the year-ago period.

The adjusted gross profit increased 6% to $326.1 million. Also, the adjusted gross margin expanded 160 basis points to 31.9%. We had expected a 60-basis point increase in the gross margin. The increase was driven by improved pricing, cost management and a favorable product mix.

Adjusted SG&A expenses of $189.3 million declined from $193.5 million in the prior-year quarter. As a percentage of net sales, it decreased 60 basis points to 18.5%.

The adjusted operating income totaled $136.8 million, up from the $114.1 million reported in the year-ago period. The operating margin expanded 220 basis points to 13.4%, driven by pricing actions, productivity efforts and lower commercial spend. Adjusted EBITDA increased 17.3% to $166 million from $141 million in the prior year.

Segment Details

Net sales in the Pet segment came in at $503 million, marginally down from $504.8 million reported in the year-ago period. We had expected segment net sales of $510 million. Strength in Dog & Cat Treats & Toys as well as Bird was offset by soft sales in Outdoor Cushions and the muted demand for durable pet products.

The segment’s adjusted operating income came in at $74 million, up 18% from the prior-year quarter. Meanwhile, the adjusted operating margin expanded 230 basis points to 14.7%, driven by improved pricing and cost management.

In the Garden segment, net sales increased 2% year over year to $520 million. We had expected segment net sales to be $516.9 million. Strength in Live Goods, Packet Seed and Wild Bird helped offset soft sales in Distribution and Grass Seed.

The segment’s operating income came in at $88 million, up from the $76 million reported in the prior-year quarter, while the operating margin expanded 210 basis points to 16.9% due to improved pricing, a favorable product mix and cost management.

Financial Details

Central Garden & Pet ended the quarter with cash and cash equivalents of $333.1 million, long-term debt of $1,187.5 million and shareholders’ equity of $1,445,530 million, excluding the non-controlling interest of $1.6 million. The company repurchased about 466,011 shares worth $16.7 million in the quarter under review. Management incurred capital expenditures of $11 million during the quarter under discussion, which was 54% below last year.

Outlook

Central Garden & Pet now estimates fiscal 2023 adjusted earnings to be $2.55 per share or better compared with the earlier forecast of $2.35 or better. The projection indicates macroeconomic uncertainty, inflationary pressure, changing customer behavior and unfavorable retailer inventory dynamics. It also suggests pricing actions and productivity initiatives across the board.

Meanwhile, management anticipates capital spending to be substantially lower than fiscal 2022. The company is anticipating capital expenditures in the band of $60 million-$70 million for fiscal 2023.

3 More Stocks Looking Red Hot

Here we have highlighted three more top-ranked stocks, namely Grocery Outlet (GO Quick QuoteGO - Free Report) , Ross Stores (ROST Quick QuoteROST - Free Report) and Walmart (WMT Quick QuoteWMT - Free Report) .

Grocery Outlet, an extreme value retailer of quality, name-brand consumables and fresh products, currently has a Zacks Rank #2. The expected EPS growth rate for three to five years is 11.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Grocery Outlet’s current financial-year sales suggests growth of 9.6% from the year-ago period. GO has a trailing four-quarter earnings surprise of 13.7%, on average.

Ross Stores, which operates off-price retail apparel and home fashion stores, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 10.5%.

The Zacks Consensus Estimate for Ross Stores’ current financial-year sales and earnings suggests growth of 4.6% and 12.6%, respectively, from the year-ago reported numbers.

Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 5.5%.

The Zacks Consensus Estimate for Walmart’s current financial-year sales suggests growth of 4.2% from the year-ago period. WMT has a trailing four-quarter earnings surprise of 12%, on average.