It has been about a month since the last earnings report for Central Garden (CENT Quick QuoteCENT - Free Report) . Shares have lost about 3.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Central Garden due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Central Garden & Pet Q3 Earnings Beat, Organic Sales Fall

Central Garden & Pet Company came up with third-quarter fiscal 2024 results, with revenues falling short of the Zacks Consensus Estimate, although earnings surpassed the same. However, both the top and bottom lines declined year over year.

Nonetheless, management has been actively strengthening its position in the pet and lawn and garden supplies space. The company focuses on brand building, containing costs, reducing complexity and improving margins. The company’s Cost and Simplicity program contributed to gross margin expansion during the quarter.

Let’s Delve Deeper

Central Garden & Pet reported adjusted quarterly earnings of $1.32 per share, which beat the Zacks Consensus Estimate of $1.25. However, the bottom line declined from the year-ago period’s earnings of $1.40 per share.

The company generated net sales of $996.3 million, which came below the Zacks Consensus Estimate of $1,008 million. The metric declined 2.6% from the year-ago period. Organic net sales decreased 3%.

The adjusted gross profit came in at $325.7 million compared with $326.1 million reported in the year-ago period. The adjusted gross margin expanded 80 basis points to 32.7%, driven by the Cost and Simplicity program, as well as moderating inflation.

Adjusted SG&A expenses of $198.6 million increased from $189.3 million in the prior-year quarter. As a percentage of net sales, it deleveraged 140 basis points to 19.9%. We had anticipated SG&A expenses to deleverage 100 basis points.

The adjusted operating income totaled $127.1 million, down from the $136.8 million reported in the year-ago period. The operating margin shrunk 60 basis points to 12.8%. Adjusted EBITDA came in at $156 million compared with $165.8 million in the prior-year period.

Segment Details

Net sales for the Pet segment came in at $508 million, reflecting a 0.9% increase compared to the previous year, driven by growth in Consumables businesses and the recent TDBBS acquisition. Organic net sales fell 2.2%, excluding the impact of the recent buyout of TDBBS.

The segment’s adjusted operating income came in at $83.1 million, up from $73.9 million reported in the prior-year quarter. Meanwhile, the adjusted operating margin expanded 170 basis points to 16.4%, driven by the improved gross margin.

In the Garden segment, net sales of $488.3 million declined 6.1% from the year-ago period. Organic net sales fell 3.7%, excluding the impact of the sale of the independent garden channel distribution business. Unfavorable weather adversely impacted sales across the garden categories, primarily live plants.

The segment’s adjusted operating income of $73.6 million declined from an adjusted operating income of $88.1 million reported in the prior year quarter. The adjusted operating margin shrunk 180 basis points to 15.1%, driven by lower sell-through in live plants.

Financial Details

Central Garden & Pet ended the quarter with cash and cash equivalents of $570.4 million, long-term debt of $1,189.4 million and shareholders’ equity of $1,593.6 million, excluding the non-controlling interest of $2.1 million.

Outlook

Central Garden & Pet continues to estimate fiscal 2024 adjusted earnings to be $2.00 per share or better ($2.50 or better before the February 2024 stock dividend) despite anticipating a one-time charge of $15-20 million in the fourth quarter. The projection indicates uncertain consumer demand, shifting retailer dynamics, and ongoing macroeconomic and geopolitical challenges. Additionally, management now expects capital expenditures for fiscal 2024 to be around $60 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -675% due to these changes.

VGM Scores

At this time, Central Garden has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Central Garden has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Central Garden belongs to the Zacks Consumer Products - Discretionary industry. Another stock from the same industry, Kellanova (K Quick QuoteK - Free Report) , has gained 7.9% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.

Kellanova reported revenues of $3.19 billion in the last reported quarter, representing a year-over-year change of -21%. EPS of $1.01 for the same period compares with $1.25 a year ago.

Kellanova is expected to post earnings of $0.85 per share for the current quarter, representing a year-over-year change of -17.5%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Kellanova. Also, the stock has a VGM Score of F.