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Central Garden & Pet Company (NASDAQ:CENT) presented its third-quarter fiscal 2025 results on August 6, highlighting record earnings per share performance despite a revenue decline. The company’s shares rose 0.96% in after-hours trading following the presentation, reaching $40.00 after closing the regular session at $39.62.
Quarterly Performance Highlights
Central Garden & Pet reported net sales of $961 million for Q3 FY2025, representing a 4% decrease from $996 million in the same period last year. Despite the revenue decline, the company achieved significant profitability improvements, with GAAP earnings per share reaching $1.52, a 28% increase from $1.19 in Q3 FY24.
"We delivered solid third quarter performance with record Q3 and year-to-date GAAP and non-GAAP EPS," said CEO Niko Lahanas during the presentation. "Our focus on operational efficiency has driven significant margin expansion across the business."
The company’s gross margin expanded to 34.6%, an increase of 280 basis points on a GAAP basis and 190 basis points on a non-GAAP basis compared to the prior year. Operating income grew to $135 million on a GAAP basis (up 17%) and $139 million on a non-GAAP basis (up 9%).
As shown in the following chart of quarterly financial performance:
The company’s non-GAAP metrics similarly reflected strong profitability improvements despite sales challenges:
Segment Performance Analysis
The Pet segment generated $493 million in net sales during the quarter, with a non-GAAP operating margin of 15.8%, down 60 basis points year-over-year due to lower volume. Adjusted EBITDA for the segment was $88 million.
The segment faced several headwinds, including the exit of lower-margin durable products and customers, softer demand, heightened pricing pressure, and the onset of new tariffs. However, the company noted several positive developments, including growth in professional and distribution business, maintained overall market share with gains in Dog Chews, Flea & Tick, and Pet Bird categories, and continued e-commerce strength, which represented 27% of Pet sales.
The Pet segment’s performance is illustrated in the following slide:
The Garden segment delivered $468 million in net sales, with a non-GAAP operating margin of 18.2%, up an impressive 310 basis points driven by productivity efforts. Adjusted EBITDA for the segment was $96 million.
The Garden segment benefited from continued momentum in Wild Bird, Fertilizer, and Packet Seeds categories, with market share gains in Wild Bird, Grass Seed, Packet Seeds, and Fertilizer. The company highlighted "outstanding online performance" in Wild Bird and Grass Seed categories. Headwinds included the loss of two product lines in the third-party garden distribution business and extended periods of cool and rainy weather impacting seasonal categories.
The Garden segment’s performance details are shown here:
Strategic Initiatives & Operational Improvements
Central Garden & Pet highlighted significant progress on its cost and simplicity journey across three key areas:
1. Logistics: Consolidated two outdated distribution centers into a new direct-to-consumer-enabled facility in Salt Lake City
2. Footprint: Completed the sale of UK operations’ aquatic brands and transitioned US operations to a direct-export model
3. Operations: Streamlined assortment, exited unprofitable markets, and restructured the Live Plants business
CFO Brad Smith emphasized that these initiatives have contributed to the company’s margin expansion and improved operational efficiency. The company’s "Central To Home" strategy focuses on five key priorities: Consumer (building brands consumers love), Customer (winning with winning customers and channels), Central (fortifying the portfolio), Cost (reducing costs to improve margins and fuel growth), and Culture (strengthening the entrepreneurial growth culture).
Cash Position & Balance Sheet Strength
The company reported significant improvements in its cash position and balance sheet metrics. Cash and cash equivalents reached $713 million, an increase of $143 million from $570 million in Q3 FY24. Operating cash flow was $265 million, down $21 million from the prior year. The company repurchased $55 million in shares during the quarter, compared to no share repurchases in Q3 FY24.
The improved cash position is illustrated in the following chart:
Central Garden & Pet maintained a strong balance sheet with long-term debt of $1,191 million and a gross leverage ratio of 2.9x, improved from 3.0x in the prior year. The company had no borrowings on its $750 million ABL credit facility. Management indicated that this strong financial position enables the company to pursue strategic M&A opportunities.
As shown in the balance sheet metrics slide:
Forward-Looking Statements & Guidance
Central Garden & Pet reaffirmed its fiscal 2025 non-GAAP EPS guidance of approximately $2.60. This represents an increase from the $2.20 or higher guidance provided after Q2 results, reflecting the company’s continued operational improvements and cost management success.
The company highlighted several risk and market considerations that could impact future performance, including tariffs, macroeconomic uncertainty, inflationary headwinds, consumer confidence, focus on value, promotional retail environment, and pressure in the pet specialty brick-and-mortar space.
For fiscal 2025, the company outlined three key priorities to execute its "Central to Home" strategy: focus on cost and cash management; targeted investments in eCommerce, digital technology, and innovation to drive organic growth; and M&A to advance growth priorities and capabilities.
"We’re well-positioned to navigate the current market environment while continuing to invest in our long-term growth initiatives," Lahanas concluded. "Our operational improvements and strong balance sheet provide us with the flexibility to pursue both organic and acquisition-driven growth opportunities."
Full presentation:
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