Central Garden & Pet at Canaccord Genuity: Strategic Growth Focus

On Tuesday, 12 August 2025, Central Garden & Pet Company (NASDAQ:CENT) presented at Canaccord Genuity’s 45th Annual Growth Conference, highlighting its strategic focus on innovation and growth despite market challenges. The company reported record earnings, driven by strong performance in both its pet and garden segments, but acknowledged pressures from declining pet durable sales and weather impacts. Central Garden & Pet is prioritizing sales growth and innovation to navigate these challenges.

Key Takeaways

• Central Garden & Pet achieved record earnings across pet, garden, and total company levels.
• The company is focusing on mid-single-digit sales growth and double EBITDA growth.
• E-commerce in the pet segment is expected to rise from 27% to 40%-50% of sales in the long term.
• M&A activity is anticipated to increase in 2026, with a focus on high-growth, high-margin consumables.
• The company has over $700 million in cash, prioritizing share buybacks amidst limited M&A opportunities.

Financial Results

• Record earnings were reported at both the pet and garden levels.
• The company started Q4 strongly, with run-rate EBITDA at record highs.
• The long-term growth algorithm includes mid-single-digit top-line growth with an EBITDA growth rate roughly double that.

Operational Updates

• Pet durables are declining in double digits, but cat ownership remains resilient.
• Central Garden & Pet leads in wild bird and packaged seeds, with grass seed and fertilizer sales up 30% in Q3.
• The company differentiates itself with quality and pricing, particularly in Pennington’s branded products, which are 5% to 8% cheaper.

Future Outlook

• Sales growth is the top priority for the next year, focusing on innovation, M&A, and product mix improvement.
• The company expects more M&A activity in 2026, targeting high-margin consumables.
• E-commerce penetration in the pet segment is projected to grow significantly.

Q&A Highlights

• The company has not yet seen benefits from the de minimis exemption removal but expects it to be advantageous.
• Consumer spending in both pet and garden segments remains stable.

In conclusion, Central Garden & Pet remains committed to growth and profitability, leveraging innovation and strategic acquisitions. For more details, please refer to the full transcript below.

Full transcript - Canaccord Genuity’s 45th Annual Growth Conference:

Brian McNamara, Analyst, Canaccord: Everyone for attending our forty fifth Annual Growth Conference. I’m Brian McNamara, one of Canaccord’s analysts in the consumer space. We are very excited to have Central Garden and Pet here and to host CFO Brad Smith and Frederic Edelman who heads up Investor Relations. So Brad, thanks for joining us.

Brad Smith, CFO, Central Garden and Pet: Thank you.

Brian McNamara, Analyst, Canaccord: How about we start off with a quick overview of the business and maybe some highlights and key takeaways from your your Q3 earnings report last week?

Brad Smith, CFO, Central Garden and Pet: Yeah. I mean, as the name suggests, we are a pet and garden supplies company. So we’re located in the San Francisco area, roughly $3,000,000,000 a little north of $3,000,000,000 in annual sales. We are one of those companies that you may not know us as Central Garden and Pet, but you are potentially going to be familiar with the brands that we sell. If you’re a pet owner, Nylabone for dog treats and toys, as an example, KT for wild bird food, pet bird food, small animal like guinea pigs.

And Pennington is a popular name for the grass seed and lawn fertilizer that we carry. We just reported our Q3 results last week, and we have a September fiscal year end just to kind of get your bearings with our company. And three key takeaways. First of all, we are proud of the results. I mean we’re having record earnings this year at a pet level, at a garden level, at a total company level.

And we’re seeing margin, we’re seeing it in bottom line. So very, very pleased with that. And Q4 is off to a strong start. So that’s looking good. Secondly, we’ve built a lot of muscle around taking cost out of the business the last three years through our cost and simplicity program.

It’s really gone from being a strategic initiative to a part of our DNA, and we’re expecting to continue to benefit from that flywheel going into next year. Lastly, sales growth is going to be a top priority next year. It’s obviously a very difficult environment, as you all know. And so we’re going to be focusing on building the same kind of muscle in innovation that we’ve built and our cost and simplicity initiative as well as growing through M and A.

Brian McNamara, Analyst, Canaccord: So last week you reported your pet durables business still declining, kind of like double digit range, a trend that feels like it’s gone forever, but obviously you’re not you’re no stranger to that other companies exposed to durables. So in your view, are durables a reasonable proxy for pet ownership trends? And then when do you expect them to bottom?

Brad Smith, CFO, Central Garden and Pet: So, I would say that category demand in durables is generally solid when new pet adoption or replenishment is at a normal level. So, post COVID, we saw a decline in ownership to below pre pandemic levels across all pets other than cat. Currently, cat remains very resilient. I mean, it was one of those species that actually grew during COVID and then ownership continued to grow afterwards. So it’s well above pre pandemic levels today.

And as a result, durable demand for cat products is hanging in there. For the rest of the pack, we think we are starting to see some signs, maybe, of new pet demand, stabilization in pockets, for example, small dog. But we need more time to know for sure. But I would personally be surprised pet ownership is still declining beyond next year. It’s declined longer than we expected.

So I’ve been wrong before, but I think we’re getting really close to the bottom of this. It’s important to note too, just lastly, that in durables, we’ve been deliberately paring down our durables portfolio at more than the rate of the category. And that’s really been focused on reducing our China exposure and improving overall profitability. So our consumables business is much more resilient. Demand is higher margin, is less subject to the China related pressures.

Brian McNamara, Analyst, Canaccord: So to your point, cat ownership has recovered faster than dog. Is that just simply a function of cost? Are dogs just too expensive to own and care for in the current macro environment?

Brad Smith, CFO, Central Garden and Pet: Yes. So, cat ownership has been a function of affordability. First and foremost, cats are generally they are more budget friendly compared to dog food, grooming and whatnot. Dog owners typically will be spending 600 to a thousand more per year than cat owners. The second driver is urban and kind of flexible lifestyles.

The younger adults, they, they prefer often to live in compact urban spaces, smaller apartments. They have hybrid work setups and cats fit better into these lifestyles. They don’t require outdoor walks or extensive recreation. They can live in small spaces. And lastly, we can’t discount social media and the impact it’s had.

So, you’ve got Taylor Swift, Katy Perry, these sorts of public figures that have boosted feline prop popularity and made cat ownership feel much feel associated with independent style and effortless living. So, it’s kind of trendy right now to be a cat owner.

Brian McNamara, Analyst, Canaccord: So, moving to garden, you have a few publicly traded competitors. You guys all kind of sell different things. So, what are your key brands and core competencies in garden and kind of what differentiates you from those competitors?

Brad Smith, CFO, Central Garden and Pet: Yeah. So, 70 of category of our categories in garden, we do not compete against the other two players, Scotts and Spectrum. Two examples so that’s basically 70% of our business from a sales perspective. Two examples of that are some fairly large categories, a wild bird, packaged seeds. And those are categories that we’ve been performing well in.

Wild bird, we’re actually the leader in actually in both we’re the leader in market share, both from an online and from a brick and mortar standpoint. We also, in our live goods space, do not compete against either of them. The remaining 30% are in categories where we compete with one or both of them. The biggest space is grass seed and fertilizer, where we offer our branded product, which goes under the Pennington name as well as private label. They the competitor just does branded in that space.

So in terms of differentiation, other points are important. Our branded product is very is well known for being great value for money. We tend to be 5% to 8% cheaper on shelf, but of at least equivalent of quality, which differentiates us. Our private label brand also is strong in fertilizer is strong. The thing about, in most of our categories, we haven’t seen a broad shift from branded to private label.

But fertilizer is one where that shift has occurred. It’s expensive and, and, and consumers are more apt to, to trade down to private label. It’s, it’s actually played, played out well for us because we’ve picked up a fair amount of business from two of our largest brick and mortar customers to do private label fertilizer for them. And it’s growing well. The margins are good and it’s a good place to be.

So lastly, I would share Q3 in grass and fertilizer was pretty strong. I mean our POS, really both from a dollars and a unit perspective, was up about 30%. So it was really, really strong that quarter.

Brian McNamara, Analyst, Canaccord: Can you maybe expand a little bit on the wild bird category? It’s seen some really nice growth since the pandemic started and, and you know, today that kind of surprised me as maybe a novice, but talk about that, that category.

Brad Smith, CFO, Central Garden and Pet: Yeah. It’s one that has surprised all of us. It really took off during COVID and obviously the other categories did as well. But, what we noticed is when we came off of COVID, it continued to grow. And so, that’s been great.

We’re still trying to fully get our head around what has driven it longer term. And there’s a lot of theories about it. But what I would say is we do have realized that there is a a big therapeutic benefit that consumers get from feeding wild bird. And and it seems to have become part of the overall wild birds have become an important part of their overall theater in terms of their lawn and garden experience. The other thing that we’re learning, and this is relatively new data that we’ve got, is that there seems to be a relationship between cat ownership, cat being resilient, and wild bird as a hobbyist where cat owners are going into or starting to go out and buy wild bird products because it’s a form of catertainment.

The cats will sit there for hours and and watch the wild birds. So there seems to be a bit of a symbiotic relationship there. But we’re still fully getting our arms around what’s driving that category, but it’s just been on a tear for years.

Brian McNamara, Analyst, Canaccord: So the Garden segment does roughly two thirds of its sales in your March and June quarters with weather patterns obviously typically driving the delta between reported and maybe guided results for you and peers. So we’ll say the weather hasn’t been helpful the last few years and this year wasn’t any better. So what type of weather is quote unquote good for your business?

Brad Smith, CFO, Central Garden and Pet: Okay. So the garden peak season runs roughly March, late March through late June, early early July in a normal year. And the most, the majority of those sales occur on weekends. And unfortunately, I don’t know how many of you live in the Boston area, I think you do, but most most weekends it was a rain out, a complete washout. And so when it rains on the weekends, we tend to struggle because those are missed shopping days for us.

So having dry dry weekends during the spring are extremely important in weather that’s not too cold, not too hot. I would say with wild bird, that’s a bit different because that actually does very well in cold weather. Lastly, I would say grass seed fertilizer, lawn fertilizer is probably a bit different because it, it, there’s, there’s more there’s the ability to continue to go out and plant even when it’s rainy. It actually is a good time to plant when it’s rainy. And, you also have spring and fall planting seasons during grass.

So, you’ve got a longer season to play with. And then, if you end up getting weather that’s too hot with grass, you can go ahead and replant it. So, there’s more room for maneuvering grass and lawn than there is in the traditional garden season. But yeah, it’s it’s it’s dry and warm weekends in the spring.

Brian McNamara, Analyst, Canaccord: So Brad, you’ve been CFO of the whole company for nearly a year now. You’re a prior CFO of the pet segment. I guess what aspects of the garden business did you not fully appreciate before you got the head seat, if any?

Brad Smith, CFO, Central Garden and Pet: Definitely weather and the dependency on weather. It’s been one that really where the full impact has really surprised me. I mean, in the past when I was growing up, I mean, you had normal variability year to year. But you could always count on weekends during the spring being, you know, having a fair number of decent weekends. And to see what I saw this past year where for a good bit of our geography, the Northeast, the Mid Atlantic and whatnot to have the majority of the weekends in the spring being rainy was just shocking.

So so that’s that was by far the biggest for me.

Brian McNamara, Analyst, Canaccord: So revenue obviously hasn’t been cooperating recently given a whole host of challenges you guys have had to endure. Yet your profitability has been pretty impressive given your cost of simplicity and other internal initiatives where you’re wringing out costs and inefficiencies. Does this mean your company is structurally more profitable today? And kind of what happens from an operating leverage standpoint when that top line growth kind of returns on a more consistent basis?

Brad Smith, CFO, Central Garden and Pet: Yes. So definitely it’s more structurally more profitable than pre pandemic. I mean our run rate EBITDAs, as I mentioned earlier at the segment level and at a total company level are at a record high on a base that is back at revenue base that’s back at pre pandemic levels. So we’ve really done a lot to take what I call empty calories out of the business and emerge with a stronger business. We’re clearly going forward, we clearly have more ammunition around cost and simplicity.

We’re in early to mid innings. And so we’ve got a nice pipeline of further cost reduction projects. So I’m expecting for the coming years, a few years to come to have more fuel in that, that we’ll get from that area. Product mix will also continue to improve, help from a profitability standpoint. We both through reducing our durables exposure, which we’ve talked a lot about the next few years, and that will be going into 2026.

But also continuing to invest heavily in our higher margin consumable businesses. I’ve got businesses that have margins up into the 70s and 80s. So obviously, I want to double down on those. So we’re really focusing on the higher margin consumables going forward. Lastly, with higher volumes when growth returns to the top line, we’ll have the factory absorption benefits, which provide additional bottom line.

So I do expect meaningful operating leverage improvement when revenue gets back in our to normal levels. And the long term algorithm for us is really, I would say, to mid single digits top line with an EBITDA growth rate that’s roughly double that.

Brian McNamara, Analyst, Canaccord: So the company was founded in 1980s, generally been a roll up story since the late 1990s. Why is M and A an important part of your corporate fabric and what is the company currently looking for in the market?

Brad Smith, CFO, Central Garden and Pet: Yeah, it’s an interesting question. It’s definitely been a roll up of, God, how many companies Frederic has it been? It’s, I mean it’s since the beginning? 60. Over 60.

Yeah. It’s been insane. And there’s a longer list with, like, tiny, teeny names. So, if you look at pet and garden, the space supplies is is to this day still very fragmented. The vast majority we have the spectrums and the Scotts and whatnot, but the vast majority of our competitors are relatively small still.

So there’s still a lot of opportunity to further consolidate and our businesses and get some additional scale benefits. So that will continue to be part of our long term algorithm. And in terms of what we’re focused on, we’re focused on a high growth, high margin consumable businesses with a real moat, a real right to win with a barrier to entry going forward. Obviously, acquisitions are better than smaller because both take the same amount of work to get done. But we are definitely keen on bolt on acquisitions, particularly as they relate to businesses that we see we want to continue to grow.

What we did with our Bully Stick business we bought a few years ago is a perfect example of that. And we’re in the process of getting ready to integrate those two businesses. We’re also looking at areas where we under index such as cat. We’re much, if we look at our dog and cat business, I’d say we’re 90% dog, 10% cat. And given what I shared earlier with cat, we definitely want to move the needle in growing cats.

So we’re focused there heavily. Pet supplements is another space. I would say seventy five percent of pet owners currently are or thinking about feeding supplements to their pets. Lastly, I would say adjacencies are an area that we’re increasingly looking at. It’s, you know, I talk about our professional business unit that we have tucked within pet.

It’s a business that formulates pest control chemicals and products for not only the pet consumer space, but also for cattle, swine, commercial and municipal and garden consumer industries. We recently looked at a non crop chemical business that would have given us the ability to significantly expand that business into other spaces. So more and more adjacencies I think are going to be an interesting part of our M and A analysis and approach. So valuations went a

Brian McNamara, Analyst, Canaccord: little crazy during the pandemic. Are they more reasonable today?

Brad Smith, CFO, Central Garden and Pet: They’re more reasonable. They’re, you know, they tend to be for the consumables still in the teens. But the problem that we’re seeing right now is there’s just really not a lot out there. We are being assured though through our banks that there should be more deal flow coming in 2026. There was a lot of particularly private equity sellers that have been sitting on the sidelines that are at a point where they’re about to consider a sale.

So we think 2026 will be the year we start to do some deals again, and we are already starting to see a bit more inbound. So that’s encouraging.

Brian McNamara, Analyst, Canaccord: So share buybacks have been a much higher capital allocation priority this year relative to recent years. Is that simply a function of the M and A activity being relatively dormant? Or is the company voting with its wallet because you think the shares are undervalued or a little bit of both?

Brad Smith, CFO, Central Garden and Pet: See, the honest answer, it is a little bit of both. We much prefer to invest in M and A, but the opportunities, as I mentioned, have been relatively limited. So, you know, given we do believe our shares and we’ve been sitting on as much cash as we have. We’re currently got over $700,000,000 of cash on the balance sheet with relatively low leverage. So we do see it as a way to return value to shareholders and done quite a bit of that this year.

Brian McNamara, Analyst, Canaccord: So e commerce has been a nice growth area in your pet business. Kind of where are you there today in terms of penetration and where do you think that can grow to?

Brad Smith, CFO, Central Garden and Pet: It’s roughly around 27% of sales in the pet space. And honestly, you know, the question I would expect kind of five years from now, you know, we’re looking at 40% to 50%. That would be my guess, longer term.

Brian McNamara, Analyst, Canaccord: And then can you touch on your lower margin distribution businesses for each segment and the benefits they provide the company?

Brad Smith, CFO, Central Garden and Pet: So in the Garden distribution business, it’s not a it’s, it’s a kind of a new a niche business that really caters primarily to our our big customers, Lowe’s and Depot. And effectively, what we’ve got Lowe’s and Depot have a number of products that they like to carry, but the sales are below a threshold. They are relatively smaller suppliers and the sales are relatively small. You know, it could be $10,000,000 skew, a $20,000,000 skew, but it’s not enough for them to deal with it’s not worth the hassle to deal with a supplier that’s relatively small and doesn’t have the full capabilities to serve them. So we effectively will provide, be the middleman that buys the product and sells and merchandises and works with Lowe’s to make it a success.

So we take all of that hassle away from the supplier and also provide that benefit to the customers so that they have the ability to have the stock and have it properly merchandised and they don’t have to deal with the hassle. So that’s on the garden side. On the pet side, it is a business where it sells a full suite of products, including food products to mom and pop distributors. But more and more of that business has really been focused on providing basically taking care of the entire pet aisle for one of the largest grocery chains. So we will provide the full assortment to that chain.

We get all of the product to their stores. We help with merchandising and everything. So it’s effectively an outsourced function, if you will. So two very different models between pet and garden. Got it.

Brian McNamara, Analyst, Canaccord: So tariffs obviously taking up a lot of investor focus these days, but we have not seen like huge broad based price increases on the shelf yet kind of across consumer. Do you expect tariffs to be a net positive or a net negative? And should we expect material price increases as a result in your space?

Brad Smith, CFO, Central Garden and Pet: So I obviously the situation is fluid, but I wouldn’t I can’t see it being a net positive given where we’re at right now. Fortunately, our exposure is relatively low in tariffs versus most of the other CPGs, which is a good thing. We’re obviously doing everything we can to reduce the cost burden like other companies through vendor concessions, changing country of origin, SKU redesign, SKU rationalization. We are still having to take pricing like most of the others in our shoes. Those conversations are going on and they’re not easy right now, as you can imagine.

We our goal is to be able to and we’ll always be able to continue to expand margins if possible. And I think that we’ll come back to everyone in November with clarity on the outlook once we’ve worked through it. But it’s very much a work in progress right now.

Brian McNamara, Analyst, Canaccord: So does the removal of the de minimis exemption where that’s kind of resulted in a lot of maybe China sourced product getting dumped into The U. S, is that you expect that to benefit your pet durables business? In theory, it should be

Brad Smith, CFO, Central Garden and Pet: a tailwind to us. It is we haven’t seen clear evidence that we’re getting some benefit yet. I mean part of the problem is that the just overall demand for tariffs has dropped or for durables has dropped so much. But in theory, it should be a tailwind for us.

Brian McNamara, Analyst, Canaccord: And the final question we’re asking all of our companies exposed in the consumer sector. How do you how healthy do you think the consumer is today relative to a year ago? And how do you see consumer spending shaping up in the back half of this year and as we enter 2026?

Brad Smith, CFO, Central Garden and Pet: Yes, I would say when we look at the data, consumer demand and spending has definitely held up in both pet and garden for now. It’s interesting. We just saw Frederic and I just saw a white paper from, I think it was Cleveland Research about from with pet owners and they are acknowledging that they’re already spending more on their pets than they were a year ago. And they’ve acknowledged an expectation. They’ve said that they expected to continue to spend more next year and that they rated the importance of their pet spending above some other areas that surprised me.

So, there does seem to be a continued pet owners, pet owners, they’re like, the pets are like kids. And so, will continue to spend on them. So, it’s been resilient so far. That being said, tariff pricing is just now starting to hit and starting to sting. So if tariffs continue into next year, I’m expecting, and this is kind of lawn as well as garden, that we would see in pockets a bit more trading down.

It may not, it may be in the private label or it may be trading down from best to good within branded. I could see in certain areas such as dog toys, reduced purchase frequency instead of buying your dog a new toy every two months. Maybe it’s every four months. And then, I could see potentially, although I hope it doesn’t come to fruition, a further delay in new pet adoptions, particularly with your larger dogs and whatnot. So, those are the downstream impacts that could potentially could play out.

Great.

Brian McNamara, Analyst, Canaccord: I think we’re out of time. We’ll leave it there. Thank you so much, Brad.

Brad Smith, CFO, Central Garden and Pet: Thank you.

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