What Awaits Central Garden & Pet (CENT) in Q3 Earnings?

Zacks Equity Research

Updated Fri, Jul 29, 2016, 5:49 AM

Central Garden & Pet Company CENT is slated to report third-quarter fiscal 2016 results on Aug 2, 2016, after the closing bell. The question lingering in investors’ minds is, whether this producer and marketer of lawn & garden products and pet supplies, will be able to deliver a positive earnings surprise in the quarter to be reported. In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average of 66.3%. Let’s see how things are shaping up for this announcement.

Zacks Model Shows Unlikely Earnings Beat

Our proven model does not conclusively show that Central Garden & Pet is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Central Garden & Pet has an Earnings ESP of 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate both stand at 43 cents. Central Garden & Pet’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

Factors Influencing This Quarter

Central Garden & Pet Company is revamping both its Pet and Garden segments. Also, it intends to adopt a balanced approach that encompasses an improvement in revenues and profits through operational efficiency. This helped the company to continue with its positive earnings surprise streak for the seventh consecutive quarter, when it reported second-quarter fiscal 2016 results.

We note that organic growth, value accretive acquisitions such as that of the pet bedding business, and divestment of non-strategic assets have been helping the company to enhance its portfolio, thereby leading to better performance. Additionally, Central Garden & Pet Company intends to gain market share in the home centers, mass market, grocery, specialty pet store and other independent channels.

On the flip side, Central Garden & Pet Company operates in the highly competitive pet and lawn and garden products industry, and any aggressive pricing to gain market share may hurt its margins. Moreover, the company’s customers remain sensitive to macroeconomic factors, which may negatively impact their discretionary spending, and in turn its top and bottom lines.