Central Garden & Pet (NASDAQ:CENT) reported an 8% decline in fiscal third-quarter net sales to $882 million, a shift primarily driven by the company’s exit from its pet distribution business at the start of the quarter. Excluding this divestiture, organic net sales climbed 2% to $862 million, bolstered by solid performance in both its pet and garden divisions.
Upgraded Outlook and Financial Performance
Following the quarterly results, the company raised its fiscal 2026 outlook for non-GAAP diluted earnings per share to $2.85 or higher, up from its previous guidance of $2.70. This projection excludes future acquisitions, such as the pending purchase of an 80% stake in the European firm TRIXIE, as well as potential restructuring costs or tariff refunds.
During the quarter, non-GAAP gross profit fell 4% to $318 million, though the gross margin expanded by 140 basis points to 36%. Meanwhile, non-GAAP operating income dipped 2% to $136 million, impacted by corporate spending tied to the TRIXIE transaction and ongoing investments in data capabilities. Non-GAAP net income reached $96 million, resulting in diluted EPS of $1.54, compared to $1.56 in the prior-year period.
Pet Segment: Stabilization and Strategic Shifts
The Pet segment saw a 19% decline in total sales to $400 million due to the distribution exit, though organic sales rose 2% to $380 million. CEO Niko Lahanas noted that the business is stabilizing, with notable strength in professional, equine, avian, and small-animal categories. The company also reported market share gains in professional products, dog treats, rawhide, and flea and tick solutions.
Operational challenges arose from a fire at a South American supplier plant, forcing the company to source alternatives and utilize air freight, which pressured margins. Additionally, management attributed two-thirds of the decline in dog and cat sales to promotional timing, noting that July performance showed promising signs of recovery. eCommerce sales in the pet segment remained a bright spot, growing 10% year-over-year behind a record-breaking Prime Day.
Garden Segment: Resilient Demand
The Garden segment posted a 3% increase in sales to $482 million, fueled by strong consumer demand for fertilizer, wild bird supplies, and grass seed. Despite mixed weather conditions—ranging from cold, wet spells to an intense heat dome—the company’s manufactured products saw mid-to-high single-digit growth.
Garden eCommerce outperformed, surging over 40% compared to the previous year. Operating income for the segment rose 7% to $91 million, with operating margins improving to 18.9%. Management highlighted that retailer inventories are well-positioned heading into the fourth quarter, with sell-through rates for key categories like fertilizer and grass seed exceeding expectations.
The TRIXIE Acquisition and Global Expansion
Central Garden & Pet is moving forward with its acquisition of an 80% interest in TRIXIE, a European leader in pet supplies. The deal, valued at up to €400 million, is expected to close in the first half of fiscal 2027. TRIXIE provides access to over 30,000 retail stores globally, with a product portfolio that is 90% branded.
Lahanas emphasized that this move is part of a broader strategy to increase international sales to roughly 10% of total revenue. While no significant synergies are expected in the first year post-close, the company views Europe as a primary theater for future M&A activity, noting that valuation multiples in the region are currently more favorable than in the U.S.
Cash Flow and Operational Modernization
The company achieved a record $327 million in cash provided by operations, largely driven by inventory reductions following the distribution exit. Central ended the quarter with $997 million in cash and cash equivalents, maintaining a strong balance sheet with a gross leverage ratio of 2.8 times.
Finally, the “Project Horizon” initiative—a multiyear effort to modernize garden logistics—is now 95% complete. By consolidating separate distribution networks into a four-node national system and closing 13 legacy facilities since 2022, the company has improved efficiency while keeping the project under budget and minimizing disruption to customers.
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