Central Garden & Pet’s second quarter was marked by a significant negative market reaction following a revenue decline and a miss versus Wall Street’s expectations. Management identified extended cool and rainy weather, the loss of two product lines in its third-party garden distribution, and ongoing efforts to rationalize pet durable products as primary causes for the top-line weakness. CEO Nicholas Lahanas acknowledged that while operational improvements drove record earnings per share and margin expansion, the company faced a “complex and fluid macroeconomic environment” that pressured both consumer demand and retailer activity. Segment leaders highlighted that category softness in pet durables and intentional exits from lower-margin businesses drove most of the revenue decline, with stable performance in higher-margin consumables partially offsetting these headwinds.
Is now the time to buy CENT? Find out in our full research report (it’s free).
Central Garden & Pet (CENT) Q2 CY2025 Highlights:
- Revenue: $960.9 million vs analyst estimates of $981.8 million (3.6% year-on-year decline, 2.1% miss)
- Adjusted EPS: $1.56 vs analyst estimates of $1.43 (9.3% beat)
- Adjusted EBITDA: $160.5 million vs analyst estimates of $153.7 million (16.7% margin, 4.4% beat)
- Management raised its full-year Adjusted EPS guidance to $2.60 at the midpoint, a 18.2% increase
- Operating Margin: 14.5%, up from 12.8% in the same quarter last year
- Market Capitalization: $2.04 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Central Garden & Pet’s Q2 Earnings Call
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Brad Thomas (KeyBanc Capital Markets) asked about the sustainability of margin improvement and the runway for further cost and simplicity benefits; CEO Nicholas Lahanas said there is “still a lot of opportunity for further consolidation, simplification, which should lead to margin enhancement.”
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David Holcomb (Truist Securities) inquired about trends in the Pet segment and the underlying impact of category softness; President John Hanson explained that the decline was driven by durable product rationalization and category softness, while consumables remain stable.
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Jim Chartier (Monness, Crespi & Hardt) questioned the quantifiable impact of exited product lines; management could not provide exact figures but stated that most of the Pet segment’s decline was due to intentional assortment rationalization.
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Bob Labick (CJS Securities) asked about private label gains and the carryover impact on Garden segment sales; President J.D. Walker said benefits from private label wins will extend into next year, while the impact of vendor partner losses will present a difficult comparison for part of the year.
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William Reuter (Bank of America) probed on tariff exposure and mitigation measures; CFO Brad Smith indicated the situation remains fluid, with ongoing efforts to diversify sourcing and manage pricing to offset tariff impacts.
Catalysts in Upcoming Quarters
Looking ahead, our team will be monitoring (1) the realization of cost savings and margin gains from facility consolidations and portfolio optimization, (2) the effectiveness of pricing and sourcing strategies in offsetting tariff pressures, and (3) the pace of e-commerce and digital investments. We will also keep an eye on weather patterns affecting garden sales and signs of renewed M&A activity as Central seeks to complement organic growth with targeted acquisitions.
Central Garden & Pet currently trades at $35.91, down from $39.42 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free).
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