Central Garden & Pet (CENT)

Pet company Central Garden & Pet (NASDAQ:CENT) missed Wall Street’s revenue expectations in Q2 CY2025, with sales falling 3.6% year on year to $960.9 million. Its non-GAAP profit of $1.56 per share was 9.3% above analysts’ consensus estimates.

Company Overview

Enhancing the lives of both pets and homeowners, Central Garden & Pet (NASDAQ:CENT) is a leading producer and distributor of essential products for pet care, lawn and garden maintenance, and pest control.

Household products stocks are generally stable investments, as many of the industry's products are essential for a comfortable and functional living space. Recently, there's been a growing emphasis on eco-friendly and sustainable offerings, reflecting the evolving consumer preferences for environmentally conscious options. These trends can be double-edged swords that benefit companies who innovate quickly to take advantage of them and hurt companies that don't invest enough to meet consumers where they want to be with regards to trends.

Competitors in the pet care space include Hill's Science Diet (owned by Colgate-Palmolive, NYSE:CL) and private companies Mars Petcare, Nestlé Purina while pest control and lawn and garden competitors include Scotts Miracle-Gro (NYSE:SMG) and Spectrum Brands (NYSE:SPB) along with private company Terminix.

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $3.12 billion in revenue over the past 12 months, Central Garden & Pet carries some recognizable products but is a mid-sized consumer staples company. Its size could bring disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.

As you can see below, Central Garden & Pet’s revenue declined by 2.5% per year over the last three years, a poor baseline for our analysis.

This quarter, Central Garden & Pet missed Wall Street’s estimates and reported a rather uninspiring 3.6% year-on-year revenue decline, generating $960.9 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 2.3% over the next 12 months. While this projection indicates its newer products will spur better top-line performance, it is still below the sector average.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

Central Garden & Pet’s unit economics are higher than the typical consumer staples company, giving it the flexibility to invest in areas such as marketing and talent to reach more consumers. As you can see below, it averaged a decent 30.5% gross margin over the last two years. Said differently, Central Garden & Pet paid its suppliers $69.47 for every $100 in revenue.

Central Garden & Pet produced a 34.6% gross profit margin in Q2, up 1.9 percentage points year on year and exceeding analysts’ estimates by 4.1%. Central Garden & Pet’s full-year margin has also been trending up over the past 12 months, increasing by 1.7 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as raw materials).

Operating margin is an important measure of profitability accounting for key expenses such as marketing and advertising, IT systems, wages, and other administrative costs.

Central Garden & Pet’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 7.6% over the last two years. This profitability was higher than the broader consumer staples sector, showing it did a decent job managing its expenses.

Looking at the trend in its profitability, Central Garden & Pet’s operating margin might fluctuated slightly but has generally stayed the same over the last year. Shareholders will want to see Central Garden & Pet grow its margin in the future.

This quarter, Central Garden & Pet generated an operating margin profit margin of 14.1%, up 1.3 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

In Q2, Central Garden & Pet reported adjusted EPS at $1.56, up from $1.32 in the same quarter last year. This print beat analysts’ estimates by 9.3%. Over the next 12 months, Wall Street expects Central Garden & Pet’s full-year EPS of $2.62 to grow 3.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Central Garden & Pet has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 9.6% over the last two years, quite impressive for a consumer staples business.

Central Garden & Pet’s free cash flow clocked in at $251.7 million in Q2, equivalent to a 26.2% margin. The company’s cash profitability regressed as it was 1.2 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, leading to short-term swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Central Garden & Pet historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.1%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

Central Garden & Pet reported $713 million of cash and $1.44 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $372 million of EBITDA over the last 12 months, we view Central Garden & Pet’s 1.9× net-debt-to-EBITDA ratio as safe. We also see its $32.41 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Central Garden & Pet blew past analysts’ EPS expectations this quarter. We were also happy its gross margin outperformed Wall Street’s estimates, and looking ahead, full-year EPS guidance was raised. On the other hand, its revenue missed. Overall, this print was mixed. The stock remained flat at $39.41 immediately after reporting.

Updated: November 8, 2025 at 9:43 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Central Garden & Pet.

Central Garden & Pet doesn’t pass our quality test. To kick things off, its revenue has declined over the last three years. And while Central Garden & Pet’s strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cushion, its projected EPS for the next year is lacking.

Central Garden & Pet’s P/E ratio based on the next 12 months is 11.4x. This valuation multiple is fair, but we don’t have much confidence in the company. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $42.33 on the company (compared to the current share price of $31.50).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.