Central Garden & Pet (NASDAQ:CENT) reported an 8% decline in fiscal third-quarter net sales to $882 million, primarily reflecting its exit from the pet distribution business at the beginning of the quarter. Excluding that business, organic net sales rose 2% to $862 million, supported by growth in both the pet and garden segments.
The company also raised its fiscal 2026 outlook for non-GAAP diluted earnings per share to $2.85 or better, from prior guidance of $2.70 or better. The outlook excludes the effects of future acquisitions, including its pending purchase of an 80% interest in European pet supplies company TRIXIE, as well as potential divestitures, restructuring actions and further tariff refunds.
Margins Expanded Despite Lower Reported Sales
Chief Financial Officer Brad Smith said higher corporate spending related to the TRIXIE transaction and investments in data capabilities accounted for more than 100% of the decline in operating income. Non-GAAP net income fell 2% to $96 million, and non-GAAP diluted EPS was $1.54, compared with $1.56 in the prior-year quarter.
Adjusted EBITDA was $162 million, compared with $167 million a year earlier, while adjusted EBITDA margin increased to 18.3% from 17.3%.
Chief Executive Officer Niko Lahanas said the company delivered organic sales growth and margin expansion while continuing to invest in brands, innovation, eCommerce capabilities and supply-chain operations. He said consumers continue to seek value and performance, with eCommerce and private label serving as important growth areas in certain categories.
Pet Sales Affected by Distribution Exit; Organic Business Grew
Pet segment sales declined 19% to $400 million as a result of the distribution business exit. Organic pet sales, excluding the distribution operation, increased 2% to $380 million. The company cited broad gains across most of its pet portfolio, partly offset by lower Dog and Cat revenue tied primarily to the timing of promotional events and related investment spending.
Lahanas said the pet business is showing stabilization, with strength in professional, equine, avian and small-animal categories. The company said it gained share in professional products, Dog Treats, Rawhide and Flea and Tick.
Management also said a fire at a supplier plant in South America created supply issues for parts of the Dog and Cat business. Lahanas said the company had to source alternative supply and airship products, affecting both sales and margins. Smith said roughly two-thirds of the Dog and Cat sales decline was related to normal promotional timing differences, adding that July results were encouraging.
Pet eCommerce sales rose 10% year over year, aided by a record Prime Day, according to Smith. Pet segment non-GAAP operating income declined 2% to $76 million, while operating margin improved 320 basis points to 19%. The lower operating income and higher margin largely reflected the exit of the lower-margin distribution business, improved product mix and productivity benefits, partially offset by higher material and freight costs.
Garden Business Posts Growth Amid Uneven Weather
Garden segment sales increased 3% to $482 million, driven by distribution wins and consumer demand in fertilizer, Wild Bird and grass seed. The company said sales in fertilizer and Wild Bird remained at record levels.
Jason Barnes, executive vice president of Garden Consumer Products, described weather during the quarter as mixed, with cold and wet conditions followed by a heat dome and extended heat. Despite those conditions, he said the company’s brands and manufactured products rose mid- to high-single digits during the quarter, while its vendor-partner distribution business weighed on overall results.
Garden eCommerce sales increased more than 40% from a year earlier, with growth across pure-play and omnichannel retail partners. The company said it gained market share in fertilizer, Wild Bird and grass seed.
Garden non-GAAP operating income increased 7% to $91 million, and operating margin improved 70 basis points to 18.9%. Favorable mix and productivity gains more than offset higher freight and digital marketing costs. Adjusted EBITDA increased to $101 million from $96 million, while margin rose to 20.9% from 20.4%.
Management said retailer inventories were in a favorable position entering the fourth quarter. Barnes said inventories were not a principal driver of third-quarter results, as shipments and consumption were relatively close, while stronger-than-expected retail sell-through in grass seed, fertilizer and Wild Bird drove performance.
TRIXIE Deal Would Expand European Pet Presence
Central recently entered into a definitive agreement to acquire an 80% interest in TRIXIE, a European pet supplies and pet snacks company. The transaction is expected to close in the first half of fiscal 2027.
The deal calls for €340 million at closing and up to €60 million in additional earn-out consideration, for a potential total of €400 million. Smith characterized the purchase price as a high-single-digit EBITA multiple.
TRIXIE serves more than 30,000 pet retail stores worldwide and has a portfolio that is about 90% branded products, Lahanas said. Central expects the combined companies to generate approximately 10% of sales outside the United States and to create a broader platform in the European pet specialty market.
Management identified potential opportunities in innovation, sourcing, manufacturing, online penetration and logistics. Smith said the company does not expect meaningful synergies during the first year after closing, with benefits more likely to emerge in the second year as the companies develop a joint plan.
Lahanas said the acquisition would not prevent Central from pursuing additional deals. The company sees Europe as an area of focus for pet-related acquisitions, while Smith noted that valuation multiples in Europe can be lower than those in the U.S.
Cash Position and Logistics Program
Cash provided by operations reached a company record of $327 million, up from $265 million a year earlier. Smith said the gain reflected strong cash conversion as well as inventory reductions associated with the distribution exit and grass seed inventory management.
Central ended the quarter with $997 million in cash and cash equivalents, up $284 million from a year earlier. Total debt was $1.2 billion, with no borrowings under its credit facility. Gross leverage was 2.8 times, and net leverage was 0.5 times, though those figures exclude funding for the pending TRIXIE transaction.
The company also said Project Horizon, its multiyear garden logistics modernization effort, is about 95% complete. Since 2022, Central has closed 13 facilities and opened two, consolidating separate garden distribution networks into a four-node national Central Logistics Network. Lahanas said all projects have been completed under budget with minimal customer disruption.
About Central Garden & Pet (NASDAQ:CENT)
Central Garden & Pet (NASDAQ: CENT) is a leading North American specialty retailer, manufacturer and distributor serving the lawn and garden and pet supplies markets. The company operates through two primary segments: Pet and Garden. In the Pet segment, Central Garden & Pet offers a comprehensive range of products including pet food, treats, accessories, training products and habitat solutions for dogs, cats, birds, fish and small animals. The Garden segment encompasses a wide array of lawn, garden and outdoor living products, such as soils, fertilizers, planters, pest control solutions, landscape lighting and watering equipment.
Central Garden & Pet’s product portfolio includes both proprietary and branded offerings.
