Central Garden Raises Outlook Even as Quarterly Profit Slips
Central Garden & Pet reported net sales fell 8% to $882 million, but margin gains prompted the company to lift its full-year profit guidance for the first time this year.
Central Garden & Pet (CENT) raised its full-year earnings guidance even as third-quarter profit declined, a divergence that turned on margin expansion strong enough to offset a smaller top line. The maker of pet and lawn-and-garden products lifted fiscal 2026 non-GAAP diluted EPS guidance to $2.85 or better from $2.70 or better, the first increase after two straight quarters of holding the prior figure.
The guidance raise arrived alongside headline numbers that moved in the opposite direction. Reported net sales fell 8% to $882 million from $961 million a year earlier, but the decline was almost entirely a function of Central's exit from its pet distribution business; stripping that out, organic net sales rose 2% to $862 million, reversing a 4% organic decline in the year-ago quarter. GAAP diluted EPS fell to $1.45 from $1.52 and non-GAAP EPS slipped to $1.54 from $1.56, breaking a streak of earnings growth that had built through the first two quarters of the fiscal year.
Margins did the heavy lifting. Gross margin expanded 130 basis points to 35.9%, a sharper gain than the 110-basis-point and 30-basis-point improvements posted in the first two quarters, and non-GAAP operating margin rose 90 basis points to 15.4%. The acceleration suggests the cost and mix actions Central had been running through the year compounded rather than plateaued, even as EPS itself came under pressure from other items below the operating line.
Both segments contributed. Pet segment net sales fell 19% to $400 million because of the distribution exit, but organic Pet sales rose 2% to $380 million, and segment adjusted EBITDA margin jumped 350 basis points to 21.4% from 17.9%, nearly double the 200-basis-point gain the segment posted in the second quarter. Garden segment sales rose 3% to $482 million from $468 million, led by Wild Bird, Fertilizer and Controls, and Grass Seeds, extending a recovery from a first-quarter operating loss of $10 million and a multi-year stretch of sales declines.
The quarter also carried a set of one-time items that complicate the earnings comparison: $13.8 million in facility-closure and business-exit expense, alongside $3.6 million of tariff refund income and $2.5 million from the pet distribution unit's stake in a new partnership, neither of which appeared at similar scale in prior quarters.
Central signed a definitive agreement after quarter-end to acquire an 80% interest in TRIXIE, a European pet supplies and snacks business, for up to €400 million in total consideration, with the deal expected to close in the first half of fiscal 2027. The purchase follows the Phillips pet distribution partnership disclosed the prior quarter, in which Central retained a 20% stake, continuing a pattern of restructuring its pet distribution footprint through minority stakes and bolt-on deals rather than outright divestiture.
The balance sheet gave Central room to pursue the TRIXIE deal. Cash and equivalents rose to $997 million from $713 million a year earlier and $653 million the prior quarter, while gross leverage improved to 2.8x from 2.9x, remaining below the company's 3.0x-to-3.5x target range for a fourth consecutive quarter. Share repurchases slowed sharply in the process: Central bought back no stock in the third quarter, versus $3.4 million in the second quarter and $18.5 million in the first, and well below the $55 million repurchased in the year-ago third quarter, leaving $128 million in remaining authorization.