Why Central Garden & Pet's Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Central Garden & Pet (NAS: CENT) were wilting under the harsh rays of dismayed investors today, falling 12% in intraday trading after the company announced fiscal second-quarter earnings.

So what: For the quarter that ended in March, Central Garden & Pet dropped the ball. Management said as much in its earnings press release today. According to CEO Bill Brown, "Even with strong demand from consumers for our products, our sales and earnings were affected this quarter by short-term execution issues."

Those execution issues were due to the company's "transformational" effort -- an initiative that's aimed at turning the Central Garden group of companies into a more seamless, integrated company.

Nevertheless, investors were having none of it today. Revenue dropped 4% year over year to $467 million, while earnings per share slipped 17% to $0.45. The latter was well short of Wall Street analysts' average estimate of $0.54.

Now what: Here's the silver lining: As Brown noted, demand has been strong. That's a good thing. But the company has to get its act together in order to capitalize on that demand. From management's point of view, the company transformation will be worth the short-term hit, because -- as president Gus Halas put it -- it will "position the Company for success in the coming years."

Investors are upset today, but if management can deliver on that promise, better times may be ahead.

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At the time this article was published Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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