Watching This Company Recover Is Like Watching Grass Grow
Despite what the saying says, sometimes having your eggs in more than one basket is a bad thing. This is especially true for Central Garden & Pet Company . This company has two segments: lawn care and pet care. Judging by its last-quarter results and outlook, it is struggling in both areas. To add insult to injury, similar businesses are thriving, such as Spectrum BrandsHoldings and The Scotts Miracle-Gro Company .
Central Garden & Pet Company's results
Central Garden & Pet Company reported fiscal fourth-quarter and 2013 results on Dec. 10. Net sales slipped 7% to $368.8 million though this was partially due to a shift in the fiscal calendar. Adjusted net loss expanded 47.5% to $14.9 million. While there's certainly a seasonal fluctuation to Central Garden & Pet's business, full-year adjusted net income was still down 72.6% to $5.8 million. It's difficult to spin declines as positive.
CEO John Ranelli just came out and said, "Our financial results are simply unacceptable." He cautioned that it will take, at best, another year or two to get back on track. He pointed out that progress is being made on the pet segment, but the garden segment's results are still disappointing. He didn't give much details in the press release about how the company plans to turn things around other than saying that it plans to "implement the same operating philosophies and disciplines we are instituting in our pet segment to drive improvement in our garden segment." Ranelli is confident in the long term, but he warned that the short term will be "choppy."
On the call, Ranelli explained that the shortfall was in large part due to "higher-than-necessary levels of expenses and inefficiencies across the company." It was somewhat encouraging for the long term that he didn't blame the economy or anything within the industry, and the company took full responsibility for not being "where it needs to be or even could be." This suggests it's taking full responsibility for the turnaround.
Central Garden & Pet Company is raising prices for certain products in its pet segment, introducing new pet products in 2015, and it has identified and stripped $9 million in SG&A costs from the company as a whole. For the garden division, the company introduced several new products that were too late for the season and too disruptive to tempt people to switch, and this also meant that retail locations did not give them premium shelf space. The company is confident about the future with these products as well as a "robust pipeline" of additional products coming out. Ranelli believes the new products in development will be the key to the turnaround, but noted that it will take one to two years to get those on the shelves and adapt.
Spectrum Brands Holdings
While waiting for Central Garden & Pet Company's turnaround, why not take a look at other companies that are growing well here and now? Spectrum Brands Holdings is also in the pet and garden business, and it currently has great results instead of just speculation about the future. Last quarter, Spectrum Brands reported an adjusted sales increase of 1.4% to $1.14 billion. Adjusted earnings per share rose 6% to $0.88. Analysts expect 2014 to show earnings per share of $4.22 and 2015 EPS to grow 12.3% to $4.74.
The Scotts Miracle-Gro Company
Meanwhile, The Scotts Miracle-Gro Company announced its fiscal 2014 outlook on Dec. 13. The company expects sales to grow 2%-3% for 2014 and income from continuing operations to grow 10%-15% to $3.05-$3.20 per share. CEO Jim Hagedorn said these were conservative estimates based on the assumption of a weak macroeconomic outlook.
Foolish final thoughts
With companies such as Spectrum Brands Holdings and The Scotts Miracle-Gro Company doing so well, cautious Fools should consider waiting on the sidelines with Central Garden & Pet Company. The company has already warned that it will be one to two years before a successful turnaround. It may be best to wait to see what evidence materializes during that time rather than speculate on a maybe.
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The article Watching This Company Recover Is Like Watching Grass Grow originally appeared on Fool.com.Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Scotts Miracle-Gro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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