Central Garden & Pet Q3: Organic Sales Rise, EPS Guidance Raised as TRIXIE Deal Nears

Central Garden & Pet (NASDAQ: CENT) reported an 8% decline in fiscal third-quarter net sales to $882 million, with the drop tied mainly to the company's exit from the pet distribution business at the start of the period. Excluding that operation, organic net sales rose 2% to $862 million, helped by gains across both its pet and garden segments.

Management also raised its fiscal 2026 outlook for non-GAAP diluted EPS to $2.85 or better, up from prior guidance of $2.70 or better. The outlook excludes future acquisitions, including the pending purchase of an 80% interest in European pet supplies company TRIXIE, as well as potential divestitures, restructuring actions and further tariff refunds.

Non-GAAP gross profit declined 4% to $318 million, but gross margin improved 140 basis points to 36%. Non-GAAP operating income slipped 2% to $136 million, while operating margin rose 90 basis points to 15.4%. CFO Brad Smith said higher corporate spending tied to the TRIXIE transaction and data capabilities investment more than accounted for the decline in operating income.

Non-GAAP net income fell 2% to $96 million, and non-GAAP diluted EPS came in at $1.54 versus $1.56 a year earlier. Adjusted EBITDA was $162 million, down from $167 million, while adjusted EBITDA margin expanded to 18.3% from 17.3%.

CEO Niko Lahanas said the company delivered organic sales growth and margin expansion while continuing to invest in brands, innovation, e-commerce and supply-chain operations. He added that consumers continue to look for value and performance, with e-commerce and private label emerging as important growth areas in certain categories.

Pet segment sales fell 19% to $400 million as a result of the distribution exit. On an organic basis, pet sales rose 2% to $380 million. The company pointed to broad gains across most of its pet portfolio, partly offset by lower dog and cat revenue related to promotional timing and related investment spending.

Lahanas said the pet business is stabilizing, with strength in professional, equine, avian and small-animal categories. Central also said it gained share in professional products, dog treats, rawhide and flea and tick.

Management noted that a fire at a supplier plant in South America created supply constraints for parts of the dog and cat business. Lahanas said the company had to source alternative supply and airfreight products, which hurt both sales and margins. Smith added that roughly two-thirds of the dog and cat sales decline reflected normal promotional timing differences, and that July results were encouraging.

Pet e-commerce sales rose 10% year over year, helped by a record Prime Day. Pet segment non-GAAP operating income declined 2% to $76 million, but operating margin climbed 320 basis points to 19%. The lower profit and higher margin largely reflected the exit of the lower-margin distribution business, improved mix and productivity benefits, partially offset by higher material and freight costs.

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 fertilizer and wild bird sales remained at record levels.

Jason Barnes, executive vice president of Garden Consumer Products, said weather was mixed, with cold and wet conditions followed by a heat dome and extended heat. Despite that, he said the company's brands and manufactured products rose mid- to high-single digits in the quarter, while the vendor-partner distribution business weighed on overall results.

Garden e-commerce sales increased more than 40% year over year, with growth across pure-play and omnichannel retail partners. Central said it gained market share in fertilizer, wild bird and grass seed. Garden non-GAAP operating income rose 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 for the garden segment increased to $101 million from $96 million, while adjusted EBITDA 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, and stronger-than-expected retail sell-through in grass seed, fertilizer and wild bird drove performance.

On the pending TRIXIE acquisition, Central said the deal is expected to close in the first half of fiscal 2027. The agreement includes €340 million at closing plus up to €60 million in additional earn-out consideration, for a potential total of €400 million. Smith characterized the 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, according to Lahanas. Central expects the combined companies to generate roughly 10% of sales outside the U.S. and to establish a broader platform in the European pet specialty market.

Management sees opportunities in innovation, sourcing, manufacturing, online penetration and logistics. Smith said meaningful synergies are unlikely in the first year after closing, with benefits more likely to surface in the second year as the companies develop a joint plan. Lahanas said the acquisition would not prevent Central from pursuing additional deals, with Europe an area of focus for pet acquisitions. Smith noted that valuation multiples in Europe can be lower than in the U.S.

Cash provided by operations reached a company record of $327 million, up from $265 million a year earlier. Smith attributed the gain to strong cash conversion and inventory reductions tied to 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, with those figures excluding funding for the pending TRIXIE transaction.

Project Horizon, the company's 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.

Central Garden & Pet is a 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, with a product portfolio that includes both proprietary and branded offerings.