Pet company Central Garden & Pet (NASDAQGS:CENT) reported results in line with analysts' expectations in Q2 CY2024, with revenue down 2.6% year on year to $996.3 million. It made a non-GAAP profit of $1.32 per share, down from its profit of $1.40 per share in the same quarter last year.

Is now the time to buy Central Garden & Pet? Find out in our full research report.

Central Garden & Pet (CENT) Q2 CY2024 Highlights:

• Revenue: $996.3 million vs analyst estimates of $999.8 million (small miss)

• EPS (non-GAAP): $1.32 vs analyst estimates of $1.15 (14.8% beat)

• Management reiterated its full-year EPS (non-GAAP) guidance of $2 at the midpoint

• Gross Margin (GAAP): 31.8%, in line with the same quarter last year

• EBITDA Margin: 13.9%, in line with the same quarter last year

• Free Cash Flow of $272.5 million is up from -$33.87 million in the previous quarter

• Organic Revenue was up 3% year on year

• Market Capitalization: $2.30 billion

"We delivered a solid third quarter earnings performance, recognizing that we had a record third quarter in 2023," said Beth Springer, Interim CEO.

Enhancing the lives of both pets and homeowners, Central Garden & Pet (NASDAQGS:CENT) is a leading producer and distributor of essential products for pet care, lawn and garden maintenance, and pest control.

Household Products

Household products stocks are generally stable investments, as many of the industry's products are essential for a comfortable and functional living space. Recently, there's been a growing emphasis on eco-friendly and sustainable offerings, reflecting the evolving consumer preferences for environmentally conscious options. These trends can be double-edged swords that benefit companies who innovate quickly to take advantage of them and hurt companies that don't invest enough to meet consumers where they want to be with regards to trends.

Sales Growth

Central Garden & Pet is larger than most consumer staples companies and benefits from economies of scale, giving it an edge over its smaller competitors.

As you can see below, the company's revenue was flat over the last three years. This is poor for a consumer staples business.

This quarter, Central Garden & Pet missed Wall Street's estimates and reported a rather uninspiring 2.6% year-on-year revenue decline, generating $996.3 million in revenue. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months.

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Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Central Garden & Pet has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company's free cash flow margin averaged 7.9% over the last two years, better than the broader consumer staples sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Central Garden & Pet's margin expanded by 2.4 percentage points during that time. This shows the company is heading in the right direction, and because its free cash flow profitability rose more than its operating profitability, continued increases could suggest it's becoming a less capital-intensive business.

Central Garden & Pet's free cash flow clocked in at $272.5 million in Q2, equivalent to a 27.3% margin. The company's cash profitability regressed as it was 3.3 percentage points lower than in the same quarter last year, but it's still above its two-year average. We wouldn't put too much weight on this quarter's decline because investment needs can be seasonal, causing short-term swings. Long-term trends are more important.

Key Takeaways from Central Garden & Pet's Q2 Results

We were impressed by how significantly Central Garden & Pet blew past analysts' organic revenue growth expectations this quarter. We were also glad its EPS outperformed Wall Street's estimates. On the other hand, its full-year earnings forecast missed analysts' expectations. Zooming out, we think this was a mixed quarter. The stock remained flat at $38 immediately following the results.

So should you invest in Central Garden & Pet right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.