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Tickers in this Article: CENT, SMG
Central Garden & Pet Company (CENT) reported soft fiscal fourth-quarter 2012 (ended September 29, 2012) results. The company's quarterly loss of 21 cents a share remained flat with the prior-year quarter loss but was wider than the Zacks Consensus Estimate of a loss of 20 cents. However, strong sales in the company's Pet division and one extra week in the quarter facilitated it to register a 5% increase in total sales to $397.2 million. The company's reported total sales surpassed the Zacks Consensus Estimate of $380 million.

Gross profit increased 7% to $105.1 million, whereas gross margin expanded approximately 40 basis points to 26.5%. The company reported an operating loss of $8.5 million compared with an operating loss of $4.6 million in the prior-year quarter.  The company stated that increased promotional and innovation expenses and lower revenues from the decor business negatively impacted the results.

Segment wise, Pet Products segment sales increased 12% to $237.6 million, reflecting improved sales in animal health products coupled with increases in pet distribution business. The segment's branded product sales jumped 12% to $191.7 million, whereas sales of other manufacturers' products rose 15% to $45.9 million in the quarter. Pet segment's operating income increased 4.5% year over year to $16.3 million.

Garden Products sales declined 3% year over year to $159.6 million, reflecting lower decor sales. The Garden Products segment's branded product sales decreased 6% to $140.2 million, whereas sales of other manufacturers' products increased 17% to $19.4 million. The segment reported an operating loss of $7.7 million during the quarter compared with a loss of $6.9 million in the year-ago quarter, reflecting lower profitability and increased costs.  

Central Garden & Pet, which faces stiff competition from The Scotts Miracle-Gro Company (SMG), ended the quarter with cash and cash equivalents of $48.5 million, long-term debt of $449.5 million and shareholders' equity of $464.9 million. The leverage ratio was 4.0x for the quarter.

Currently, we maintain a long-term 'Outperform' recommendation on the stock. However, Central Garden & Pet has a Zacks #3 Rank, which translates into a short-term 'Hold' rating.

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