Summary of Central Garden & Pet Company Conference Call Company Overview - **Company**: Central Garden & Pet Company (NasdaqGS:CENT) - **Date of Conference**: December 12, 2025 - **Key Speakers**: Brad Smith (CFO), Friedrich Edelmann (VP of Investor Relations and Corporate Sustainability) Key Points Leadership and Organizational Changes - The company has shifted from a centrally driven, process-heavy model to a more agile, business unit-led culture under new CEO Niko Lahanas, enhancing collaboration and trust across the organization [3][4][5] Market Share and Product Innovation - In the past year, Central gained market share in the garden segment and held share in the pet segment, despite challenges in exiting unprofitable categories and e-commerce pricing issues [6][7] - The company is optimistic about growing market share in both segments in 2026 due to improved product placements and distribution gains [7] - Innovation efforts are ongoing, with a focus on digital marketing capabilities to drive sales and brand awareness [8][9] Pet Segment Insights - The pet segment is primarily focused on dogs (90%) and cats (10%), with cat ownership continuing to grow post-COVID due to lower costs and easier management [10][12] - Demand for small dogs, fish, and small animals is stabilizing, with expectations for a turnaround in growth by 2026 [13] Garden Segment Outlook - The garden segment finished the year with the highest point of sale (POS) despite challenging weather conditions, indicating strong performance in wild bird, grass seed, fertilizer, and packet seed categories [14][15] - The company is optimistic about growth in the garden segment, especially if weather conditions improve [16][19] E-commerce Strategy - E-commerce accounts for over 25% of the pet business and is rapidly growing in the garden segment, with a focus on enhancing digital marketing and direct-to-consumer capabilities [20][21] - The company is leveraging AI and other technologies to improve marketing efficiency and customer engagement [22] Acquisition Strategy - Central is looking to deploy nearly $900 million in cash for acquisitions, focusing on high-growth, high-margin consumables, particularly in the pet segment [24][25][26] - Cat products represent a significant growth opportunity due to underrepresentation in the company's portfolio [26] Cost and Simplicity Initiatives - The "Cost and Simplicity" initiative aims to eliminate unnecessary costs and improve cash flow, contributing significantly to margin expansion [27][28] - The company has closed approximately 20 facilities and exited unprofitable businesses, with ongoing efforts to find further cost-saving opportunities [28] Financial Performance and Margin Outlook - The company anticipates sustaining or modestly expanding margins despite cost headwinds from tariffs and other factors, supported by cost-saving initiatives [32][33] - Recent financial results have been strong, with record EBIT and EBITDA, indicating a successful transformation towards a simpler, higher-margin business model [51][52] Tariff Impact - The company faces a $20 million headwind from tariffs, but has managed to pass most of these costs onto customers, maintaining competitive pricing [36][44] Investor Relations and Future Outlook - Central's structural transformation, strategic investments in e-commerce, and strong customer relationships position it well for future growth [51][52][53] - The company is optimistic about consolidating market share and believes it is well-positioned compared to competitors [53] Conclusion Central Garden & Pet Company is navigating a transformative phase with a focus on agility, innovation, and strategic growth in both the pet and garden segments. The leadership changes and ongoing initiatives are expected to drive future performance and market share gains.

Core Insights - Central Garden & Pet Company (CENT) reported its fourth-quarter fiscal 2025 results, with both revenue and earnings exceeding Zacks Consensus Estimates and showing improvement from the previous year, marking a record fiscal year for the company [1][2][10] Financial Performance - The company posted an adjusted loss of 9 cents per share, better than the expected loss of 20 cents and an improvement from the 18-cent loss in the prior-year quarter [2] - Net sales reached $678.2 million, a 1% increase year over year, surpassing the Zacks Consensus Estimate of $666 million, driven by strong performance in the Garden segment [3] - Gross profit increased to $196.5 million from $169 million a year ago, with gross margin expanding by 380 basis points to 29% [4] - Adjusted EBITDA rose to $25.7 million, up from $16.8 million in the previous year [5] Segment Performance - The Pet segment generated $428 million in sales, down 2% year over year, impacted by the closure of U.K. operations and reduced sales of lower-margin products, although it gained market share in consumables [7] - The Garden segment saw a 7% increase in net sales to $250 million, benefiting from favorable weather and an extended selling season, with e-commerce demand growing significantly [9] Cost and Expenses - Adjusted SG&A expenses rose 7% to $198.1 million, representing 29.2% of net sales, driven by productivity investments and higher spending on innovation [6] Financial Health - The company ended the quarter with cash and cash equivalents of $882.5 million and long-term debt of $1,191.6 million, with a gross leverage ratio of 2.8 [12] Outlook - For fiscal 2026, the company anticipates adjusted earnings of $2.70 per share or better, supported by margin discipline and strategic investments in innovation and digital technology [14] - For the first quarter of fiscal 2026, earnings are projected to be between 10-15 cents per share, down from 21 cents in the prior year [15]

Financial Data and Key Metrics Changes - Year-to-date EBITDA increased by 9%, and EPS rose by 24% [11][58] - Gross margin improved to above 30%, with a GAAP gross margin rate of 33.7% compared to 28% in the prior year [57][60] - Total company net sales for the third quarter were $1.19 billion, down 1% year-over-year, while year-to-date total net sales were $3.03 billion, a decline of 3.6% [50][62] Business Line Data and Key Metrics Changes - U.S. Consumer net sales for the quarter were $1.03 billion, a 1% increase year-over-year, and year-to-date sales were $2.68 billion, down 1% [45][46] - POS units across categories were up 8% year-to-date, with notable increases in soils (+12%), mulch (+8%), and grass seed (+16%) [11][52] - The branded lawn fertilizers saw a 1% increase in POS units year-to-date, reversing a multi-year downward trend [52] Market Data and Key Metrics Changes - The lawn and garden market grew approximately 5% year-to-date, with the company gaining 2% market share [80] - E-commerce sales increased by 54% in online POS unit sales, reflecting a strong push to engage consumers through digital channels [24][51] Company Strategy and Development Direction - The company is focusing on internal initiatives to improve cost structure and efficiency while also shifting towards outward-facing initiatives to enhance consumer engagement [7][9] - Plans include expanding marketing efforts to younger consumers through digital platforms and influencers, as well as enhancing the R&D pipeline with more natural and organic solutions [21][25] - The company aims for sustained U.S. Consumer sales growth averaging 3% annually, with a gross margin target of 35% or higher [38][63] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving EBITDA guidance and reaffirmed expectations for top and bottom line metrics despite weather challenges [10][11] - The company is optimistic about the lawn and garden category's growth and the strength of its consumer business, emphasizing the importance of partnerships with retailers [35][94] - Management highlighted the positive impact of recent tax policy changes on future cash tax benefits, allowing for further investment in the business [60] Other Important Information - The company is in the process of divesting its Hawthorne business, which has shown three consecutive quarters of profitability [36][49] - The company plans to take pricing in the upcoming fiscal year to support margin recovery and innovation investments [39][63] Q&A Session Summary Question: Pricing and price mix performance in '25 and strategy for '26 - Management indicated a pricing increase of just under 1.5% in '25, with plans to pursue further pricing adjustments in '26 while maintaining activation spending with retail partners [77][78] Question: Category growth at retail in '25 and comparison to company performance - The lawn and garden market has grown about 5% year-to-date, with the company gaining approximately 2% market share [80] Question: Performance of customers who engaged in traffic-driving strategies - Management noted that retailers who actively participated in promotional programs saw better performance, and future spending will focus on those retailers [84][86] Question: Visibility into achieving mid-30s gross margin over the next few years - Management outlined a phased approach to improving gross margin, targeting a 1% benefit from supply chain savings and another 1% from net pricing adjustments [90][91]