Central Garden & Pet Company Q4 FY2025 earnings call

• Fiscal 2025 was a year of meaningful progress with record bottom-line performance, expanded gross margins, record EBITDA, and record earnings per share. - The company advanced its cost and simplicity agenda by streamlining operations, consolidating facilities, and completing a multiyear supply chain network design project. - For fiscal 2026, the company expects non-GAAP earnings per share of $2.70 or better, with a focus on innovation, e-commerce, digital technology, and active pursuit of margin-accretive M&A.

For the Pet segment, net sales in the fourth quarter were $428 million, a decrease of 22% due to the closure of UK operations and lower durable sales. Consumables now account for roughly 84% of total Pet segment sales, an all-time high. For the Garden segment, net sales were $250 million, a 7% increase. Garden e-commerce sales grew at a double-digit rate and surpassed 10% of total segment sales for the first time.

• Non-GAAP earnings per share for fiscal 2026 are expected to be $2.70 or better. - The company plans to invest approximately $50 million to $60 million in CapEx, primarily for maintenance and productivity initiatives. - The first quarter is expected to have non-GAAP earnings per share of approximately $0.10 to $0.15, consistent with normal seasonal trends.

• Global macro environment and policy shifts that could impact actual results. - Variable weather conditions, particularly affecting the garden segment. - Uncertainties related to tariffs and their impact on margins.

Q: About operating margin and the outlook for 2026, how will costs, tariffs, and demand net out?

A: Nicholas said the company will continue working on cost and simplicity, expecting to expand margin but noting low-hanging fruit has been picked. He also mentioned product mix effect needs to be considered.

Q: What's the outlook for the Garden segment's spring 2026 season?

A: John D. Walker said they are cautiously optimistic, with distribution points up year over year excluding the exited pottery business, and strong execution by the team going into the season, though dependent on weather.

Q: Can you provide more color on corporate expense increase in Q4 and tariff impact in Q4?

A: Bradley G. Smith said corporate expense had quarterly timing variations, investments to support commercial growth in 2026, and miscellaneous true-ups. Tariffs grossed roughly $7-8 million in the fourth quarter.

Q: Talk about the pet product launch mentioned and its performance?

A: John Edward Hanson said the Farnam Endure Gold Fly Spray launch, an EPA-approved product with strong customer feedback, but it's a seasonal business with results expected to be seen more in next season. There was incremental investment in Q4 for this product.

Q: What's the top-line outlook for 2026?

A: Nicholas said the top line is expected to be challenging in 2026 due to factors like tariffs, consumer confidence, and income bifurcation, with weather also playing a big role, especially on the garden side.

Q: Discuss durables in pet sales and pet ownership trends?

A: John Edward Hanson said durables in pet sales declined due to proactive decisions to discontinue low-margin SKUs, which was completed in the first half. Pet ownership trends are stabilizing, with live goods business showing sequential improvement in Q4.

Q: About capital allocation and share repurchases?

A: Nicholas said the bias is towards M&A for growth, but will consider options with the Board, and the $18 million repurchased in the quarter is part of ongoing consideration for shareholders.

Q: Talk about lawn and garden points of distribution and M&A?

A: John D. Walker said garden points of distribution excluding the exited pottery business are up, and Nicholas said the company is actively pursuing margin-accretive M&A as a strategic growth lever.

Q: Discuss shipments shifting and channel strengths?

A: Nicholas and John D. Walker said shipments shifting from Q1 to Q2 is hard to quantify early, with factors like trucking availability and retailer inventory timing affecting it. Online migration is a trend across both segments, with garden e-commerce growing strongly.