Why Central Garden Shares Got Sheared

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of lawn, garden, and pet products supplier Central Garden and Pet (NASDAQ: CENT  ) sank 12% today after its quarterly results and guidance disappointed Wall Street.

So what: Central Garden shares had a nice run in 2012 on positive restructuring progress, but today's fourth-quarter miss -- a loss of $0.21 per share versus the consensus loss of $0.20 -- coupled with downbeat guidance for the current quarter is forcing Mr. Market to sober up a bit. The company did manage to grow sales 5% to $397.2 million -- thumping estimates in the process -- and expand its gross margin by 40 basis points, suggesting that the company's turnaround efforts aren't completely off track.

Now what: Management expects that its sales and earnings for the first quarter will be below the results of the prior year. "With the first year of the transformation behind us and much work still to do, we remain committed to delivering a more integrated company which delivers greater innovation and value to our customers and improved profitability to our shareholdersm" said Gus Halas, CEO of Central Operating Companies. Given the stock's cheapish forward P/E of 9, buying into that bullishness might not be a bad idea.

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