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DATE

Wednesday, May 6, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Nicholas Lahanas
  • Chief Financial Officer — Bradley G. Smith
  • President of Pet Segment — John Edward Hanson
  • President of Garden Segment — John D. Walker
  • Chief Commercial Officer — Jason Barnes

TAKEAWAYS

  • Net Sales -- $906 million, up 9% year over year, driven by growth in both Pet and Garden segments and the anticipated timing shift of shipments into the quarter.
  • Gross Profit -- $300 million versus $273 million in the prior year, with reported gross margin up 30 basis points to 33.1%; excluding a prior-year one-time charge, gross margin was essentially flat.
  • SG&A Expense -- $186 million, increasing 3%, with SG&A as a percentage of sales declining to 20.5% from 21.6% due to improved sales leverage and organizational simplification.
  • Operating Income -- $114 million, up from $93 million, with operating margin increasing to 12.6% from 11.2%.
  • Diluted Earnings Per Share -- Record $1.28, surpassing management’s internal expectations.
  • Adjusted EBITDA -- $139 million versus $123 million, with margin improving to 15.4% from 14.8%.
  • Pet Segment Net Sales -- $477 million, up 5%, supported by strong consumables demand and a timing shift in outdoor cushion business.
  • Pet Segment Operating Margin -- Improved to 16.3% from 13.4%, reflecting mix improvement, sales leverage, and portfolio optimization.
  • Durables Mix in Pet Segment -- 18% of segment sales in the first half, with management indicating this ratio is expected to decline over time.
  • Garden Segment Net Sales -- $425 million, increasing 13% driven by shipment timing, low opening retail inventories, and distribution gains in grass seed and fertilizer.
  • Garden Segment Operating Income -- $66 million, up from $59 million, with operating margin at 15.4%.
  • Joint Venture Formation -- New JV with Phillips Pet Food & Supplies, retaining a 20% stake, will lower reported revenue in the second half by a low-teens percentage but with minimal earnings impact due to the JV's low margin profile.
  • Share Repurchase -- 110,000 shares repurchased for $3.4 million; $128 million remains authorized for further repurchases at quarter end.
  • Cash and Liquidity -- Cash, equivalents, and short-term investments rose to $653 million, up $137 million despite the Champion U.S.A. acquisition; gross leverage at 2.8x and net leverage at approximately 1.3x.
  • Guidance -- Fiscal 2026 non-GAAP diluted EPS maintained at $2.70 or better, with guidance excluding any future M&A or restructuring actions.

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RISKS

  • Bradley G. Smith stated, Our estimate on the back half in terms of the financial impact to Central Garden & Pet Company is conservatively $0.03 to $0.05 per share dilutive. due to JV formation and initial losses from the equity method accounting.
  • Management repeatedly emphasized dependence on favorable May weather for full-year performance, noting, "business. Before we can give the all-clear signal and take guidance up, we really need to see that play out."
  • John D. Walker noted, "We have seen some inflation, particularly as it relates to urea," and while current year impacts are manageable, "Most likely next year we will be forced to take pricing as a result." of higher input costs.

SUMMARY

Central Garden & Pet Company (CENT +2.05%) reported a record quarter with top-line growth, margin expansion, and higher earnings, underpinned by improved retail demand and execution initiatives. Management highlighted the formation of a joint venture with Phillips Pet Food & Supplies, expected to strategically streamline distribution but temporarily reduce reported revenue and dilute near-term earnings per share by an estimated $0.03-$0.05 in the second half. Both Pet and Garden segments posted notable sales and margin gains, with innovation and channel expansion cited as category drivers, and sustained investments in branded and private label offerings. Leadership maintained full-year non-GAAP EPS guidance of $2.70 or better, stressing that continued momentum hinges on May weather outcomes and further stabilization in input costs.

  • Sustained growth in e-commerce and club channels in Pet, alongside increased private label penetration in Garden, may alter revenue composition going forward.
  • Recent share gains were attributed to new points of distribution, particularly in products such as rawhide, dog treats, flea and tick, grass seed, fertilizer, and wild bird.
  • Management stated, "We still feel that way," about Pet category stabilization as indicated by household penetration, buy rate, and live animal sales.
  • The Rebels Sun & Shade grass seed and new private label programs in Garden outperformed internal expectations according to management commentary.
  • Ongoing cost and simplicity initiatives were highlighted as mitigating factors against raw material and transportation inflation, especially within the Garden segment.
  • M&A pipeline activity was described as accelerating, with multiple active discussions underway as described by management.

INDUSTRY GLOSSARY

  • SKU: Stock Keeping Unit; unique item identifiers used to track products in inventory and distribution systems.
  • JV: Joint Venture; a business entity created by two or more parties, characterized by shared ownership, returns, and risks, in this context with Phillips Pet Food & Supplies.
  • Durables: Non-consumable pet products such as cushions, beds, and toys which tend to have longer product life cycles versus consumables.
  • Private Label: Products manufactured or provided by one company for sale under another company's brand, often offering retailers higher margins or price flexibility.

Full Conference Call Transcript

Nicholas will start by sharing today’s key takeaways, followed by Bradley, who will provide more details of our performance. After their prepared remarks, John, JD, and Jason will join us for the Q&A session. Before they begin, I would like to remind everyone that all forward-looking statements made during this call are subject to risks and uncertainties that could cause our actual results to differ materially from what those forward-looking statements express or imply today. A detailed description of Central Garden & Pet Company’s risk factors can be found in our annual report filed with the SEC.

Please note that Central Garden & Pet Company undertakes no obligation to publicly update forward-looking statements to reflect new information, future events, or other developments. You can find our press release and related materials at ir.central.com. Last but not least, unless otherwise specified, all comparisons discussed during this call are made against the same period in the prior year. Should any questions come up after the call or throughout the quarter, do not hesitate to contact me directly at [email protected]. And with that, let us begin. Nicholas, over to you.

Nicholas Lahanas: Thank you, Friederike, and good afternoon, everyone. I will start with highlights from the second quarter and then walk through how we are thinking about the rest of the year. We delivered a record second quarter and a record first half, with clear improvement across the board: higher sales, expanded operating margins, and stronger earnings per share versus last year. That performance reflects resilience across our key categories, the strength of our operating model, and the actions we have taken to sharpen execution. At the same time, we are continuing to simplify the business in ways that also strengthen our teams and execution.

We have moved our DoMyOwn business into our Covington fulfillment center, which is improving speed, lowering costs, and increasing flexibility across the network. We are also consolidating the TDBBS manufacturing into our dog and cat platform in New Jersey, to better leverage scale and what we believe are best-in-category capabilities. And subsequent to the quarter, we formed a joint venture with the leading U.S. pet food distributor, Phillips Pet Food & Supplies, where we will retain a 20% ownership stake. This is a strategic step which creates a stronger, more agile nationwide distribution network, reduces complexity, and allows us to focus more directly on growing our Central-branded portfolio.

These moves build on the cost and simplicity work we have been driving for several years. That work has fundamentally strengthened the business. Today, we are more efficient, more resilient, and a better-run organization. And that discipline is embedded in how we operate. With that foundation in place, our focus is squarely on growth and disciplined capital allocation. We are investing where we see the highest returns and, with our balance sheet and customer relationships, we are well positioned to execute. We also advanced our innovation pipeline this quarter. We are bringing forward new products—both branded and private label—that deepen retailer partnerships and connect with consumers.

In Pet, that includes Nylabone dog chews made with real meat and Farnam’s Enduro Gold Killer Fly Mosquito Control Spray for horses. In Garden, our recently launched The Rebels Sun & Shade extension in grass seed and new private label programs are performing well and delivering above expectations. Turning now to our outlook. We entered the back half of the year with momentum and a clear focus on execution. Our diversified portfolio, operational flexibility, and disciplined approach to cost management and capital allocation position us well to deliver profitable growth as the macro backdrop continues to evolve. The retail environment remains dynamic, with consumers looking for value and performance and continued shifts towards e-commerce and, in some categories, private label.

We are responding with targeted investments behind our strongest brands, innovation, and consumer insights while continuing to strengthen our digital capabilities. These are the right investments. They are gaining traction, positioning us to drive both growth and margin expansion. While we are still early in our journey, innovation will become a more meaningful contributor as we continue to scale a more streamlined and efficient operating model. M&A remains a key lever. We are taking a disciplined, value-driven approach focused on high-quality, margin-accretive opportunities that strengthen our portfolio. With our liquidity and flexibility, we are well positioned to act when the right opportunities arise.

On the joint venture, as expected, it will reduce reported revenue in the second half by a low-teens percentage but with minimal impact on earnings, given the lower margin profile of that business. Based on our performance and outlook, we are maintaining our guidance for Fiscal 2026 non-GAAP diluted EPS of $2.70 or better. That reflects both what we have delivered and our confidence in the path ahead. As always, this guidance excludes the impact of future acquisitions, divestitures, or restructuring actions. Before I hand it over to Bradley, I just want to recognize our teams across Central Garden & Pet Company. Their execution continues to set the pace for the organization.

We built a strong foundation and we are moving forward with focus, discipline, and confidence in our ability to deliver long-term growth and value. And with that, I will turn it over to Bradley.

Bradley G. Smith: Thank you, Nicholas. I will take a few minutes to walk through how the second quarter came together and share what we are seeing as we move through the year. Net sales were $906 million, a 9% year-over-year increase driven by growth across both segments and reflecting solid underlying demand, the anticipated shift of shipments from the first quarter into the second, and the benefits of actions we have taken to strengthen the business. Gross profit increased to $300 million from $273 million, with gross margin improving by 30 basis points to 33.1%. The prior year included a one-time inventory charge related to the wind-down of our U.K. operations.

Excluding this charge, gross margin was essentially consistent year over year, supported by productivity gains across both segments and a favorable mix in Pet, which helped offset higher manufacturing costs and a lower-margin sales mix in Garden. SG&A expense was $186 million, up 3% versus the prior year. As a percentage of sales, SG&A was 20.5%, down from 21.6%, reflecting the improved sales leverage, prudent cost management, and ongoing simplification of the organization while continuing to reinvest in key growth initiatives. Operating income was $114 million compared with $93 million, and operating margin was 12.6% compared with 11.2%.

It is important to step back and look at the first half as a whole, which helps smooth out the noise related to the timing shifts between Q1 and Q2. For the first half, our sales were up 2%. Gross margin increased by 70 basis points and operating income grew 8% versus last year. Both segments contributed to that performance in driving growth in both the top line and bottom line, together delivering record operating income for the company—a clear reflection of the strong execution we are seeing across the business. Below operating income, the picture remains stable and consistent with solid underlying profitability. Second quarter net interest expense of $9 million was consistent with the prior year.

Other expense was $351,000 compared with $744,000 of other income in the prior year. Net income totaled $79 million compared with $64 million a year ago. We delivered record second quarter diluted earnings per share of $1.28, exceeding both prior year and our expectations, reflecting strong execution and the underlying strength of the business. Adjusted EBITDA for the quarter was $139 million compared to $123 million. Adjusted EBITDA margin for the quarter was 15.4% compared to 14.8%. Our effective tax rate for the quarter was 23.5%, in line with the prior year. With that context, let me turn to the segments. Starting with Pet.

Net sales for the Pet segment came in at $477 million, up 5% year over year, primarily driven by the continued strength in our core consumables portfolio along with the expected shift of outdoor cushion orders from the first quarter into the second. On a first-half basis, sales for Pet were up 1% versus last year. In the quarter, we continued to see healthy demand across our consumables categories, particularly in our higher-margin dog and cat, equine, and professional product lines, where innovation and execution are driving top-line growth. Across the Pet segment, we held share overall, with gains in key categories including rawhide, dog treats, flea and tick, pet bird, and professional areas—aligned with our growth and margin priorities.

We were also encouraged by the distribution gains we achieved during the quarter across a range of categories. Operating income for this segment was $78 million in the quarter, compared with $61 million. Operating margin improved to 16.3% from 13.4%, reflecting sales leverage, mix improvement, portfolio optimization, and solid execution across the segment. Adjusted EBITDA for the segment was $89 million compared with $75 million, and adjusted EBITDA margin for the segment was 18.6% compared with 16.6%. Now turning to Garden. Net sales for the Garden segment were $425 million, up 13%. As expected, the second quarter benefited from the timing of initial retailer shipments for the 2026 season and relatively low retailer on-hand inventories entering the quarter.

In addition, the quarter benefited from meaningful distribution gains, particularly in grass seed and fertilizer. That said, for the first half, sales were up 4% over last year. Overall, we gained market share in Garden in the second quarter, with strength across several key categories including grass seed, fertilizer, and wild bird. As we enter the garden season, our businesses are well positioned to deliver a solid year, supported by strong preparation and close alignment with our retail partners. We remain encouraged by the continued support of our customers across our garden categories and brands. Operating income for the Garden segment in the second quarter increased to $66 million, up from $59 million in the prior year.

Operating margin was 15.4%, remaining relatively consistent with last year’s performance as strong sales volume growth and productivity improvements helped offset the impact of a lower-margin sales mix and higher manufacturing costs. Adjusted EBITDA totaled $76 million compared with $69 million, and adjusted EBITDA margin for the segment was 17.7% compared with 18.2%. Let me close with cash and the balance sheet, which remain a key source of strength and provide flexibility to invest in growth. Cash used by operations was $50 million for the quarter, compared with $47 million a year ago. CapEx for the quarter was $10 million and depreciation and amortization totaled $21 million, both consistent with the prior year.

We continue to expect to invest approximately $50 million to $60 million in CapEx this fiscal year, with a focus on maintenance and targeted productivity and growth initiatives across both segments. During the quarter, we repurchased approximately 110,000 shares for $3.4 million, with $128 million remaining under our share repurchase authorizations as of quarter end. At quarter end, cash and cash equivalents and short-term investments totaled $653 million, an increase of $137 million despite the acquisition of Champion U.S.A. in the first quarter, reflecting strong liquidity and cash generation. Total debt was $1.2 billion, unchanged from the prior year.

Gross leverage ended the quarter at 2.8 times, compared with 2.9 times in the prior year and below our target range of 3.0 to 3.5 times. Net leverage was approximately 1.3 times, supported by our strong cash position. We had no borrowings outstanding under our credit facility. Our fortress balance sheet gives us flexibility to continue investing in organic growth, pursuing value-creating M&A, and returning capital to shareholders while maintaining a strong financial position. Before opening for questions, I want to echo Nicholas and thank our employees. Their work is driving our performance and positioning the business for continued success. Operator, please open the line for questions.

Operator: Thank you. We will now open the call for questions.

Nicholas Lahanas: Thank you.

Operator: Our first question comes from the line of Bradley Bingham Thomas with KeyBanc Capital Markets Inc. Please go ahead.

Bradley Bingham Thomas: Good afternoon. Thanks for taking the questions, and nice quarter here. I wanted to start off with a question for Nicholas and JD, I think to some extent. In this all-important spring selling season, clearly you had a great quarter in terms of sell-in. Can you give us any thoughts on how sell-through is shaping up and how you are thinking about that for the third quarter? And then as a follow-up on guidance at a high level, if we do some back-of-the-envelope math, you have had a strong first half.

If you were just to hit that $2.70 number, that would imply that the second half could be lower by about $0.25 from what you did in the second half last year. In broad strokes, how are you thinking about the ability to drive profit or earnings growth in the second half?

John D. Walker: Hey, Brad, it is JD. Thanks for the question. I will start and then I will ask Jason to comment as well. From a consumption standpoint, going back to the second quarter, as the weather started to improve, particularly in southern markets, consumption was great. That pattern carried into April and we saw strong consumption throughout the month. When the weather is favorable, consumers are very engaged in our categories and our retailers are very engaged and excited about the categories. We have every reason to believe that if weather cooperates and is favorable, we will continue to see that strength throughout the season. I would say we are cautiously optimistic. Jason, do you have anything to add?

Jason Barnes: The only thing I would add is that we see strength across the portfolio. We have a pretty broad assortment of categories we participate in. It was not one or two categories that showed strength in March; it was basically across the entire portfolio, and that has continued into April when the weather has been there for us.

Nicholas Lahanas: Also, great work with customers. We have more points of sale compared to prior year, and that has played a role too.

John D. Walker: It has. Some of that was timing, some of that was low retailer inventories, and some of that was a lot of new points of distribution year over year. We did a nice job of shipping in. The consumption piece is still going to be tied to weather to a large degree. Where we see the weather, we have seen robust consumption.

Nicholas Lahanas: On guidance, sure, I will give it a crack. Your point is well taken—we have started pretty strong, and as JD alluded to, April so far looks pretty good. In terms of guiding, we still need to see the season play out. As everybody knows, we are very weather dependent, and that really means May. May is that critical month—April and May—with May very important to the live goods business. Before we can give the all-clear signal and take guidance up, we really need to see that play out. If you look at our history, we usually do that in early to mid-June once we are comfortable with May. We feel really good about the business.

It started very slow in the first quarter, and it played out exactly the way we thought. A lot of those sales slipped into the second quarter, then we had some really nice weather, and that momentum has continued into April. We are cautiously optimistic that the momentum will continue, but we just do not know for sure to the point where we are willing to move on guidance just yet.

John D. Walker: I would add that May is critically important. We still have a number of markets that have not come on board yet. A lot of the northern markets are just now starting; I was in Boston last week and it was still winter. As those markets come on, we will feel a lot more confident in making a call. As Nicholas said, we really need to see how May plays out.

Nicholas Lahanas: And as you know, we give ourselves a very wide range by saying $2.70 or better. We like the momentum we are seeing and the teams are executing, so we feel really good. We just need to see it play out for a few more weeks.

Operator: Our next question comes from the line of Brian McNamara with Canaccord Genuity. Please go ahead.

Brian McNamara: Hey, good afternoon, everyone. Thanks for taking the questions, and congrats on the strong results. Three months ago, your comments sounded like Pet was at or near a bottom. The second quarter looks like your first quarter of growth in the segment out of the last five and second out of the last seven. Should we think about the back half—appreciating you guide to revenue—as growth continuing as a reasonable expectation, and what drives that? And then apologies if I missed this: what was the durables versus consumables mix for the quarter, and how did durables do? Cushions probably helped there, obviously.

Lastly, on distribution and the JV: what drove the decision, and do you still get the benefits like consumer insights, stronger customer relationships, and access to emerging brands and M&A? Why is there an earnings headwind rather than net neutral for the back half?

John Edward Hanson: I can take the first part. We feel really good about where we are. We showed 5% top-line growth, and as we said on the last call, from everything we can see—from household penetration and buy rate to even our live animal sales—we believe the category has stabilized. We still feel that way. We did have help in the 5% this time from some timing on our cushions business that slid from the first quarter to the second, but even if you back that out, we feel pretty good about the organic piece of the growth in the business.

It is difficult to have a crystal ball on the balance of the year, but I would say we are cautiously optimistic.

Bradley G. Smith: On the durables and consumables mix, given the timing noise, I would look at it on a first-half basis. Durables were 18% of sales for the first half in Pet. John and I continue to believe that is going to go down over time given the rate of performance in our consumables business, but durables were relatively resilient.

John Edward Hanson: We feel good about consumables performance in the second quarter—it was up mid-single digits, which is a higher-margin piece of our business and a good mix play in our focus area. Durables were up quite a bit in the second quarter largely because of the cushion shift.

Nicholas Lahanas: On the JV decision, we still own 20%, and the way we viewed it was access versus ownership. We still have access to the channel; we just do not own the whole business. There were a lot of factors: listening to investors and analysts regarding margins and the overhang of the lower-margin distribution business; our cost and simplicity program—we had roughly 26,000 SKUs, many ship points, trucks, and employees; we want to streamline and focus our energy on higher-margin products and businesses that really move the needle rather than managing a high level of complexity.

The independent channel has been a challenge, and we knew that to give us the best chance of success it made sense to do a JV with another player strong in food, whereas we were more on the supply side. We think the combination makes a lot of sense.

Bradley G. Smith: From a financial perspective, the business was making money when we sold it—not a lot, but a little—so we lose that in the back half. When you look at the equity that we record for our 20% of the joint venture in the back half, we are currently projecting some initial losses. They will not yet be in a position to start to unlock synergies, and there is going to be a fair amount of purchase accounting attached to it, which will have a non-cash impact that will flow through earnings. Our estimate on the back half in terms of the financial impact to Central Garden & Pet Company is conservatively $0.03 to $0.05 per share dilutive.

As we get into next year and the following year, as synergies begin to be realized, we should start to see some positive results.

Operator: Our next question comes from the line of Robert James Labick with CJS Securities. Please go ahead.

Analyst: This is Will on for Bob. Congrats on the strong quarter. From raw materials and plastic sourcing, with the war, have raw material prices impacted the Garden segment at all so far? And how is pricing in the garden industry in general—are retailers raising prices?

John D. Walker: We have seen some inflation, particularly as it relates to urea. One of the benefits we have is we prebuild a lot of our materials for the year, so we will see some impact late this year, but it will be a manageable, smaller number. For next year, as we start our prebuild for 2027, it will have an impact on our fertilizer cost, and that is something that is widely known and already discussed with our customers. It is fluid right now and we will have to see where this goes. We have not taken pricing for this year—no pricing planned for 2026—and the impact should be manageable.

Most likely next year we will be forced to take pricing as a result. I would add on urea that it is a very small piece of the business—from a COGS perspective, about 1%—so our exposure is not like some of our other competition. From a fuel standpoint, it is similar. We are managing through it. A lot of our customers pick up product at our facilities right now, so that too is fluid. We will have to see the duration and depth and whether pricing is needed to cover costs. To date, we have been able to manage through it. Our cost and simplicity initiatives help us offset some of these impacts.

On broader industry pricing, retailers coming into this year have not been taking wholesale price increases. For next year, depending on input costs, if manufacturers have to take price, then retailers will have to take pricing. For this year, pricing has been fairly stable. We are seeing a fairly promotional marketplace right now, which we anticipated and planned for.

Operator: Your last question comes from the line of Andrea Teixeira from JPMorgan. Please go ahead.

Shovana Chowdhury: Hi, this is Shovana Chowdhury on for Andrea. Thanks for taking our question. You commented that consumption stayed robust throughout April. Can you add more color on the health of the consumer—are they more value seeking, and are you seeing any trade down to private label? Also, what is the level of promotions that you are seeing?

Nicholas Lahanas: On the Garden side, we are seeing really nice consumption when the weather is good. Across the board, consumers are value seeking. They want performance at a reasonable price. Our grass seed brand, The Rebels, has done really well because it strikes that balance of being affordable and a great product. Those areas are taking off.

John Edward Hanson: On the Pet side, we are seeing a bit of a channel shift. Consumers are going into mass and club and e-commerce to get value pricing. The value seeking is there, but branded is performing pretty well—solid overall. It is more of a channel shift than a brand trade-down.

John D. Walker: On the Garden side, it is very similar. Retailers count on lawn and garden to drive footsteps into the store at this time of year, so they have been very promotional and very engaged in the category. From a consumer standpoint, when the weather is good, we are seeing robust consumption. They are seeking value, and this was a good year for us to pick up meaningful private label business across many retailers. That business is performing extremely well. It is not just private label—our branded products are also seeing strong consumption across categories, which is encouraging.

I am not concerned about the health of the consumer right now; when the weather is favorable, the demand is there and retailers are ready.

John Edward Hanson: To John’s point about channel shifts, we continue to see e-commerce grow as a percentage of our business. We are well positioned there and believe we are gaining share online as well. One last comment: we had noted in previous calls that footsteps at retail—particularly in home centers—had tailed off over the last few years. We have seen that stabilize and start to increase again, which is encouraging for us.

Operator: Thank you for all the color. We do have one additional question coming from Brian McNamara with Canaccord Genuity. Please go ahead.

Brian McNamara: At Global Pet, it sounded like everybody was going after cat—that is a hole in your portfolio for lack of a better term. How would you characterize the current M&A environment relative to three months ago and maybe a year ago? It sounds like activity has been heating up.

Nicholas Lahanas: Very much. We are seeing things really pick up in terms of conversations and deal flow. A lot of bankers were telling us a year ago that 2025 was going to be the year, and that ended up being a lot more talk. This year, the conversations are a lot more sincere. We are seeing processes kick off with some really nice assets and have several conversations going on right now. We are very encouraged by the M&A environment picking up.

Brian McNamara: Great. That is all I have. Thanks, guys.

Nicholas Lahanas: Thank you.

Operator: Well, this was our last question. Thanks, everyone, for joining us today. Please reach out to us with any additional questions you may have. Thanks.

Nicholas Lahanas: Thank you.

Operator: Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines and have a wonderful day.