A Member of Pat McKeough’s Inner Circle recently asked for his advice on a company that provides 65 brands of products to pet owners, and residential and commercial gardeners.
Pat likes the steadily increasing sales and earnings but notes the company has employed a growth-by-acquisition model, which adds risk.
Central Garden & Pet Co. (Symbol CENT on Nasdaq; www.central.com), provides a range of products to pet owners, and residential and commercial gardeners. Central’s more than 65 brands include Pennington, Nylabone, Kaytee, Amdro and Aqueon.
Founded in 1980, the company has made several acquisitions over the years to grow both segments of its business.
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Most recently, on February 16, 2021, it completed the acquisition of Green Garden Products, a Massachusetts-based provider of vegetable, herb, and flower seeds, as well as seed starters and plant nutrients. It ships more than 250 million seed packets annually to customers across North America.
Green Garden’s portfolio of brands includes Ferry-Morse Home Gardening, Jiffy Seed Starting, SUPERthrive Plant Nutrients, Livingston Seeds, Jiffy Hydro Hydroponics, McKenzie Seed, American Seed and NK Lawn and Garden.
Central paid $532.0 million in cash for Green Garden, which is currently owned by Freeman & Spogli, a private equity firm with $4.4 billion in assets under management. Green Garden was previously called Plantation Products, and Freeman & Spogli acquired the company in January 2015.
Over the past five years, Central’s revenue is up 47.4%, from $1.83 billion in 2016 to $2.70 billion in 2020. Excluding one-time items, earnings during that time soared 171.2%, from $44.5 million, or $0.87 a share, in 2016 to $120.7 million, or $2.20, in 2020.
In the three months ended March 27, 2021, Central’s revenue increased 33.0%, to $935.3 million from $703.2 million a year earlier. Revenues rose strongly for both its pet and garden segments. The company earned $73.0 million, or $1.35 a share, in the latest quarter. That’s up 70.8% from $42.7 million, or $0.79.
Growth by acquisition adds risk, but Central aims to cut that risk by buying well established and profitable firms that complement its current operations. By acquiring Green Garden Products, it also deepens its garden offerings and strengthens its appeal with investors and customers.
Recommendation in Pat’s Inner Circle: Central Garden & Pet Co. is OK to hold.
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