Extreme Weather And Urban Shifts Will Squeeze Margins

Key Takeaways

• Volatile weather, urbanization, and changing consumer preferences threaten stability and growth in core gardening, lawn, and pet product lines.
  
• Dependence on major retailers and fragmented brands pressures margins, while lagging innovation and limited reach increase vulnerability to ambitious competitors.
  
• Focus on higher-margin consumables, operational streamlining, and e-commerce expansion drives profitability and revenue growth, while stable industry demand supports strong long-term prospects.

Catalysts

Produces and distributes various products for the lawn and garden, and pet supplies markets in the United States.

• Intensifying climate volatility and increasingly unpredictable extreme weather events are already impacting Central Garden & Pet's highly seasonal garden and live plants businesses; these disruptions threaten to persist or worsen, leading to volatile revenue swings, inventory challenges, and reduced margin reliability for core segments.
  
• The ongoing trend toward urbanization and shrinking yard sizes is likely to erode demand for traditional gardening products and lawn care, reducing long-term volume potential for Central Garden & Pet and constraining future top-line growth.
  
• The company's reliance on large retail partners, such as Walmart and Home Depot, continues to give these customers significant bargaining power over pricing and shelf space, which is likely to put downward pressure on gross margins and hinder long-term earnings growth.
  
• The fragmented brand portfolio, coupled with a limited international presence and slow-moving organic growth, leaves Central Garden & Pet vulnerable as faster-growing digital-first brands and consolidated players capture share both online and globally, dampening any sustained uplift in revenue or margin expansion.
  
• Consumer preferences are rapidly shifting toward sustainable, all-natural, or organic products, requiring significant and ongoing R&D investment and reformulation; these costs, along with heightened regulatory scrutiny on existing chemical and pet products, are set to erode profitability and may render some legacy lines obsolete, further squeezing net income.

Central Garden & Pet Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Central Garden & Pet compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Central Garden & Pet's revenue will grow by 1.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.4% today to 5.8% in 3 years time.
• The bearish analysts expect earnings to reach $189.1 million (and earnings per share of $3.03) by about August 2028, up from $138.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 11.3x on those 2028 earnings, down from 15.5x today. This future PE is lower than the current PE for the US Household Products industry at 21.0x.
• Analysts expect the number of shares outstanding to decline by 6.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Central Garden & Pet Future Earnings Per Share Growth

Risks

• Central Garden & Pet is successfully shifting its portfolio mix toward higher-margin consumables in the Pet segment, with consumables now making up 82% of Pet sales versus 65% four years ago, which has driven margin expansion and increased resilience, supporting stronger long-term earnings and net margins.
  
• The company's ongoing Cost and Simplicity initiatives-including consolidation of facilities, improved logistics, and operational streamlining-are delivering meaningful SG&A expense reductions and gross margin gains, which are likely to continue enhancing profitability and support higher operating income over time.
  
• Expansion in e-commerce (now 27% of Pet sales) and investment in modern, DTC-enabled fulfillment hubs provide wider, more flexible market access and faster shipping, positioning Central to capture more share in growth channels and reinforcing top-line revenue growth potential.
  
• Central is winning additional private label and branded business with major retailers due to proven execution and strong in-store performance, which enables incremental revenue streams and can offset losses from exited product lines, thereby undergirding stable or rising revenue growth.
  
• Secular industry trends-including stabilized and growing pet ownership and persistent consumer engagement in lawn and garden categories, even amid economic downturns-support a healthy demand backdrop for Central's core offerings, increasing the probability of sustained or growing revenue and earnings in the long run.

Valuation

• The assumed bearish price target for Central Garden & Pet is $35.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Central Garden & Pet's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $50.0, and the most bearish reporting a price target of just $35.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $3.3 billion, earnings will come to $189.1 million, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $34.09, the bearish analyst price target of $35.0 is 2.6% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.