REF: Hambrecht & Quist (3/11/99)
3/11/99: Company Visit Confirms Positive Outlook, Q2 On Track - Reiterate BUY
Yesterday, we visited one of CENT's largest lawn & garden distribution facilities (Ezell) in Southern California and its new consolidated pet distribution operation. We were impressed by the efficiency and management of both facilities with significant cost savings likely from the recent pet center consolidation. Moreover, our lawn & garden visit confirmed that the Western region is off to a very strong start to the key selling season. We believe CENT is on track to meet our Q2 estimates of $411 million and $0.51 and reiterate our BUY.
Strong Outlook in Lawn & Garden: Yesterday, we visited one of Central's largest distributors - Ezell Nursery Supply which was purchased in May 1997. Ezell's new 200k square foot facility services customers in Southern California, Arizona, New Mexico and Texas and does roughly $50-55 million in sales ($75 million capacity). Importantly, after a tough "El Nino" season last year, Ezell is well ahead of plan year-to-date with exceptional strength thus far in March - signaling a strong start to the lawn & garden season in a key region. Additionally, Ezell's efficient, low cost distribution facility is enabling Central to gain new customers and new product lines - providing further leverage with its customer base.
Solaris Update: Our recent discussions with Central's management indicate that Solaris discussions with Scott's are ongoing. We believe Central's low cost, efficient national distribution platform is a valuable asset for Scott's to leverage rather than build on its own - especially given Scott's current debt service requirements.
Optimistic on Pet Business: Over the last several quarters, growth in CENT's pet distribution business (~15% of sales) has lagged behind lawn & garden partially due to strategic distribution changes by Petco in the Northeast and Southern California. As a result, CENT took ~$3-5 million charges to consolidate 5 pet facilities into one in Southern California. Our visit to this facility confirmed that CENT is on track to deliver cost savings with its new 115k square foot facility. Specifically, route sales have been combined, overhead staff was significantly reduced, IT systems are being upgraded and a new "Quick Pick" system put in place which should reduce overtime and improve inventory management. Importantly, our discussion with management indicate that business with Petco is warming up which should help restore internal growth to the 5-10% range for FY99.
CENT looks attractive in key selling season: CENT is trading at 11x our CY99 estimate of $1.56 vs. 20% trend line growth. Moreover, earnings visibility improves considerably as Central performs in its key selling season Q2&Q3 which should fuel multiple expansion. We reiterate our BUY on CENT.
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Thanks to "astute_dude" who provided this info on the Yahoo! thread 4/30/99 (post #943), Ref/link: messages.yahoo.com;
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Regards - Dale |
