Central Garden & Pet delivered a solid fiscal third quarter of 2026, with organic net sales up 2% to $862 million even as reported net sales fell 8% to $882 million due to the exit of its low-margin pet distribution business. Both segments grew organically: Garden net sales rose 3% to $482 million on record fertilizer and Wild Bird sales and 40%+ eCommerce growth, while Pet organic sales rose 2% to $380 million with online up 10% and a record professional business. Margins expanded, with non-GAAP operating margin up 90 basis points to 15.4% (GAAP up 20 bps to 14.3%), though GAAP diluted EPS eased to $1.45 from $1.52 and non-GAAP EPS to $1.54 from $1.56, as higher spend on the TRIXIE acquisition and data capabilities more than accounted for a 2% operating income decline and a South American plant fire hit Dog & Cat. The balance sheet was a standout: record operating cash flow of $327 million, nearly $997 million of cash, and an all-time-low 0.5x net leverage. Central announced an agreement to acquire an 80% interest in Europe's leading pet supplies company TRIXIE for up to €400 million, advancing its Central to Home strategy and adding manufacturing, sourcing, and innovation synergy potential beginning in year two. Management noted Project Horizon is roughly 95% complete, described Pet as stabilizing with broad share gains, highlighted a full M&A pipeline (especially in lower-multiple Europe), and raised its full-year non-GAAP diluted EPS outlook to $2.85 or better from $2.70 or better.
Good afternoon, everyone, and thank you for joining Central's Third Quarter Fiscal 2026 Earnings Call. Joining me today are Niko Lahanas, Chief Executive Officer, Brad Smith, Chief Financial Officer, John Hanson, President of Pet Consumer Products, J.D. Walker, President of Garden Consumer Products, as well as Jason Barnes, EVP of Garden Consumer Products.
Niko will begin by highlighting today's key takeaways, followed by Brad, who will walk through our financial performance and the acquisition of TRIXIE in greater detail. After their prepared remarks, John, J.D., and Jason will join us for the Q&A session.
Before we get started, 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 those expressed or implied by these forward-looking statements today.
A detailed description of Central's risk factors can be found in our annual report filed with the SEC. Please note that Central undertakes no obligation to publicly update forward-looking statements to reflect subsequent information, future events, or other developments. You can find our press release and related materials at ir.central.com.
Finally, unless otherwise specified, all comparisons discussed during this call are made against the same period in the prior year. Should any question come up after the call or throughout the quarter, please feel free to contact me ir.central.com. With that, I'll turn the call over to Niko. Niko, the floor is yours.
Thanks, Friederike, and good afternoon, everyone. I'll begin with our third quarter highlights and then share how we're thinking about the balance of the year. We delivered another solid quarter. Organic sales grew, operating margins expanded, and our teams continued to execute well across the business. More importantly, our performance reflects the strength of the business we've been building over the past several years.
We've consistently improved our execution, strengthened our operating model, and enhanced our ability to invest behind the opportunities we believe will create the greatest long-term value. Those efforts are allowing us to deliver stronger financial performance while continuing to invest in the future. One example is Project Horizon, our multi-year effort to modernize our garden logistics network.
Since 2022, we've closed 13 facilities and opened two, transforming what had been separate business unit distribution networks into a unified four-node national network we call the Central Logistics Network. That program is now approximately 95% complete. The vast majority of projects have been delivered on schedule. Every project has been completed under budget, and we've accomplished all of this with minimal disruption to our customers.
Since launch, we've shipped more than 1 million small parcel packages through the network, and total shipments moving through those facilities are substantially higher. As utilization continues to increase, we're seeing meaningful improvements in productivity, service levels, and customer responsiveness.
Project Horizon reflects the kind of disciplined operational execution that strengthens our competitive position while creating capacity to invest in growth. Across Central, we're focused on making the business easier to operate, better serving our customers, and allocating capital to the highest return opportunities.
Today, that means investing behind our brands, strengthening our innovation pipeline, expanding our digital and eCommerce capabilities, improving our understanding of cost to serve, and leveraging our strong balance sheet to pursue opportunities that enhance our portfolio. We believe these investments will support sustainable growth while continuing to improve our returns over time.
That brings me to the announcement we made just last week. We entered into a definitive agreement to acquire an 80% interest in TRIXIE, the leading European pet supplies and pet snacks company. This is an important milestone in advancing our Central to Home strategy and significantly expands our presence in Europe. TRIXIE serves more than 30,000 pet retail stores worldwide with a portfolio that is approximately 90% branded products, a business built on strong customer relationships, differentiated products, and a long history of profitable growth.
We expect the transaction to close during the first half of our fiscal 2027. Together, Central and TRIXIE will create a leading global pet supplies platform with a broader international footprint. Approximately 10% of combined sales generated outside the United States and an attractive platform from which to participate in the continued growth and consolidation of the European pet specialty market.
Opportunities to acquire a profitable category leading company with TRIXIE scale, brand strength, innovation capabilities, and strong cultural alignment are uncommon. We believe this transaction meaningfully enhances our long-term growth opportunities, and we're excited to welcome the TRIXIE team to the Central family. Innovation is another area where TRIXIE excels, introducing hundreds of new products annually through its in-house design organization. That same commitment to innovation continues across our own portfolio.
During the quarter, our recent product launches continued to perform well, including Nylabone dog chews made with real meat, Farnam Endure Gold Fly Killer and Mosquito Control Spray, the Rebel Sun & Shade Extension in grass seed, and several successful private label programs.
Turning to our outlook. As we enter the fourth quarter, we do so with good momentum and a continued focus on disciplined execution. While the macroeconomic environment remains dynamic, our diversified portfolio, strong customer relationships, operational flexibility, and disciplined capital allocation position us well to continue delivering profitable growth.
Consumers continue to seek value and performance, while eCommerce and, in certain categories, private label remain in important areas of growth. These investments are generating encouraging results today while positioning us to create sustainable growth and continued margin expansion over the long term.
M&A remains an important component of our long-term strategy, and the announcement of TRIXIE doesn't change that. Even after funding this transaction in the coming months, our balance sheet remains strong and provides us meaningful flexibility to pursue additional high-quality opportunities that enhance our portfolio and create shareholder value. Our approach remains disciplined. We'll continue to focus on acquisitions that fit strategically, meet our financial return objectives, and strengthen our competitive position over the long term.
Looking ahead, the exit of our pet distribution business will continue to reduce reported revenue over the next several quarters. Though the earnings impact will be minimal given the lower margin profile of that business. Once the TRIXIE transaction closes, it will contribute incremental sales and earnings, helping offset a portion of the reported revenue impact while further strengthening our overall business mix.
Thank you, Niko. Let me run through our third quarter results in more detail. I'll provide further comments on our recent TRIXIE acquisition. Net sales declined 8% to $882 million, driven by the exit of our pet distribution business at the beginning of Q3. In contrast, organic net sales, which exclude the pet distribution business, rose 2% to $862 million, reflecting organic growth in both garden and pet.
Non-GAAP gross profit was $318 million, down 4%, with gross margin up 140 basis points to 36%. Non-GAAP SG&A was $182 million, down 6% year-over-year. As a percentage of net sales, SG&A rose to 20.6% from 20.1%. The lower SG&A spend and higher SG&A rate were primarily the result of exiting the pet distribution business, which carried a lower SG&A rate than the remaining portfolio.
Non-GAAP operating income was $136 million, down 2%, with operating margin expanding 90 basis points to 15.4%. Higher corporate spend related to the TRIXIE acquisition and investments to improve our data capabilities accounted for more than 100% of the operating income decrease. Net interest expense was $8 million, below a year ago. Other income was $2 million, slightly above the prior year.
Non-GAAP net income was $96 million, down 2%. Non-GAAP diluted EPS came in at $1.54, just shy of the $1.56 we posted last year. Adjusted EBITDA was $162 million versus $167 million a year ago, with margin expanding to 18.3% from 17.3%. Lastly, our effective tax rate for the quarter was 24.7% versus 25.1%. As a reminder, our tax rate in last year's third quarter was a bit higher than normal due to non-deductible losses incurred in the wind down of our U.K. business.
On to the segments, starting with pet. Pet segment net sales were $400 million, down 19%, reflecting the exit of our pet distribution business. Organic sales rose 2% to $380 million, driven by broad gains across the majority of our portfolio, which offset lower Dog and Cat revenues that were primarily due to the timing of promotional events and related investment spending.
Our online sales, a key barometer for the health of our business, were up 10% over prior year, helped by a record Prime Day. In addition, we delivered another quarter of record performance in our professional business, a key growth vertical for the segment, and an area where we continue to see significant opportunity. We continue to hold overall share in pet. We share gains in several categories, including professional, Dog Treats, Rawhide, and Flea and Tick.
Segment non-GAAP operating income was $76 million, down 2%, with operating margin improving 320 basis points to 19%. The lower operating income but higher operating margin were primarily the result of our distribution exit, with continued improvements in margin mix and ongoing productivity benefits in the organic business offset primarily by higher materials and freight costs.
Lastly, segment adjusted EBITDA was $86 million versus $88 million, with margin expanding to 21.4% from 17.9%. On to garden. Garden net sales were $482 million, up 3%, driven by meaningful distribution wins and strong consumer demand across fertilizer, Wild Bird, and grass seed. In fact, sales this year in both fertilizer and Wild Bird continue to be at record levels, a testament to the strength of our execution in these categories.
Another highlight this year has been our eCommerce momentum with Q3 sales up over 40% year-over-year, reflecting strong growth across both our pure-play and omni-channel partners. Overall, garden continued to gain market share during the year, with third quarter gains led by fertilizer, Wild Bird, and grass seed. As we enter the final phase of the garden season, we remain well-positioned.
Our teams have executed effectively throughout the season, partnering closely with our customers to optimize in-season performance and meet consumer demand. We continue to see solid support for our garden portfolio and remain focused on finishing the year strong. Garden non-GAAP operating income was $91 million, up 7%, with operating margin improving 70 basis points to 18.9%, driven by a favorable product mix and productivity improvements, which more than offset higher costs, particularly around freight and digital marketing spend.
Finally, garden adjusted EBITDA was $101 million versus $96 million, with margin expanding to 20.9% from 20.4%. Let's shift to cash flows and the balance sheet. Cash provided by operations was $327 million this quarter versus $265 million last year, a record for the company. This quarter, CapEx was $13 million and depreciation and amortization was $20 million, both in line with the prior year.
We're now planning approximately $50 million of CapEx for the full year, mostly maintenance plus targeted productivity and growth spending in both segments. We bought back a small amount of shares this quarter, about 26,000 shares, leaving 128 million remaining on our current authorizations. Cash and cash equivalents into the quarter at just shy of a billion dollars, $997 million to be exact, up $284 million, making Q3 the 14th consecutive quarter of year-over-year cash improvement.
Total debt stood at $1.2 billion, in line with last year, with no drawdowns on our credit facility. Gross leverage was 2.8x, slightly below a year ago, and below our 3x-3.5x target. Net leverage was 0.5x, an all-time low for the company. It's important to note that these ratios exclude the impact of funding TRIXIE, as we expect the transaction to close in the first half of fiscal 2027.
We do not expect funding of the transaction to have a meaningful impact on our leverage ratios next year. As a reminder, the transaction is structured as an 80% stake for €340 million at closing, plus up to €60 million in additional earn-out consideration. Up to €400 million in total at a high single-digit EBITA multiple. One final comment on TRIXIE.