RPM Banks on Buyout & Expansion Plans, Costs on the Rise
It has been about a month since the last earnings report for Phibro Animal Health Corporation PAHC. Shares have added about 7% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to its next earnings release, or is PAHC due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Phibro Animal Health reported adjusted earnings per share (EPS) of 44 cents in the second quarter of fiscal 2018, up 12.8% year over year. Adjusted EPS surpassed the Zacks Consensus Estimate of 39 cents. According to the company, the year-over-year improvement was primarily driven by a higher gross profit ratio, reduced interest expenses and a lower effective income tax rate.
Reported EPS of 17 cents was down 50% from the year-ago quarter on lower net income majorly due to a $8.3-million rise in income tax expenses.
In the reported quarter, net sales totaled $205.9 million, up 7.5% year over year. The improvement was driven by sales growth at the Animal Health, Mineral Nutrition and Performance Products segments.
Sales by Segments
Net sales at the Animal Health segment increased 7% to $132.8 million in the reported quarter on volume increase at Nutritional specialty and Vaccine product groups within the segment. While Nutritional specialty products grew 12%, sales from Vaccines increased 7%, principally on volume growth of products for poultry and dairy industries.
Moreover, sales at Medicated feed additives (MFAs) and Other grew 6% primarily buoyed by strength in international business.
Domestic net sales at MFAs and Other declined by $4.2 million due to reduced volumes of medically important antimicrobials and unfavorable timing of certain customer orders. International net sales increased by $8.7 million, driven by growth in most regions, including the benefit of a recent buyout and additional penetration in the cattle sector.
Net sales at the Mineral Nutrition segment increased 5% to $59.6 million on higher average selling prices resulting from an increase in underlying raw material commodity price. Moreover, favorable product mix contributed to overall revenue growth at the segment.
Net sales at the Performance Products segment increased 19% to $13.4 million on higher average selling prices and volumes of copper-based products. However,lower average selling prices of personal care products had partially offset the rise in average selling prices.
Phibro’s second-quarter gross profit increased 5% year over year to $66.9 million. The gross margin contracted 60 basis points (bps) to 32.5%.
Selling, general and administrative expenses rose 5% to $43 million. Operating margin contracted 20 bps to 11.6% in the quarter.
Year to date, Phibro generated $37.1 million in cash flow from operations compared with $47.7 million in the year-ago period. Capital expenditure amounted to $8.9 million in this period, reflecting a reduction from $10.6 million in the year-ago period.
FY18 View Raised
Phibro has updated its guidance for fiscal 2018. The company expects to generate net sales of $800-$825 million compared to the previous $765-$790 million. The current Zacks Consensus Estimate of $779.4 million falls below the guided range.
Phibro raised its adjusted EPS guidance to $1.66-$1.71 from $1.55-$1.61 stated previously. The current Zacks Consensus Estimate of $1.57 is also below the company's guided range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 7% due to these changes.
Phibro Animal Health Corporation Price and Consensus
Phibro Animal Health Corporation Price and Consensus | Phibro Animal Health Corporation Quote
At this time, PAHC has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value and growth investors while momentum investors may want to look elsewhere.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise PAHC has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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