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Phibro Animal Health (PAHC) Tops Q4 Earnings, Surges Y/Y

Zacks Equity Research

Phibro Animal Health Corporation PAHC reported adjusted earnings per share (EPS) of 44 cents in the fourth quarter of fiscal 2015, reflecting an impressive upside of 100% from the year-ago figure. The figure also beat the Zacks Consensus Estimate by 15.8%. The year-over-year earnings improvement can be attributed to considerable growth in the company’s revenue and margins.

Including one-time items, the company reported EPS of 26 cents, substantially better than the year ago-quarter’s loss of 47 cents per share.

For fiscal 2015, Phibro reported adjusted EPS of $1.72, up 41% from the year-ago equivalent and ahead of the Zacks Consensus Estimate by 3.6%.



Net Sales

In the reported quarter, Phibro’s net sales inched up 0.7% year over year to $185 million. Solid growth observed in the company’s Animal Health and Mineral Nutrition segments were partially neutralized by decline in sales at the Performance Products segment.

For fiscal 2015, Phibro’s net sales improved 8% year over year to $748.6 million, but missed the Zacks Consensus Estimate of $755 million.

Excluding revenues worth $8 million earned on account of vaccine licensing, revenue growth in fiscal 2015 was 7%.

Sales by Segments

Net sales from the Animal Health segment rose 3% to $117.4 million in the reported quarter, primarily driven by volume growth in the nutritional specialties and vaccines sections, which was again partially offset by volume declines in Medicated Feed Additives (MFAs) and Other. Nutritional specialty products sales increased 30%, driven by U.S. volume growth of Phibro’s products in the dairy industry and their introduction in select European countries. Sales from Vaccines increased 10% owing to volume growth, including sales of MJ Biologics products. On the other hand, sales at MFAs and Other (the biggest section of this segment) dropped 3% as volume declined in international markets.

Net sales from the Mineral Nutrition segment were up 1% at $55.6 million driven by increased volume. However, these increased volumes were partially offset by lower average selling prices, on account of lower underlying raw material commodity prices.

Net sales from the Performance Products segment declined 19% to $11.9 million owing to lower volumes and reduced average selling prices of copper-based products and lower volumes of personal care products.

Operational Update

Phibro’s gross profit increased 12% to $60.8 million, primarily owing to a well-performing Animal Health segment that exhibited volume growth, a favorable product mix and reduced manufacturing costs from favorable currency movements. Consequently, gross margin improved 290 basis points (bps) to 32.9%.

Adjusted selling, general and administrative expenses (SG&A) increased 10.4% to $38.3 million. Adjusted operating margin was 12.2% in the quarter, up 150 bps from the year-ago quarter.

Financial Update

Phibro generated $68.7 million in cash flow from operations in fiscal 2015, reflecting a massive improvement from the year-ago cash outflow of $0.7 million. Capital expenditure amounted to $20.1 million, highlighting a year-over-year increase of 1.5%.

The resultant free cash flow in fiscal 2015 was $48.6 million.


Phibro has provided its financial guidance for fiscal 2016. The company expects net sales in the range of $780–$800 million (reflecting annualized growth of 4–7%) and adjusted EPS in the range of $1.65–$1.75 (reflecting annualized growth of negative 4% to positive 2%). The current Zacks Consensus Estimate for revenues is pegged at $800 million, which coincides with the upper level of the company’s guided range. Meanwhile, the current Zacks Consensus Estimate for EPS stands at $1.77, above the company’s guided range.

Our Take

Phibro ended fiscal 2015 on an outstanding note, squarely beating the Zacks Consensus Estimate in the fourth quarter, with Animal Health as the key contributing business. With significant potential in the global animal health market, we believe that the company is poised for further growth in the international space.

Further, we believe the acquisition of the distribution rights of MJ Biologics will enable Phibro to grow its business in and out of North America, as is evident from the volume growth owing to this acquisition in Phibro’s vaccine business in the second quarter.

Stocks to Consider

The stock currently carries a Zacks Rank #3 (Hold). Better-ranked medical products stocks in the same space include ICU Medical, Inc. ICUI, NuVasive, Inc. NUVA and OraSure Technologies, Inc. OSUR. All the three stocks sport a Zacks Rank #1 (Strong Buy).

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