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Phibro Animal (PAHC) Beats on Q2 Earnings, Raises Guidance

Zacks Equity Research

Phibro Animal Health Corporation PAHC 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.

Net Sales

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.


Phibro Animal Health Corporation Price, Consensus and EPS Surprise


Phibro Animal Health Corporation Price, Consensus and EPS Surprise | Phibro Animal Health Corporation Quote


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.

Operational Update

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.

Financial Update                                                             

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.

Our Take

Phibro ended second-quarter fiscal 2018 on a solid note. The company witnessed considerable improvement across all segments. We are also encouraged by the raised fiscal 2018 guidance in the reported quarter. Moreover, the company believes that continuous investments in portfolio enhancement and developing organizational capabilities have started to pay off.

Zacks Rank & Key Picks

Phibro has a Zacks Rank #3 (Hold).

A few better-ranked stocks that reported solid results this earnings season are PetMed Express PETS, PerkinElmer PKI and ResMed RMD. While PetMed sports a Zacks Rank #1 (Strong Buy), PerkinElmer and ResMed carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed recently reported third-quarter fiscal 2018 results. Adjusted earnings per share of 44 cents were up 88.3% from the prior-year quarter. Revenues rose 13.7% on a year-over-year basis to $60.1 million.

PerkinElmer reported fourth-quarter 2017 adjusted earnings per share of 97 cents. Adjusted revenues were approximately $641.6 million, up from $567 million in the year-ago quarter.

ResMed posted second-quarter fiscal 2018 adjusted earnings per share of $1, up 36.9% from the prior-year quarter. Revenues increased 13.4% year over year (up 11% at constant exchange rate or CER) to $601.3 million.

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