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Phibro Animal (PAHC) Q1 Earnings Lag Estimates, Sales Up Y/Y

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Phibro Animal (PAHC) Q1 Earnings Lag Estimates, Sales Up Y/Y

Within Animal Health business of Phirbo Animal (PAHC), reduced selling prices across certain countries partially offset its international volume growth.

Phibro Animal Health Corporation PAHC reported adjusted earnings per share (EPS) of 39 cents in the first quarter of fiscal 2019, a penny ahead of the year-ago figure. However, adjusted EPS missed the Zacks Consensus Estimate of 42 cents.

This year-over-year improvement was primarily driven by higher gross profit and reduced interest expenses.

Reported EPS of 55 cents was up 2.5% from the year-ago count.

Net Sales

In the third quarter, net sales totaled $200.2 million, in line with the Zacks Consensus Estimate. But the metric was up 3.5% year over year. This upside was driven by sales growth at the Animal Health, Mineral Nutrition and Performance Products segments. Volume expansion in the Animal Health business also contributed to the company’s top line.

Segmental Sales

Net sales at the Animal Health segment inched up 2% to $131.2 million in the reported quarter on volume expansion atMedicated feed additives (MFAs) and Other category.Net sales of MFAs and other increased 9%on continued international volume growth, particularly in the cattle sector.However, nutritional specialty product sales dropped 12% due to soft volume on unfavorable dairy industry conditions. This apart, sales in the poultry sector were approximately flat on a year-over-year basis.Further, due to a turbulent economic state in certain international countries and the timing of certain distributor orders in the prior year, salesfrom Vaccines declined 7%.

Phibro Animal Health Corporation Price and Consensus

Phibro Animal Health Corporation Price and Consensus | Phibro Animal Health Corporation Quote

Net sales at the Mineral Nutrition segment rose 5% to $54.8 million on higher average selling prices, resulting from an increase in underlying commodity price.

Net sales at the Performance Products segment rose 13% to $14.1 million on the back of higher average selling prices of copper-based products and the rising average selling prices of certain industrial chemical products.

Operational Update

Phibro’s first-quarter gross profit increased 3.9% year over year to $65.9 million. Gross margin expanded 14 basis points (bps) to 32.9%.

Selling, general and administrative expenses rose 4.8% to $43 million. Operating margin contracted 14 bps to 11.4% in the quarter under review.

Financial Update                                                             

Phibro generated $1.3 million of cash flow from operations in the fiscal first quarter, down from the year-ago number of $4.8 million. Capital expenditure amounted to $6 million in this period, reflecting a reduction from $5 million in the prior-year quarter.

FY19 View Updated

Phibro has made certain changes to its guidance for fiscal 2019 based on a 1-1.5% increase in effective income tax rate over the previous projection to a new range of 28%-28.5%.Accordingly, the company predicts adjusted EPS in the range of $1.68-$1.72 compared with the earlier-expected band of $1.72-$1.77. The current Zacks Consensus Estimate of $1.75 remains above this guided range.

However, the company reaffirms its net sales outlook of $850-$875 million. The current Zacks Consensus Estimate of $867.2 million remains within the guided range.

Our Take

Phibro ended first-quarter fiscal 2019 on a disappointing note with earnings missing the Zacks Consensus Estimate and revenues in line with the mark. On a positive note, the company witnessed improvement across all broader segments. It believes that continuous investments in portfolio enhancement and development of organizational capabilities have started to pay off. Phibro also seems to be upbeat about its strength in the international business within the Animal Health segment.

Additionally, the company is currently focusing on new developments along with incremental registrations and growing volumes of its existing nutritional specialties as well as vaccines technologies. 

Zacks Rank & Key Picks

Phibro has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader medical space, which already reported solid earnings this season, are Intuitive Surgical ISRG, Stryker Corporation SYK and Merit Medical Systems, Inc. MMSI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Intuitive Surgical reported third-quarter 2018 adjusted EPS of $2.83, which beat the Zacks Consensus Estimate of $2.65. Revenues totaled $920.9 million, also surpassing the consensus estimate of $918.6 million.

Stryker posted third-quarter 2018 adjusted EPS of $1.69, outpacing the Zacks Consensus Estimate of $1.68. Operating margin was 17.8%, up 30 bps.

Merit Medical delivered third-quarter 2018 adjusted EPS of 47 cents, which trumped the Zacks Consensus Estimate of 42 cents. Revenues of $221.6 million edged past the consensus mark of $218 million.

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