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Phibro Animal (PAHC) Q3 Earnings Beat, Sales Improve Y/Y

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Phibro Animal Health Corporation PAHC reported adjusted earnings per share (EPS) of 46 cents in the third quarter of fiscal 2018, up 24.3% year over year. Adjusted EPS surpassed the Zacks Consensus Estimate of 44 cents. According to the company, the year-over-year improvement was primarily driven by a higher gross profit, reduced interest expenses and a lower effective income tax rate.

Reported EPS of 49 cents was down 16.9% from the year-ago quarter on lower net income.

Net Sales

In the reported quarter, net sales totaled $208.9 million, up 10% 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 9% to $132.3 million in the reported quarter on volume increase at Nutritional specialty and Vaccine product groups within the segment. While Nutritional specialty products grew 14%, principally on volume growth of products for poultry and dairy industries. Further, sales from Vaccines increased 6%, majorly on global volume growth.

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 9% primarily on strength in international business.

Domestic net sales at MFAs and Other rose $1 million on volume growth of certain products. International net sales increased by $5.6 million, driven by growth in most regions, including benefits from a recent buyout and additional penetration in the cattle sector.

Net sales at the Mineral Nutrition segment increased 10% to $62.9 million on higher average selling prices resulting from an increase in underlying raw material commodity price.

Net sales at the Performance Products segment rose 17% to $13.7 million on higher average selling prices and volumes of copper-based products.

Operational Update

Phibro’s third-quarter gross profit increased 14% year over year to $69.1 million. The gross margin expanded 120 basis points (bps) to 33.1%.

Selling, general and administrative expenses rose 39.2% to $42.6 million. Operating margin contracted 310 bps to 12.7% in the quarter.

Financial Update                                                             

Year to date, Phibro generated $59.9 million in cash flow from operations compared with $84.8 million a year ago. Capital expenditure amounted to $13 million in this period, reflecting a reduction from $15.4 million in the year-ago period.

FY18 View Reaffirmed

Phibro has reaffirmed its guidance for fiscal 2018. The company expects to generate net sales of $800-$825 million. The current Zacks Consensus Estimate of $811 million falls within the guided range.

Phibro projects adjusted EPS in the $1.66-$1.71 band. The current Zacks Consensus Estimate of $1.69 is also within the company's guided range.

Our Take

Phibro ended third-quarter fiscal 2018 on a solid note. The company witnessed considerable improvement across all segments. Moreover, the company believes that continuous investments in portfolio enhancement and development of organizational capabilities have started to pay off. Further, an improved gross margin from favorable product mix buoys optimism.

Moreover, the company is busy arranging funds from third parties to invest in the development of technologies and products. We are also upbeat about Phibro foraying into the companion animal space with the signing of an agreement to develop an innovative product for a canine Lyme disease vaccine using a novel delivery method. 

Zacks Rank & Key Picks

Phibro has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space which have reported solid results this season are Intuitive Surgical ISRG, Chemed Corporation CHE and Baxter International Inc. BAX. While Intuitive Surgical sports a Zacks Rank #1 (Strong Buy), Chemed and Baxter carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported first-quarter 2018 adjusted EPS of $2.44, which beat the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, also surpassing the consensus estimate by 10.6%.

Chemed posted first-quarter 2018 adjusted EPS of $2.72, surpassing the Zacks Consensus Estimate of $2.37. Revenues came in at $439.2 million, beating the Zacks Consensus Estimate of $420 million.

Baxter posted first-quarter 2018 adjusted EPS of 70 cents, which beat the Zacks Consensus Estimate by 12.9%. Revenues of $2.68 billion also edged past the Zacks Consensus Estimate of $2.62 billion.

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