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Phibro (PAHC) Down 6.2% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
Safety, Income and Growth (SAFE) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

A month has gone by since the last earnings report for Phibro Animal Health (PAHC). Shares have lost about 6.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Phibro due for a breakout? 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 drivers.

Phibro Sees Y/Y Rise in Revenues in Q2 on Solid Animal Health Arm

Phibroreported adjusted earnings per share (EPS) of 41 cents in the second quarter of fiscal 2019, showing a 6.8% drop from the year-ago number. The figure missed the Zacks Consensus Estimate by the same percentage.

This year-over-year decline was primarily on account of escalating product cost leading to gross margin contraction.

Meanwhile, reported EPS was 36 cents, reflecting a stupendous 19 cents increase from the year-ago count.

Net Sales

In the quarter under review, net sales totaled $218.2 million, up 6% year over year. This upside was driven by significant sales growth at three core segments — Animal Health, Mineral Nutrition and Performance Products.

Segmental Sales Break-up

During the second quarter, Animal Health net sales increased 5.1 % to $139.6 million on 13% sales growth within medicated feed additives (MFAs). This was driven by consistent volume expansion in Asia and Latin America. Internationally, MFA growth was strong despite reduced selling prices in certain countries on account of adverse currency movement. However, domestic sales of MFAs and others declined in the reported quarter.

Nutritional specialty product sales dropped 10% due to volume declines on account of unfavorable dairy industry conditions and diminishing demand from poultry consumers. Apart from this, net vaccine sales dropped 6% year over year due to global economic instability.

Net sales at the Mineral Nutrition segment rose 4.5% year over year to $62.3 million. This was driven by an increase in average selling prices and higher volumes. The selling prices rose on an increase in underlying commodity prices.

Net sales at the Performance Products segment rose 21.6% to $16.3 million backed by higher volumes of copper-based and personal care products.

Operational Update

Phibro’s second-quarter gross profit increased 2.5% year over year to $68.6 million. However, gross margin contracted 105 basis points (bps) to 31.4%.

Selling, general and administrative expenses in the reported quarter came in at $42.9 million, unchanged from the year-ago period.  

Operating profit increased 7.5% year over year to $25.7 million And adjusted operating margin expanded 17 bps to 11.8%.

Financial Update

Year to date, Phibro generated $15.3 million of cash flow from operations, down from the year-ago $32.3 million. Capital expenditure amounted to $6.1 million in this period, reflecting an increase from $3.9 million in the prior-year quarter.

FY19 Outlook

The company has provided an update to its guidance for fiscal 2019. The company expects net sales and adjusted EPS at the low end of the earlier-provided guidance.

The earlier-provided EPS guidance was $1.62-$1.75 on net sales of $850-$875 million.

The Zacks Consensus Estimate for revenues for fiscal 2019 is pegged at $854.29 million while the same for adjusted EPS is at $1.71.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

Currently, Phibro has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Phibro has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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