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Phibro's (PAHC) Q1 Earnings & Revenues Fall Y/Y, Margins Down

Zacks Equity Research

Phibro Animal Health Corporation PAHC reported adjusted earnings per share (EPS) of 19 cents in the first quarter of fiscal 2020, reflecting a 51.3% fall from the year-ago 39 cents. The figure also missed the Zacks Consensus Estimate by 13.6%.

Despite a contraction in income tax expenses, the year-over-year drop can be blamed on lower gross profit, increased SG&A expenses (on product development and growth initiatives), and higher interest expenses.

Meanwhile, without adjustments, reported EPS was 6 cents, reflecting a fall of 85% from the year-ago count.

Phibro Animal Health Corporation Price, Consensus and EPS Surprise

 

Phibro Animal Health Corporation Price, Consensus and EPS Surprise

Phibro Animal Health Corporation price-consensus-eps-surprise-chart | Phibro Animal Health Corporation Quote

Net Sales

In the quarter under review, net sales totaled $189.7 million, down 5.2% year over year owing to substantially lower sales at three core segments — Animal Health, Mineral Nutrition and Performance Products.

Segmental Sales Break-Up

During the first quarter, Animal Health net sales declined 7.1% to $121.9 million. Within this segment, the company registered $75 million in sales of medicated feed additives (MFAs) and other, reflecting a 13.8% year-over-year decline. This was on account of lower demand owing to African swine fever outbreak in China. Customer order patterns also dented the company’s international business.

Within Animal Health, Nutritional specialty product sales rose 12.6% to $30.4 million on volume growth in dairy products. The recently-completed acquisition of Osprey Biotechnics also aided sales at the segment.

Apart from this, net vaccine sales totaled $16.4 million, showing a drop of 4.7% year over year due to the loss of a domestic distribution arrangement.

Net sales at the Mineral Nutrition segment fell 4% year over year to $52.6 million owing to unfavorable product mix and lower average selling prices.

Net sales at the Performance Products segment rose 7.8% to $15.2 million backed by higher volumes of personal care products.

Margins

Phibro’s first-quarter gross profit declined 12.6% year over year to $57.6 million. Also, gross margin contracted 255 basis points (bps) to 30.4%.

Selling, general and administrative expenses in the reported quarter were $47.5 million, up 10.5% from the year-ago quarter.

Operating profit declined 55.9% year over year to $10 million and operating margin contracted 611 bps to 5.3% in the quarter under review.

Financial Update

The company ended the first quarter of fiscal 2020 with cash and short-term investments on hand of $79 million compared with $82 million at the end of fiscal 2019.

Net cash used by operating activities was $3.6 million in the first quarter against the year-ago quarter’s net cash provided by operating activities of $1.3 million. Capital expenditure amounted to $10.1 million in the first quarter, reflecting an increase from $5.5 million in the prior-year quarter.

FY20 Outlook

The company has reiterated its guidance for fiscal 2020. The company expects net sales of around $833-863 million. Adjusted EPS is reaffirmed at the band of $1.08-1.15.

The Zacks Consensus Estimate for fiscal 2020 revenues is pegged at $843.3 million, which is within the guided range. The same for adjusted EPS is pegged at $1.12, also within the guided range.

Our Take

Phibro started fiscal 2020 on a disappointing note as earnings missed the consensus mark and revenues declined year over year. Revenue decline in two of its core segments and contraction in both the margins are concerning.

However, the company witnessed revenue growth at its Performance Products segment. Strong international volume growth in dairy products and the Osprey Biotechnics acquisition contributed to the rise in Nutritional specialty product sales. The company is upbeat about its long-term prospects within the animal health segment.

Zacks Rank & Key Picks

Currently, Phibro carries a Zacks Rank #3 (Hold).

A few better-ranked medical device companies, which posted solid results this earnings season, are ResMed Inc RMD, NuVasive, Inc NUVA and Thermo Fisher Scientific Inc TMO.

ResMed, with a Zacks Rank #2 (Buy), reported first-quarter fiscal 2020 adjusted EPS of 93 cents, surpassing the Zacks Consensus Estimate by 6.9%. Its revenues of $681.1 million outpaced the consensus mark by 3.7%.

NuVasive’s third-quarter 2019 adjusted EPS of 59 cents surpassed the Zacks Consensus Estimate by 9.3%. Its revenues totaled $290.8 million, which surpassed the consensus estimate by 2.4%. The stock currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher, with a Zacks Rank #2, delivered third-quarter 2019 adjusted EPS of $2.94, beating the Zacks Consensus Estimate by 2.1%. Its revenues of $6.27 billion beat the Zacks Consensus Estimate by 1.3%.

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