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Phirbo (PAHC) Q2 Earnings Lag Estimates, Operating Margin Up

Zacks Equity Research

Phibro Animal Health Corporation PAHC reported 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.

Phibro Animal Health Corporation Price, Consensus and EPS Surprise

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


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.

Our Take

Phibro ended the second quarter of fiscal 2019 on a disappointing note. On an optimistic note, the company witnessed significant revenue growth in each of its core segments. Strong volume growth in foreign markets, especially within Animal Health, offset the fall in domestic sales. The mineral nutrition business of Phibro has also shown some promise. The company is upbeat about investments.

Zacks Rank and Key Picks

Phibro Animal Health has a Zacks Rank #3 (Hold). A few better-ranked MedTech stocks that posted solid quarterly results are Abbott Laboraories ABT, AngioDynamics ANGO and CONMED Corp. CNMD.

Abbott reported fourth-quarter 2018 adjusted EPS of 81 cents, in line with the Zacks Consensus Estimate. Revenues of $7.77 billion were below the Zacks Consensus Estimate of $7.79 billion. The stock has a Zacks Rank #2.

AngioDynamics’ fiscal second-quarter adjusted EPS of 22 cents exceeded the Zacks Consensus Estimate by a penny. Revenues totaled $91.5 million, beating the consensus estimate by 2.9%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CONMED delivered fourth-quarter adjusted EPS of 73 cents, in line with the Zacks Consensus Estimate. Revenues of $242.4 million beat the Zacks Consensus Estimate of $229.2 million. The stock carries a Zacks Rank of 2.

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