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Prestige Brands (PBH) Up 3.5% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Prestige Brands (PBH). Shares have added about 3.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Prestige Brands due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Prestige Consumer Q4 Earnings & Revenues Top Estimates

Prestige Consumer Healthcare reported fourth-quarter fiscal 2020 results, wherein both top and bottom lines improved year over year and beat the Zacks Consensus Estimate. This marked the company’s fifth straight beat (on a combined basis).
 
The company posted adjusted earnings of 82 cents per share, which surpassed the Zacks Consensus Estimate of 74 cents. This marked its ninth consecutive quarter of earnings beat. Quarterly earnings also improved 13.9% year over year.

Total revenues advanced 4.2% to $251.2 million and beat the Zacks Consensus Estimate of $240 million. Organic revenues rose 4.6% (excluding currency effects). Top-line results were backed by robust consumption trends at core brands in the domestic regions and solid international unit performance.

Adjusted gross profit came in at $149.1 million, which grew 7.9% from the prior-year quarter’s figure. Adjusted gross margin expanded 20 basis points (bps) to 59.4%.

Adjusted EBITDA was $85.9 million, up 2.6% year over year. However, adjusted EBITDA margin contracted 50 bps to 34.2%.

Segment Performance

Revenues in the North American OTC Healthcare segment were $219.8 million, up 2.3% year over year. The upside is accountable to greater consumption at core brands.

Revenues in the International OTC Healthcare segment totaled $31.4 million, up 20.3% from the year-ago quarter’s figure. The upside can be attributed to solid consumption gains along with favorable distributor order and shipment timings. This was partly negated by currency headwinds to the tune of roughly $1 million.

Financial Updates

The company exited the quarter with cash and cash equivalents of $94.8 million, long-term debt (net) of $1,730.3 million and total shareholders’ equity of approximately $1,171 million.

Net cash provided by operating activities in fiscal 2020 was $217.1 million. Adjusted free cash flow for the fiscal amounted to $206.8 million. As of Mar 31, the company’s net debt position was about $1.6 billion. In fiscal 2020, Prestige Consumer lowered debt by $68 million, increased cash and cash equivalents by $67 million and made share buybacks of around $57 million.

Guidance

The company saw a sharp increase in consumption trends toward late fourth-quarter fiscal 2020, thanks to consumers’ stockpiling driven by coronavirus. However, management expects the trend to reverse in the first quarter of fiscal 2021, as consumers are likely to alter their shopping habits. This reduction is anticipated to be somewhat offset by increased retailer orders. All said, the company expects revenues of roughly $220 million or more in the first quarter of fiscal 2021, with earnings per share expected to be 70 cents or more.

However, the company did not offer any guidance for fiscal 2021 due to the uncertainty surrounding shutdowns and consumer spending led by the COVID-19 crisis. Nonetheless, the company said that it is well placed to navigate through these hurdles, given its robust brand portfolio, disciplined capital allocation and financial flexibility.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, Prestige Brands has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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

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



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