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Can Strong Cash Flows Help Prestige Consumer Pare Hurdles?

Zacks Equity Research

Prestige Consumer Healthcare Inc. PBH is gaining from prudent growth strategies that include acquisitions, maintenance of strong cash position and expansion of healthcare offerings. The stock has gained 6.7% in the past three months, against the industry’s decline of 0.2%. However, a tough retail landscape and adverse currency movements are limiting the company’s performance. Let’s delve deeper.

Efforts to Strengthen Portfolio Bode Well

Prestige Consumer pursues mergers and acquisitions to strengthen portfolio. In 2012, Prestige Consumer acquired BC & Goody’s that expanded its distribution channel and customer reach. Moreover, the acquisition of Fleet in January 2017 is one of its largest transactions. Moreover, the company is on track with augmenting brands and marketing capabilities of its acquired businesses. In this respect, it recently launched packaging for its BC & Goody’s brands. Other noteworthy acquisitions include DenTek Holdings, Inc in 2016 and Hydralyte in 2015.

Further, the company is on track with bolstering healthcare offerings. We note that since the second quarter of fiscal 2019, the company has been undertaking radical efforts to transform its business and focus solely on healthcare. Such moves are likely to support performance in the forthcoming periods.

Strong Cash Position

The company boasts a strong cash position, courtesy of robust free cash flows as well as proceeds from divestitures. Markedly, the company generated free cash flow of approximately $202 million, which combined with gains from divestitures reduced debt by $200 million. The strong financial status is also aiding management to undertake share repurchase initiatives.

Headwinds in the Path

Adverse currency fluctuations are a concern for Prestige Consumer, which weighed on the company’s top line during the fourth quarter. Additionally, the sale of the Household Cleaning segment has weakened the company’s top line. Moreover, revenues in fiscal 2019 were hurt by a tough retail landscape, stemming from consolidations and pressure of destocking. On the profitability front, management expects increased spending to exert pressure on the bottom line in fiscal 2020.

Wrapping Up

We expect the company’s focus on strengthening healthcare business to yield results and counter the aforementioned hurdles. Moreover, a strong financial profile enables the company to leverage on capabilities. We expect these upsides to help this Zacks Rank #3 (Hold) company sustain on growth track.

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