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Why Is Phibro (PAHC) Up 1.4% Since Last Earnings Report?

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Zacks Equity Research
·5 min read
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A month has gone by since the last earnings report for Phibro Animal Health (PAHC). Shares have added about 1.4% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Phibro due for a pullback? 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 catalysts.

Phibro Q1 Earnings Surpass Estimates, Margins Up

Phibro reported adjusted earnings per share of 27 cents in the first quarter of fiscal 2021, reflecting a 42.1% uptick from the year-ago earnings per share of 19 cents. The figure exceeded the Zacks Consensus Estimate by 28.6%.

Meanwhile, without adjustments, GAAP earnings per share for the first quarter were 30 cents, up by a stupendous 400% from the year-ago count of 6 cents.

Net Sales

In the quarter under review, net sales totaled $195.2 million, up 2.9% year over year primarily due to improved sales and profitability in the core Animal Health segment. Continued strength in customer demand for Nutritional Specialties and Vaccines offerings also boosted the top line.

Segmental Sales Break-Up

During fiscal first quarter, Animal Health net sales improved 5.3% to $128.4 million. Within this segment, sales of MFAs and other were $78.7 million, reflecting a 4.9% year-over-year surge. The improvement in MFAs resulted from robust international demand, mainly for poultry products, along with favorable timing of certain customer orders.

Within Animal Health, nutritional specialty product sales rose 7.2% to $32.6 million, primarily due to international growth in dairy products. However, per the company, domestic sales were comparable to the prior year.

Apart from this, net vaccine sales totaled $17.1 million, showing an increase of 4.3% year over year on higher international demand for poultry vaccines.

Net sales at the Mineral Nutrition segment fell 2.3% year over year to $51.4 million owing to lower average selling prices, which offset the overall unit volume growth.

Net sales at the Performance Products segment rose 1.3% to $15.4 million owing to higher sales of personal care product ingredients. However, this was partially offset by lower sales of copper-based products.

Margins

Phibro’s first-quarter gross profit improved 11.3% year over year to $64.1 million. Gross margin expanded 247 basis points (bps) to 32.8%.

Selling, general and administrative expenses in the reported quarter were $48.4 million, up 1.9% from the year-ago quarter.

Adjusted operating profit rose 55.4% year over year to $15.7 million and adjusted operating margin expanded 272 bps to 8% in the quarter under review.

Financial Update

The company exited the first quarter of fiscal 2021 with cash and short-term investments on hand of $92 million compared with $91 million at the end of fiscal 2020.

Net cash provided by operating activities at the end of the first quarter of fiscal 2021 was $1.7 million compared with net cash used by operating activities of $3.6 million a year ago.

Cumulative capital expenditure amounted to $7.4 million at the end of first quarter of fiscal 2021, reflecting a decrease from the year-ago $7.6 million.

Outlook

Despite pandemic-led business disruptions across the globe, Phibro has provided its financial guidance for the second quarter of fiscal 2021, boosted by the improving business trends.

The company projects net sales for the second quarter of fiscal 2021 to be around $205 million, which is below the year-ago reported sales of $214 million.

Net income for the second quarter of fiscal 2021 is projected to be $9 million, below the year-ago reported net income of $11.9 million.

Adjusted earnings per share is projected to be 28 cents. The Zacks Consensus Estimate for the metric is in line with the company’s expectations.

Further, GAAP earnings per share for second quarter of fiscal 2021 is anticipated to be 23 cents, below the year-ago reported GAAP earnings per share of 29 cents.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -10.71% due to these changes.

VGM Scores

Currently, Phibro has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Phibro has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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