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Why Is Phibro (PAHC) Up 8.5% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Phibro Animal Health (PAHC). Shares have added about 8.5% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.

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

Phibro Animal Health Corporation reported adjusted earnings per share  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 earnnigs per share was 6 cents, reflecting a fall of 85% from the year-ago count.

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.

Fiscal 2020 Outlook

The company has reiterated its guidance for fiscal 2020. The company expects net sales of around $833-863 million. Adjusted earnings 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 earnings is pegged at $1.12, also within the guided range.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 16.67% due to these changes.

VGM Scores

At this time, Phibro has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Phibro has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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