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Why Is Prestige Brands (PBH) Up 8.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Prestige Brands (PBH - Free Report) . Shares have added about 8.8% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Prestige Consumer Q2 Earnings Top Estimates, Rise Y/Y

Prestige Consumer posted solid second-quarter fiscal 2021 results, wherein earnings and sales cruised ahead of the Zacks Consensus Estimate. Results were backed by strength of the company’s brand portfolio, efficient marketing plans and considerable growth in the e-commerce channel. These upsides aided Prestige Consumer’s revenues, leading to robust earnings growth. This, in turn, enabled the company to curtail debt and undertake disciplined capital allocation even amid the pandemic.

The company posted adjusted earnings of 78 cents per share, which surpassed the Zacks Consensus Estimate of 72 cents. This marked its 11th consecutive quarter of earnings beat. Quarterly earnings also improved 15% year over year.

Total revenues edged down 0.3% to $237.4 million but surpassed the Zacks Consensus Estimate of $227.4 million. Excluding currency effects, revenues dropped 0.5%. The year-over-year downside can be attributable to lower consumption for some brands amid the pandemic. This was largely compensated by stable consumption trends in most parts of the portfolio.

Adjusted gross profit came in at $137.7 million, down 0.4% from the prior-year quarter’s figure. Adjusted gross margin remained flat at 58%. Adjusted EBITDA was $80.7 million, up 4.7% year over year. Further, adjusted EBITDA margin expanded 160 bps to 34%.

Segment Performance

Revenues in the North American OTC Healthcare segment were $216.6 million, up 1.3% year over year. Results were backed by gains in most of the segment’s key brands, partly countered by reduced consumption for certain brands wherein category consumption has been hurt by the pandemic.

Revenues in the International OTC Healthcare segment were $20.8 million, down 14% from the year-ago quarter’s figure. The downside can be accountable to sluggish consumption in certain brands (like Hydralyte) due to COVID-19, partly compensated by currency gains of roughly $0.7 million.

Financial Updates

The company exited the quarter with cash and cash equivalents of $26.6 million, long-term debt (net) of $1,548.1 million and total shareholders’ equity of $1,278.2 million.

Net cash provided by operating activities in the quarter was $52.1 million. Adjusted free cash flow for the quarter amounted to $43.1 million. As of Sep 30, the company’s net debt position declined to roughly $1.5 billion. In the quarter under review, Prestige Consumer lowered debt by $74 million.

Guidance

The company witnessed more stable consumption and retailer order patterns in the quarter, which along with the current trends form the basis for management’s fiscal 2021 guidance. In fiscal 2021, the company anticipates revenues of $925 million, based on anticipations of growth in most key brands. This is expected to be partly countered by pandemic-led impacts on consumer behavior and demand in certain categories. Adjusted earnings per share are envisioned to be nearly $3.18 for the fiscal. The Zacks Consensus Estimate for earnings is pegged at $3.15, currently. In fiscal 2020, Prestige Consumer’s top and bottom lines came in at $963 million and $2.96 per share, respectively.

Free cash flow is anticipated to be $207 million or more in fiscal 2021.  Management remains focused on strengthening its brand portfolio to drive sales. These efforts, together with a strong financial status and efficient capital allocation, are expected to drive top and bottom-line growth in the long term.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Prestige Brands has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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