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Prestige Consumer (PBH) Brand-Building Efforts Solid, Costs High

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Prestige Consumer Healthcare Inc. (PBH - Free Report) appears to be well-placed for growth due to its robust brand-building efforts, favorable consumer demand and the growing e-commerce business. Gains from these upsides were visible in the company’s fourth-quarter fiscal 2022 results, wherein the top and bottom lines beat the Zacks Consensus Estimate and grew year over year.

However, the company is facing cost and supply chain-related hurdles. However, this over-the-counter (“OTC”) health and personal care products provider offered an encouraging guidance for fiscal 2023.

Factors Working Well for Prestige Consumer

Prestige Consumer prides on having a strong portfolio of healthcare brands. It has been focused on areas with greater growth potential. On its fourth-quarter fiscal 2022 earnings call, management stated that its largest brands hold the top market share, with many of them leading by a broad margin. This reflects consumers’ trust in PBH’s brands and the company’s focus on brand building, which helps expand categories. On its fourth-quarter earnings call, management stated that its portfolio supports long-term organic sales growth of 2-3%. It expects to continue generating industry-leading cash flow, which helps it repay debt, lower cash interest expenses and drive profits. Further, management envisions long-term earnings per share (EPS) growth of 6-8%.

The company has undertaken several lucrative acquisitions to boost its portfolio. It acquired TheraTears and four other OTC consumer brands across the VMS and Cough & Cold categories from Akorn Operating Company LLC. This buyout, concluded in July 2021, contributed to Prestige Consumer’s fourth-quarter results. In North America OTC Healthcare, gains of about $16 million from the Akorn acquisition aided segmental growth. Management remains optimistic about TheraTears’ and Clear Eyes’ prospects in the long term. These have been helping PBH enhance its footing in the eye care space.

The company has been making multi-year e-commerce investments for a while now. It continues to see growth in the e-commerce channel, which is approaching 50% of the company’s sales (as of the end of fiscal 2022). The upside can be attributed to consumers’ growing shift to online shopping as well as the company’s constant investments in online content and digital marketing. With more consumers shifting to the online mode of shopping, the e-commerce channel is likely to remain strong and Prestige Consumer’s investments in this arena are likely to keep it well-placed.

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Cost Woes

Prestige Consumer is encountering hurdles related to supply-chain restrictions and cost inflation. The company expects to witness inflation and supply-chain hurdles in fiscal 2023. Management expects a gross margin of more than 56% in fiscal 2023 compared with 57.1% in fiscal 2022. The company is focused on undertaking price increases to combat inflation.

A Look at Q4 & Ahead

Prestige Consumer posted fourth-quarter fiscal 2022 adjusted earnings of 91 cents per share, which surpassed the Zacks Consensus Estimate of 89 cents. The bottom line advanced 15.2% from the 79 cents recorded in the year-ago period. Total revenues grew 12.3% to $266.9 million and beat the Zacks Consensus Estimate of $258 million. Excluding currency impacts and contributions from the Akorn buyout, revenues rose 5.9%. Revenues were backed by strength in key brands, with improved demand across certain categories, brands and channels that were hurt by the pandemic in the year-ago period (such as cold & cough products).  

Prestige Consumer benefited from its vast brand portfolio and solid business strategy, which helped it register a double-digit increase in revenues, earnings and cash flows. Certain categories like travel, which were earlier impacted by the pandemic, performed well in the fourth quarter.

Based on a robust fiscal 2022 show, management expects fiscal 2023 to witness continued growth. Management anticipates organic sales growth in the range of 2-3%, backed by its brand-building efforts and pricing actions. It expects operating profit growth to be at or a little more than its rate of sales. The solid guidance is likely to keep helping the company lower debt and undertake other strategic capital utilization moves. For fiscal 2023, PBH anticipates revenues in the range of $1,120-$1,130 million compared with the $1,086.8 million reported in fiscal 2022. Also, it envisions adjusted EPS in the band of $4.18-$4.23 compared with the $4.06 recorded in fiscal 2022.

Shares of this Zacks Rank #3 (Hold) company have dropped 8.6% in the past six months compared with the industry’s decline of 30.2%.

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