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Can Buyouts, Brand Strength Sustain Prestige Brands' Growth?

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Prestige Brands Holdings Inc. (PBH - Free Report) is benefitting from impressive sales history, brand building initiatives, strategic acquisitions and debt- reduction efforts. Notably, its value-accretive acquisitions of brands like Fleet, BC and Goody's have been driving the company’s performance.

Shares of this company have outpaced both the Zacks Consumer Products-Miscellaneous Discretionary industry and the broader sector in the past three months. Evidently, this Zacks Rank #3 (Hold) stock has rallied 14.1%, while the industry rose 8.6% and the Zacks Consumer Discretionary sector gained 9.1%.

Let’s Delve Deeper

Prestige brands’ top line has been increasing year over year for quite some time now. In the fourth quarter, sales grew 6.4% year over year, owing to strong consumption trend in the company’s core brands. Its largest acquisition, Fleet, generated sales of $175.4 million in 2018 and was also a major driver in the fourth quarter.

Both these factors benefited the company’s segments as all, except Household Cleaning, witnessed sales growth. These upsides have made management confident of the company’s sales growth. It now expects sales to be in the range of $1,046-$1,056 million in fiscal 2019.  

The company is actively pursuing strategic mergers and acquisitions to boost growth. It has completed five significant mergers since 2012, out of which BC and Goody's contributed 25% to sales, till date. Also, the company acquired Fleet in January 2017.

The addition of Fleet will strengthen its portfolio and lead the company toward long-term growth. With such efforts, the company remains poised to meet its goal of having “invest for growth” brands form 85% of its portfolio.

Additionally, it remains committed to reduce its debt through strong cash generation. The company’s brand building activities and sales-growth have largely been driving its steady cash flows. The company expects to sustain such trends in fiscal 2019 as well, wherein management expects to achieve roughly 4.7 times net debt-to-EBITDA..

However, stiff competition and softness in Household Cleaning segment might weigh upon the company’s results. Also, increasing trend in cost of sales remains a concern. Persistence of this trend may hurt the gross margin.

Bottom line

Nonetheless, we believe that the aforementioned headwinds will be efficiently overcome by Prestige Brands’ strategic initiatives. Estimates have remained largely stable ahead of first-quarter fiscal 2019 earnings release. The Zacks Consensus Estimate for the first quarter and fiscal 2019 are currently pegged at 66 cents and $2.99, respectively.

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