It has been about a month since the last earnings report for Prestige Brands (PBH - Free Report) . Shares have added about 3.1% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Prestige Consumer Q2 Earnings Beat, Revenues Down Y/Y
Prestige Consumer came out with second-quarter fiscal 2019 results, wherein earnings and revenues beat the Zacks Consensus Estimate. Notably, this marks the company’s third consecutive earnings beat. Organic revenues increased year over year, backed by robust consumption trends. Further, management retained its view for fiscal 2019.
Q2 in Details
The company posted adjusted earnings of 65 cents per share, up 7% from the year-ago quarter’s figure. Bottom line gained from strong financial profile that aided to leverage capabilities. Also, the figure surpassed the Zacks Consensus Estimate of 63 cents.
Total revenues of $239.4 million beat the Zacks Consensus Estimate of $238.6 million. The top line dropped 7.2% year over year. Nevertheless, organic revenues increased 1.6%, driven by strong consumption trends in several brands that were partially offset by change in accounting policies and packaging expenses of Goody’s and BC brands.
Gross profit came in at $137.5 million, reflecting a decline of 4.6% from the prior-year quarter’s figure. Also, adjusted gross margin expanded 160 basis points (bps) to 57.4% in the fiscal second quarter, primarily driven by the divestiture of Household Cleaning segment, and progress in minimizing freight and warehousing costs.
Moreover, adjusted EBITDA was $80.2 million, down 7.3% year over year, owing to the household divestiture. Adjusted EBITDA margin remained flat at 33.5%.
Revenues in the North American OTC Healthcare segment amounted $216 million, up 0.3% year over year. The segment gained from consumption growth across core OTC brands, partially offset by change in revenue recognition accounting policies, and the launch of new packaging for BC and Goody’s brands.
Revenues in the International OTC Healthcare segment totaled $23.4 million, up 11.7% from the year-ago quarter. The rise was attributable to consumption growth along with normalization of differences in shipments and distributor orders.
The company exited the quarter under review with cash and cash equivalents of $36.9 million, net long-term debt of $1,895.8 million and shareholders’ equity of $1,193.2 million. Net cash provided by operating activities in the quarter was $39.3 million.
The company retained its fiscal 2019 outlook. Management continues to expect revenues of $985-$995 million. Further, adjusted earnings per share are still projected to be $2.84-$2.92.
Additionally, Prestige Consumer is on track with its three core strategies. It is striving to maintain a strong balance sheet, cost-effective capital allocation and returning high value to shareholders.
Prestige Brands to Sell Household Cleaning Business – July 2, 2018
Prestige Brands inked a deal to divest its household cleaning business for roughly $69.0 million. This wil include the sale of Comet, Spic and Span, Cinch, Chore Boy and Chlorinol household product brands and associated inventory. Management expects this divestiture to help the company concentrate on its “invest for growth” consumer healthcare business. Markedly, Prestige Brands plans to utilize the net proceeds from this sale to repay debt.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, Prestige Brands has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision 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.