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Phibro (PAHC) Down 14.8% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Phibro Animal Health (PAHC - Free Report) . Shares have lost about 14.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Phibro due for a breakout? 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 drivers.

Phibro Sees Y/Y Rise in Earnings & Revenues in Q1

Phibro reported adjusted earnings per share (EPS) of 39 cents in the first quarter of fiscal 2019, a penny ahead of the year-ago figure. However, adjusted EPS missed the Zacks Consensus Estimate of 42 cents. This year-over-year improvement was primarily driven by higher gross profit and reduced interest expenses.

Reported EPS of 55 cents was up 2.5% from the year-ago count.

Net Sales

In the third quarter, net sales totaled $200.2 million, in line with the Zacks Consensus Estimate. But the metric was up 3.5% year over year. This upside was driven by sales growth at the Animal Health, Mineral Nutrition and Performance Products segments. Volume expansion in the Animal Health business also contributed to the company’s top line.

Segmental Sales

Net sales at the Animal Health segment inched up 2% to $131.2 million in the reported quarter on volume expansion at Medicated feed additives (MFAs) and Other category.Net sales of MFAs and other increased 9%on continued international volume growth, particularly in the cattle sector. However, nutritional specialty product sales dropped 12% due to soft volume on unfavorable dairy industry conditions. This apart, sales in the poultry sector were approximately flat on a year-over-year basis. Further, due to a turbulent economic state in certain international countries and the timing of certain distributor orders in the prior year, sales from Vaccines declined 7%.

Net sales at the Mineral Nutrition segment rose 5% to $54.8 million on higher average selling prices, resulting from an increase in underlying commodity price.

Net sales at the Performance Products segment rose 13% to $14.1 million on the back of higher average selling prices of copper-based products and the rising average selling prices of certain industrial chemical products.

Operational Update

Phibro’s first-quarter gross profit increased 3.9% year over year to $65.9 million. Gross margin expanded 14 basis points (bps) to 32.9%.
Selling, general and administrative expenses rose 4.8% to $43 million. Operating margin contracted 14 bps to 11.4% in the quarter under review.

Financial Update                                                            

Phibro generated $1.3 million of cash flow from operations in the fiscal first quarter, down from the year-ago number of $4.8 million. Capital expenditure amounted to $6 million in this period, reflecting a reduction from $5 million in the prior-year quarter.

FY19 View Updated

Phibro has made certain changes to its guidance for fiscal 2019 based on a 1-1.5% increase in effective income tax rate over the previous projection to a new range of 28%-28.5%. Accordingly, the company predicts adjusted EPS in the range of $1.68-$1.72 compared with the earlier-expected band of $1.72-$1.77. The current Zacks Consensus Estimate of $1.75 remains above this guided range.

However, the company reaffirms its net sales outlook of $850-$875 million. The current Zacks Consensus Estimate of $867.2 million remains within the guided range.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, Phibro has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Phibro has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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