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Can Growth Efforts Aid Prestige Consumer Pare Weak Units?

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Amid headwinds such as dismal segments and adverse currency movements, Prestige Consumer Healthcare Inc. (PBH - Free Report) is striving to stay afloat by adopting prudent growth strategies. These initiatives include acquisitions, maintaining strong cash position and focusing on expanding healthcare unit. Let’s take a closer look.

Buyouts & Focus on Healthcare Unit’s Growth

Prestige Consumer pursues mergers and acquisitions to boost growth. In 2012, Prestige Consumer acquired BC & Goody’s that enabled the company to expand distribution channel and gain better customer reach. Moreover, the acquisition of Fleet in January 2017 is one of the company’s largest transactions. Moreover, Prestige Consumer is on track with augmenting brands and marketing capabilities of acquired businesses. Other noteworthy buyouts of the company include DenTek Holdings, Inc in 2016 and Hydralyte in 2015. Such efforts have expanded the company’s portfolio and helped it gain greater market reach.

Another vital growth endeavor of the company is to radically boost offerings in the healthcare segment. In fact, we note that the company changed its corporate name from Prestige Brands Holdings Inc. to Prestige Consumer Healthcare, Inc. during the second quarter of fiscal 2019. This marked an important milestone for the company that boasts a strong portfolio of healthcare brands. Moreover, the company believes that focusing on areas that have greater growth prospects, such as healthcare, will enable it to utilize resources efficiently.

Strong Financial Position

A strong cash position has propelled the company to undertake initiatives to strengthen business. During the third quarter of fiscal 2019, adjusted free cash flow increased 27.7%. Moreover, the company generated free cash flow of $154.9 million in the nine months ended Dec 31, 2018. This has helped the company reduce debt burden to a certain extent. Management expects adjusted free cash flow of $200 million or more in fiscal 2019. We hope that such a strong financial status will enable it to lower debt further and add to the company’s profitability.

Will Growth Efforts Aid Revival?

Sluggish performance in the North American and International segments was a drag on the company’s top line in the third quarter. The North American business was impacted by lower inventory levels at certain key retailers. Also, the international unit was affected by unfavorable foreign currency movements as well as normalization of differences in shipments and distributor orders. Management expects inventory headwinds to persist till fiscal 2020. Well, such factors have weighed on investors’ sentiments. This is evident from the stock’s 6.6% decline in the past three months, against the industry’s rise of 10.2%.

Nevertheless, we expect the company’s focus on strengthening healthcare business to yield results and counter the aforementioned hurdles. Moreover, a strong financial profile enables the company to leverage on capabilities. Management’s favorable view for fiscal 2019 is a reflection of its consistent business momentum and confidence in future prospects. We expect these factors to uplift investors’ sentiments regarding the Zacks Rank #3 (Hold) stock.

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