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Prestige Consumer Gains on Strong Margins & Robust Cash Flow

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Prestige Consumer Healthcare Inc. PBH is gaining from well-chalked growth strategies, which include acquisitions, strong cash position and solid margin trend. The company’s business transformation efforts, which aim at expansion of healthcare offerings, are also noteworthy.

Let’s delve deeper.

A Brief Introspection

A sturdy margin trend bodes well for Prestige Consumer. Notably, the company’s gross margin expanded 230 basis points (bps) to 57.7% in first-quarter fiscal 2020, driven by the divestiture of the Household Cleaning segment. The company’s margins expanded 160 bps, 310 bps and 220 bps in the second, third and fourth quarters of fiscal 2019, respectively. Continuation of such trends should aid the bottom line in the days ahead. Management envisions adjusted earnings per share of $2.76-$2.83 for fiscal 2020, up from $2.78 reported in the previous year.

Further, Prestige Consumer, which shares space with Funko FNKO, Container Store TCS and Spectrum Brands (SPB - Free Report) , boasts robust free cash flow. The company generated free cash flow of approximately $51 million in the fiscal first quarter, which helped it reduce debt by $20 million and facilitated share repurchases of roughly $30 million. Management expects adjusted free cash flow of $200 million or more for fiscal 2020.

These apart, strong consumption trends in the healthcare category have prompted Prestige Consumer to transform its business. Well, changing the company name from Prestige Brands Holdings, Inc to Prestige Consumer Healthcare, Inc during the second quarter of fiscal 2019 is a step toward that direction. This move is an important milestone for the company that prides on having a strong portfolio of healthcare brands. Moreover, management stated that focusing on areas that have greater growth prospects, such as healthcare, will help the company utilize resources efficiently.  

Additionally, Prestige Consumer pursues mergers and acquisitions to boost growth. In this regard, the acquisition of Fleet in January 2017 is one of the company’s largest transactions. In 2012, Prestige Consumer acquired BC & Goody's, which aided expansion of its distribution channel and customer reach.  Moreover, the company is on track with its strategy of improving brands and marketing capabilities of its acquired businesses. In line with this, it recently came up with new packaging for its BC & Goody’s brands. Other noteworthy acquisitions of the company include DenTek Holdings, Inc in 2016 and Hydralyte in 2015. These acquisitions have enhanced the company’s portfolio.

However, a persistent decline in the company’s sales is a concern. Sales declined for the fifth straight time in the first quarter of fiscal 2020. This along with currency headwinds post a threat. Having said that, we hope the company’s solid growth prospects will yield results and counter the aforementioned hurdles.

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