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Prestige Consumer Up 12% in 3 Months, Cash Flow a Key Driver

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An impressive gross margin trend, strong cash position and efforts to boost healthcare offerings are adding sheen to Prestige Consumer Healthcare Inc. (PBH - Free Report) . This Zacks Rank #2 (Buy) stock has gained 12.6% in the past three months against the industry’s decline of 4%. Let’s take a closer look at the factors aiding this well-known healthcare and household products company.

Strong Cash Flows Boost Shareholder Returns

Prestige Consumer continued to witness robust free cash flow generation in first-quarter fiscal 2020. The company generated free cash flow of approximately $51 million, which helped it reduce debt by $20 million and repurchase shares worth roughly $30 million. Management expects adjusted free cash flow of $200 million or more in fiscal 2020. We hope that strength in financial status will enable it to lower debt further and reward shareholders. Incidentally, management approved a share repurchase program worth $50 million to be carried out until May 2020.

Impressive Gross Margin Trends

A sturdy gross margin trend bodes well for Prestige Consumer. Notably, the metric expanded 230 basis points (bps) to 57.7% in first-quarter fiscal 2020, driven by the divestiture of the Household Cleaning segment. Prior to this, the company’s gross margin expanded 160 bps, 310 bps and 220 bps in the second, the third and the fourth quarter of fiscal 2019. Continuation of such trends will likely drive the bottom line in the days ahead.

Focus on Healthcare Brands & Other Efforts

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 boasts a strong portfolio of healthcare brands. Moreover, management stated that focusing on areas that have greater growth prospects, such as healthcare, will enable it to utilize resources efficiently.

Additionally, Prestige Consumer pursues mergers and acquisitions to boost growth. Some of the noteworthy buyouts of the company are Fleet, BC & Goody's, DenTek Holdings and Hydralyte. Moreover, the company is on track with its strategy of improving brands and marketing capabilities of acquired businesses. In line with this, it recently came up with new packaging for BC & Goody’s brands.

Wrapping up, we expect that the company’s focus on strengthening healthcare business to boost the top line, which has been sluggish lately.  Moreover, a strong financial profile is likely to enable the company to leverage on capabilities. We expect such upsides to help Prestige Consumer sustain on growth track.    

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