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Prestige Consumer Gains on Solid Healthcare Unit & Buyouts

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Prestige Consumer Healthcare Inc. PBH has been gaining from an impressive gross margin trend and yielding buyouts. Moreover, the company’s efforts to boost healthcare offerings have been yielding results.

These factors have enabled Prestige Consumer to deliver strong earnings trend and boost investors’ optimism. Markedly, this Zacks Rank #3 (Hold) stock has rallied 29% in the past year against the industry’s decline of 10.2%.

Let’s take a closer look at the factors driving Prestige Consumer.

Factors Boosting Performance

The company has been witnessing improved gross margins for a while. Notably, gross margin expanded 60 basis points (bps) to 58% in second-quarter fiscal 2019, primarily driven by product mix. In fact, continuation of such trends has been driving the bottom line. During fiscal third quarter, adjusted earnings surpassed the Zacks Consensus Estimate for the fourth straight time and improved 4.6% year on year to 68 cents per share.

Additionally, strong consumption trends in the healthcare category have prompted Prestige Consumer to transform its business to focus solely on healthcare. Well, the company already commenced initiatives to achieve the target by changing its corporate name to Prestige Consumer Healthcare, Inc during fiscal second quarter. The 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 will enable the company to utilize resources efficiently.

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. Apart from these factors, the company is on track with its strategy to improve brands and market capabilities of acquired businesses.

Further, Prestige Consumer continued to witness robust free cash flow generation. The company generated free cash flow of approximately $47 million in fiscal second quarter, which helped it reduce debt and repurchase shares.

Wrapping Up

Significant international presence exposes Prestige Consumer to adverse foreign currency fluctuations risk. In fact, this exerted pressure on the company’s top line during fiscal second quarter. Additionally, the sale of the Household Cleaning segment has weakened Prestige Consumer’s top line.

Nevertheless, we expect the company’s focus on strengthening healthcare business and cash flow position to yield positive results. Also, it will enable the company to counter the aforementioned hurdles.

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