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Phibro Animal (PAHC) Beats on Q1 Earnings, Reiterates View

Zacks

Phibro Animal Health Corporation PAHC reported adjusted earnings per share (EPS) of 38 cents in the first quarter of fiscal 2018, up 5.6% year over year. Adjusted EPS also surpassed the Zacks Consensus Estimate by a penny. According to the company, the year-over-year improvement was primarily driven by a higher gross profit ratio, reduced interest expenses and a lower effective income tax rate.

The company’s reported EPS of 39 cents, up 25.8% from the year-ago quarter.

Net Sales

In the reported quarter, Phibro’s net sales were $193.4 million, up 2.9% year over year. The improvement was driven by sales growth in the Animal Health, Mineral Nutrition segment and Performance Products.


Sales by Segments

Net sales at the Animal Health segment increased 3% to $128.8 million in the reported quarter on the back of volume increases in the nutritional specialty and vaccine product groups within the segment. While nutritional specialty products grew 17%, sales from vaccines increased 25%, principally on volume growth of products for poultry and swine industries.

However, sales at Medicated feed additives (MFAs) and Other fell 5% primarily due to volume decline.

Domestic net sales at MFAs and Other declined by $10.5 million due to reduced volumes of medically important antimicrobials and unfavorable timing of certain customer orders. International net sales increased by $6.7 million, driven by growth across most regions, including the benefit of improved economic conditions in Brazil.

Net sales at the Mineral Nutrition segment increased 1% to $52.1 million on higher average selling prices resulting from an increase in underlying raw material commodity price. However, the rise in average selling prices was partially offset by lower volumes of trace mineral products.

Net sales at the Performance Products segment increased 5% to $12.5 million on higher average selling prices and volumes of copper-based products.

Operational Update

Phibro’s fiscal first-quarter gross profit increased 3.4% year over year to $63.4 million. The gross margin expanded 33 basis points (bps) to 32.8%.

Selling, general and administrative expenses rose 4.6% to $41 million. Operating margin was marginally flat year over year at 11.6% in the quarter.

Financial Update

Year to date, Phibro generated $4.8 million in cash flow from operations compared with $21.5 million in the year-ago period. Capital expenditure amounted to $5 million in this period, reflecting a reduction from $5.9 million in the year-ago quarter.

FY18 Outlook

Phibro has reiterated its guidance for fiscal 2018. The company expects to generate net sales of $765-$790 million. The current Zacks Consensus Estimate of $780.2 million falls within the guided range.

Phibro provided its adjusted EPS guidance in the range of $1.55-$1.61. The current Zacks Consensus Estimate of $1.57 is also within the company's guided range.

Our Take

Phibro ended the fiscal 2018 first quarter on a solid note with Earnings ahead of the Zacks Consensus Estimate. The company witnessed considerable improvement across all segments. We are also encouraged by the expansion in the gross margin in the reported quarter.

Zacks Rank & Key Picks

Phibro has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical sector are PetMed Express, Inc. PETS, Luminex Corporation LMNX and Intuitive Surgical, Inc. ISRG. Notably, PetMed and Luminex sport a Zacks Rank #1 (Strong Buy), while Intuitive Surgical carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed reported earnings per share of 43 cents in the second quarter of fiscal 2018, up 79.2% from the year-ago quarter’s 24 cents. Also, gross margin expanded 548 bps year over year to 35.2% in the reported quarter.

Luminex reported adjusted earnings per share of 19 cents in the third quarter of 2017, up 216.7% year over year. Revenues increased almost 4.1% year over year to $74.1 million.

Intuitive Surgical posted adjusted earnings of $2.77 per share in the third quarter of 2017, up 34.5% year over year. Also, revenues rose 18% year over year to $806.1 million.

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