It has been about a month since the las t earnings report for Phibro Animal Health (PAHC). Shares have added about 3.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Phibro due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recen t earnings report in order to get a better handle on the important drivers.
Phibro Sees Y/Y Decline in Revenues in Q3 on Dull Animal Health Arm
Phibro Animal Health reported adjusted earnings per share (EPS) of 39 cents in the third quarter of fiscal 2019, showing a 15.2% drop from the year-ago number. The figure missed the Zacks Consensus Estimate by 9.3%.
This year-over-year decline can be primarily attributed to escalating product costs leading to gross margin contraction.
Meanwhile, without adjustments, reported EPS was 37 cents, reflecting a fall of 24.5% from the year-ago count.
In the quarter under review, net sales totaled $205.7 million, down 1.5% year over year owing to substantially lower sales in two core segments - Animal Health and Mineral Nutrition.
Segmental Sales Break-Up
During the third quarter, Animal Health net sales declined 2% to $129.2 million. Within this segment, the company registered $84.1 million, a 1% sales growth within medicated feed additives (MFAs). This was driven by consistent volume expansion in Asia and Latin America, partially offset by reduced domestic demand from the poultry and swine sectors.
Nutritional specialty product sales dropped 10% to $28.2 million due to volume declines on account of unfavorable dairy industry conditions and diminishing demand from poultry consumers. Apart from this, net vaccine sales dropped 6% year over year to $16.9 million due to the disruption of a domestic distribution arrangement and an unstable global economy.
Net sales at the Mineral Nutrition segment fell 4% year over year to $60.7 million owing to reduced volumes. However, an increase in average selling prices partially offset the volume reduction. The sale prices rose on an increase in underlying commodity prices.
Net sales at the Performance Products segment rose 16% to $15.9 million backed by higher volumes of personal care products.
Phibro's third-quarter gross profit declined 6% year over year to $64.8 million. Gross margin contracted 158 basis points (bps) to 31.5%.
Selling, general and administrative expenses in the reported quarter came in at $42.3 million, down 0.7% from the year-ago quarter.
Operating profit declined 15.1% year over year to $22.5 million and operating margin contracted 175 bps to 10.9% in the quarter under review.
At the end of the third quarter of fiscal 2019, net cash provided by operating activities amounted to $15.7 million, down from the year-ago $22.8 million. Capital expenditure amounted to $7.7 million in this quarter, reflecting an increase from $4.1 million in the prior-year quarter.
The company has slashed its guidance for fiscal 2019. Net sales projection has been reduced to the range of $828-833 million (earlier band $850-$875 million). Adjusted EPS guidance has also been lowered to the range of $1.50-1.55 (earlier $1.62-$1.75).
The Zacks Consensus Estimate for fiscal revenues 2019 is pegged at $855.9 million, above the guided range. The same for adjusted EPS is pegged at $1.68, which is also above the provided range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -27.17% due to these changes.
At this time, Phibro has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Phibro has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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