Why Is Phibro (PAHC) Down 7.9% Since Last Earnings Report?

A month has gone by since the last earnings report for Phibro Animal Health (PAHC). Shares have lost about 7.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Phibro due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Phibro Q2 Earnings Top Estimates, Revenues Fall Y/Y

Phibro Animal Health Corporation reported adjusted earnings per share of 34 cents in the second quarter of fiscal 2020, reflecting a 17.1% fall from the year-ago 41 cents. The figure, however, beat the Zacks Consensus Estimate by 21.4%.

Meanwhile, without adjustments, reported earnings was 29 cents, down 19.4% from the year-ago count.

Net Sales

In the quarter under review, net sales totaled $214 million, down 1.9% year over year owing to substantially lower sales at two core segments — Mineral Nutrition and Performance Products.

Segmental Sales Break-Up

During the second quarter, Animal Health net sales grew 3% to $143.7 million. Within this segment, the company registered $92 million in sales of medicated feed additives (MFAs) and other, reflecting a 1% year-over-year decline. This was on account of lower demand owing to African swine fever outbreak in China.

Within Animal Health, Nutritional specialty product sales rose 12% to $33.1 million on volume growth in domestic poultry and dairy products. The recently-completed acquisition of Osprey Biotechnics also aided sales at the segment.

Apart from this, net vaccine sales totaled $18.7 million, showing an increase of 10% year over year, driven by robust international demand and enhanced market penetration.

Net sales at the Mineral Nutrition segment fell 11% year over year to $55.7 million owing to lower average selling prices combined with lower overall unit volume.

Net sales at the Performance Products segment fell 10% to $14.6 million owing to lower volume of copper-based products.

Margins

Phibro’s second-quarter gross profit rose 1% year over year to $69.1 million. Also, gross margin expanded 85 basis points (bps) to 32.3%.

Selling, general and administrative expenses in the reported quarter were $49.5 million, up 15.4% from the year-ago quarter.

Operating profit declined 23.7% year over year to $20 million and operating margin contracted 262 bps to 9.2% in the quarter under review.

Financial Update

The company ended the second quarter of fiscal 2020 with cash and short-term investments on hand of $75 million compared with $79 million at the end of first-quarter fiscal 2020.

Cumulative net cash provided by operating activities at the end of the second quarter was $28.5 million compared with the year-ago figure of $16.6 million. Cumulative capital expenditure amounted to $16.1 million at the end of the second quarter, reflecting an increase from the year-ago $12.1 million.

FY20 Outlook

The company has lowered its guidance for fiscal 2020. The company has lowered the revenue outlook to $812-828 million from the earlier-issued $833-863 million. The Zacks Consensus Estimate for fiscal 2020 revenues is pegged at $833.6 million, which is above the guided range.

Adjusted earnings per share is pegged at 88-95 cents, lower than the earlier-provided range of $1.08-$1.15. The Zacks Consensus Estimate for adjusted earnings per share is pegged at $1.11, above the guided range.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, Phibro has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Phibro has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.