A Disappointing PHAC Quarter, But Some Good Signs

Phibro Animal Health (PAHC) shares fell sharply yesterday after reporting fiscal first quarter results the night before. However, there were a few bright spots in the report, and I think the company’s earnings and the stock price may finally be bottoming out.

EPS of $0.14 vs. $0.21 in the prior year was $0.09 below expectations. The main culprits in the earnings miss were higher than expected corporate expenses for projects that will generate future growth, and a weak performance in the Mineral Nutrition and Performance Products division, which saw sales decline 6% and 18%, respectively. This weakness reflected timing issues and customers reducing their inventory levels.

However, the company’s core Animal Health division, which accounts for 69% of total revenues, saw sales grow 4% and operating income 6%, aided by customer acceptance of a new poultry vaccine in Latin America.

Also encouraging in the quarter was a big improvement in operating cash flow, which was positive $16,2 million versus a negative $10.7 million a year ago, on improved working capital performance. This often precedes an improvement in profitability.

The company is now looking for EPS in the current fiscal year of $1.04 to $1.16, versus guidance of $1.12 to $1.27 at the start of the fiscal year. Trading at just 9X the midpoint of the guidance, with some signs earnings are starting to bottom out and cash flow is improving, the stock is a great value here.

PAHC is now a buy under $11 as I target $15. The 4.9% dividend yield is secure and will add to total returns.