Full Press Release Details
Phibro Animal Health Corporation Reports
Second Quarter Results
TEANECK, N.J., February 3, 2020 (Business
Wire) - Phibro Animal Health Corporation (NASDAQ:PAHC) today announced its financial results for its second quarter ended
Highlights for the December 2019 quarter (compared
to the December 2018 quarter)
"As we anticipated, our animal health
sales growth accelerated in the second quarter, despite the continuing negative overlap from our China MFA sales," said Jack
Bendheim, Phibro's Chairman, President and Chief Executive Officer. "We saw double-digit sales growth in nutritional
specialties and vaccines. The increase in nutritional specialties reflected good growth in dairy and poultry, plus the benefit
of the recent Osprey acquisition, including the introduction of Provia Prime , our new microbial product that helps
optimize the gut microbiome. Strong international demand for our poultry vaccines was driven by new product introductions and increased
penetration. Consolidated net sales declined compared
to last year, primarily due to lower average selling prices in the Mineral Nutrition business, driven by the correlation with
lower raw material costs."
"We expect animal health sales growth
will continue to improve for the balance of the fiscal year. The growth will be led by continued double-digit growth in nutritional
specialties and vaccines, as our innovative products for poultry and dairy continue to gain market penetration. At the same time,
we will continue to invest in strategic initiatives to position Phibro for future growth. Initiatives include development of a
potential vaccine against African Swine Fever, the continuing build-out of our new vaccine facility and the introduction of our
innovative vaccine delivery system. We also continue to invest in our companion animal initiative, based on encouraging results
Net sales of $214.0 million for the
three months ended December 31, 2019, decreased $4.2 million, or 2%, as compared to the three months ended December 31, 2018. Animal
Health increased $4.1 million, while Mineral Nutrition and Performance Products declined $6.6 million and $1.7 million, respectively.
Net sales of $143.7 million for the
three months ended December 31, 2019, increased $4.1 million, or 3%. Net sales of MFAs and other declined $1.1 million, or 1%.
Increased domestic sales were offset by reduced sales in China due to the effects of African Swine Fever. China customers purchased
MFAs in advance of regulatory changes that were effective January 1, 2020. Net sales of nutritional specialty products grew $3.6
million, or 12%. The recent Osprey acquisition accounted for approximately two-thirds of the nutritional specialties sales growth.
We experienced growth in net sales of domestic poultry and dairy products, partially offset by lower international sales. The increase
in the domestic poultry segment was driven by the introduction of Provia Prime, a direct fed microbial product that helps
optimize the gut microbiome for improved health, immunity and productivity. Net sales of vaccines increased $1.6 million, or 10%,
driven by strong international demand and increased market penetration.
Net sales of $55.7 million for the
three months ended December 31, 2019, decreased $6.6 million, or 11%, due to lower average selling prices coupled with lower overall
unit volume. The decline in average selling prices is correlated with the movement of the underlying raw material costs.
Performance Products
Net sales of $14.6 million for the
three months ended December 31, 2019, decreased $1.7 million, or 10%, driven by lower volume of copper-based products, partially
offset by increased volumes of personal care products.
Gross profit of $69.1 million for
the three months ended December 31, 2019, increased $0.5 million, or 1%, as compared to the three months ended December 31, 2018.
Gross profit increased to 32.3% of net sales for the three months ended December 31, 2019, as compared to 31.5% for the three months
ended December 31, 2018.
Animal Health gross profit increased $1.1
million due to volume growth in nutritional specialty and vaccine products, partially offset by lower volume in MFAs and other.
Mineral Nutrition gross profit decreased $0.5 million, as the decline in average selling prices and unfavorable product mix more
than offset lower raw material costs. Performance Products gross profit decreased $0.1 million due to decreased volume, partially
offset by favorable product mix.
Selling, general and administrative expenses
Selling, general and administrative expenses
("SG&A") of $49.5 million for the three months ended December 31, 2019, increased $6.6 million, or 15%, as
compared to the three months ended December 31, 2018. SG&A for the three months ended December 31, 2019, included $0.6 million
of stock-based compensation and $0.2 million of other acquisition-related costs. SG&A for the three months ended December 31,
2018, included $0.6 million of stock-based compensation and a $1.5 million benefit from the cancellation of a certain business
arrangement. Excluding the effects of these costs, SG&A increased $4.9 million, or 11%.
Animal Health SG&A increased $4.4 million,
including increased investments in product development and the effect of the Osprey acquisition. Mineral Nutrition and Performance
Products SG&A were comparable to the prior year. Corporate expenses increased $0.5 million due to increased costs of strategic
initiatives and public company costs. Stock-based compensation, other acquisition-related costs and the benefit in the prior year
from the cancellation of a certain business arrangement resulted in a net $1.7 million increase to SG&A.
Interest expense, net
Interest expense, net of $3.4 million
for the three months ended December 31, 2019, increased $0.4 million, or 14%, as compared to the three months ended December 31,
2018. The increase in interest expense was primarily driven by the increase in outstanding borrowings on the Revolver. Interest
income from short-term investments was comparable to the prior year.
Foreign currency (gains) losses, net
Foreign currency (gains) losses, net for
the three months ended December 31, 2019, amounted to net gains of $0.7 million, as compared to $2.6 million in net losses
for the three months ended December 31, 2018. Foreign currency gains and losses primarily arose from intercompany balances.
Provision for income taxes
The provision for income taxes was $5.0
million and $5.3 million for the three months ended December 31, 2019 and 2018, respectively. The effective income tax rate was
29.6% and 26.5% for the three months ended December 31, 2019 and 2018, respectively. The provision for income taxes during the
three months ended December 31, 2018, included a $0.7 million benefit from an adjustment to the previously recorded mandatory toll
charge on deemed repatriation of undistributed earnings of foreign subsidiaries and a $0.1 million benefit from the exercise of
employee stock options. The effective income tax rate, without these benefits, would have been 30.5% for the three months ended
Net income of $11.9 million for the three
months ended December 31, 2019, decreased $2.9 million, as compared to net income of $14.8 million for the three months ended
December 31, 2018. The decrease was primarily due to a $6.1 million decline in operating income and increased interest expense
of $0.4 million, partially offset by favorable foreign currency movements of $3.3 million and lower income tax expense of $0.3
million. The decline in operating income was driven by increased SG&A costs of $6.6 million as a result of investments in product
development and the effect of the Osprey acquisition, partially offset by $0.5 million of increased gross profit.
Adjusted EBITDA of $28.5 million for
the three months ended December 31, 2019, decreased $3.1 million, or 10%, as compared to the three months ended December 31, 2018.
Animal Health Adjusted EBITDA decreased $2.1 million due to increased SG&A costs as a result of investments in product development
and the effect of the Osprey acquisition, partially offset by increased gross profit driven by volume growth. Mineral Nutrition
Adjusted EBITDA decreased $0.4 million, driven by decreased gross profit. Performance Products Adjusted EBITDA was comparable to
the prior year. Corporate expenses increased $0.6 million due to increased professional service and public company costs.
Adjusted provision for income taxes
The adjusted effective income
tax rates for the three months ended December 31, 2019 and 2018, were 28.0% and 29.0%, respectively.
Adjusted diluted EPS
diluted EPS was $0.34 for the quarter, a decrease of $0.07, as compared to $0.41 in the prior year. Increased gross profit driven
by volume growth in the Animal Health business and lower income tax expense were more than offset by increased SG&A expense,
primarily for product development and strategic growth initiatives and increased interest expense.
BALANCE SHEET AND CASH FLOWS
We have updated our financial guidance for
the fiscal year ending June 30, 2020. Guidance for adjusted EBITDA is unchanged. Reduced sales expectations are primarily related
to the Mineral Nutrition business, where revenue is correlated with underlying raw material costs, which have declined from our