Full Press Release Details
Phibro Animal Health Corporation Reports
TEANECK, N.J., Feb. 06, 2017 (GLOBE
NEWSWIRE) - Phibro Animal Health Corporation (NASDAQ:PAHC) today announced its financial results for its second quarter
ended December 31, 2016.
Highlights for the December 2016 quarter
(compared to the December 2015 quarter)
"We are very pleased
with our second quarter performance, as we resumed delivering double-digit growth in Adjusted EBITDA," said Jack Bendheim,
Phibro's Chairman, President and Chief Executive Officer. "Our core Animal Health segment grew revenue 2%, and
I want to especially recognize our U.S. Animal Health business which delivered both top line and bottom line growth in a quarter
where our industry prepared to fully align itself with the voluntary removal of production claims on medically important antibacterials.
While we expect continued reduction of antibacterial usage in the U.S., we believe we have the broad product portfolio to continue
to grow while providing our customers with products to help them maintain the health of their animals. As a whole, we are
well positioned for strengthening top line growth once the current cycles of weakness in the world wide dairy and Brazilian markets
Net sales of $191.6 million
for the three months ended December 31, 2016, decreased $0.2 million, or less than 1%, as compared to the three months ended December
31, 2015. Animal Health grew $2.2 million, while Mineral Nutrition and Performance Products declined $2.2 million and $0.2 million,
of $123.7 million for the three months ended December 31, 2016, grew $2.2 million, or 2%. The growth was primarily due to
volume increases in the nutritional specialty and vaccine product groups within the segment. Nutritional specialty products grew
$5.0 million, or 21%, primarily due to volume growth of our products for the U.S. poultry and dairy industries. Vaccines grew $5.2
million, or 45%, primarily due to volume growth of our products for the poultry and swine industries. The vaccine sales growth
included products acquired from MVP Laboratories, Inc. in January 2016. Medicated feed additives ("MFAs") and
other declined $8.1 million, or 9%, primarily due to international volume declines. International net sales declined due to economic
conditions in Brazil and the timing of orders in certain other markets. Domestic net sales of MFAs and other declined modestly,
as reduced volumes of medically important antibacterials were partially offset by growth in other products.
million decreased $2.2 million, or 4%, for the three months ended December 31, 2016. The reduced revenue was primarily due to lower
average selling prices resulting from underlying raw material commodity price declines.
Performance Products
million decreased $0.2 million, or 2%, for the three months ended December 31, 2016, due to lower average selling prices of personal
care ingredients and copper-based products and lower volumes of copper-based products. Higher volumes of personal care ingredients
partially offset the declines.
Gross profit of $63.5
million for the three months ended December 31, 2016, increased $2.0 million, or 3%, as compared to the three months ended December
31, 2015. Gross profit increased to 33.1% of net sales for the three months ended December 31, 2016, as compared to 32.0% for the
three months ended December 31, 2015. Animal Health gross profit increased $1.2 million due to volume growth in nutritional specialty
and vaccine products, as well as lower unit costs from improved operating efficiencies. Current year Animal Health gross profit
was reduced by $0.3 million of increased acquisition-related intangible amortization and $1.0 million of increased depreciation
expense due to recent capital expenditures. Mineral Nutrition gross profit increased $0.5 million due to lower raw material costs,
partially offset by lower average selling prices. Performance Products gross profit increased $0.3 million, due to higher volumes
of personal care ingredients and lower product costs of copper-based products, partially offset by lower average selling prices
of personal care ingredients and copper-based products.
Selling, general and administrative expenses
Selling, general and administrative
expenses ("SG&A") of $40.9 million for the three months ended December 31, 2016, increased $2.0 million,
or 5%, as compared to the three months ended December 31, 2015. During the three months ended December 31, 2016, we incurred $1.7
million in expense relating to the partial settlement of our domestic noncontributory defined benefit pension plan. Excluding these
costs, SG&A increased $0.3 million, or 1%. Increased business development costs included in Corporate accounted for most of
Interest expense, net
Interest expense, net
of $3.9 million for the three months ended December 31, 2016, decreased $0.1 million, or 2%, as compared to the three months
ended December 31, 2015. Interest income increased $0.4 million from interest on deposits in foreign jurisdictions. Interest expense
increased $0.4 million due to increased borrowings under our Revolver, compared to the three months ended December 31, 2015, and
increased acquisition-related accrued interest.
Foreign currency (gains) losses, net
Foreign currency (gains)
losses, net for the three months ended December 31, 2016, amounted to net gains of $0.5 million, as compared to $2.6 million in
net losses for the three months ended December 31, 2015. Foreign currency gains in the three months ended December 31, 2016, were
primarily due to the movement of the Turkish and Mexican currencies relative to the U.S. dollar. Foreign currency gains and losses
primarily arise from intercompany balances.
Provision (benefit) for income taxes
The provision for income
taxes was $5.9 million for the three months ended December 31, 2016, as compared to an income tax benefit of $14.1 million for
the three months ended December 31, 2015. The effective income tax rates for these periods were 30.5% and (87.5)%, respectively.
The large negative effective income tax rate for the three months ended December 31, 2015, was primarily due to the reversal of
the valuation allowance we previously had recorded against domestic deferred tax assets. The reversal resulted in an income tax
benefit of approximately $18.8 million during the three months ended December 31, 2015. Excluding the effect of the reversal of
the valuation allowance, the effective income tax rate for the three months ended December 31, 2015, was 29.2%.
Our future effective tax
rate may be affected by discrete items, the fluctuation in tax rates in foreign jurisdictions and the amount of income earned in
our foreign subsidiaries, some of which may have significant net operating loss carryforwards. As of December 31, 2016, we maintained
a full valuation allowance against the deferred tax assets related to our foreign net operating loss carryforwards. We review the
realizability of our deferred tax assets and evaluate our valuation allowances on a quarterly basis, or whenever events or changes
in circumstances indicate that a review is required. We will continue to evaluate the necessity of these foreign valuation allowances
in future periods, and to the extent that a positive earnings trend continues, a significant portion of these allowances may be
released in future periods.
Net income of $13.4 million
for the three months ended December 31, 2016, decreased $16.8 million, as compared to net income of $30.2 million for the
three months ended December 31, 2015. The decrease was a result of the factors described above, including an $18.8 million income
tax benefit in the prior year period, partially offset by a $3.1 million favorable change in foreign currency (gains) losses, net.
Diluted EPS was $0.34
for the three months ended December 31, 2016, decrease of $0.41, compared to $0.75 for the three months ended December 31, 2015,
as a result of the decrease in net income.
Adjusted EBITDA of $31.2
million for the three months ended December 31, 2016, increased $2.8 million, or 10%, as compared to the three months ended December
31, 2015. Animal Health Adjusted EBITDA increased $2.3 million, or 7%, due to sales growth and increased gross profit, partially
offset by increased SG&A. Mineral Nutrition increased $0.6 million, or 13%, due to improved operating margins from lower raw
material costs, partially offset by lower average selling prices. Performance Products increased $0.3 million, due to higher volumes
and lower product costs, partially offset by lower average selling prices. Corporate expenses increased $0.3 million due to increased
business development costs.
Adjusted diluted EPS
Adjusted diluted EPS was
$0.39 for the quarter, an increase of $0.02 compared to $0.37 last year. An improved gross profit ratio, partially offset by SG&A
growth and a higher effective income tax rate, were the primary contributors to the improvement.
Pension Plan and Retirement Savings Plan
amended our domestic noncontributory defined benefit pension plan to eliminate credit for future service and compensation increases,
effective as of September 30, 2016. The amendment resulted in a curtailment of the pension plan. During the three months ended
September 30, 2016, we recorded a pension curtailment gain of $6.8 million in other comprehensive income and an offsetting reduction
in the liability for pension benefits included in other liabilities. We also modified the 401(k) retirement savings plan, effective
October 1, 2016, to include, for all domestic
employees, a non-elective Company contribution of 3% of compensation and an additional discretionary contribution of up to 4% of