Full Press Release Details
Phibro Animal Health Corporation Reports
Third Quarter Results
TEANECK, N.J., May 6, 2019 (GLOBE NEWSWIRE)
- Phibro Animal Health Corporation (NASDAQ:PAHC) today announced its financial results for its third quarter ended March
Highlights for the March 2019 quarter (compared
to the March 2018 quarter)
Phibro also updated its full year financial guidance, to include:
"We are disappointed in our third quarter
results and outlook for the remaining quarter of our fiscal year. In our third quarter, we saw the domestic poultry sector make
seasonal program choices that reduced demand for our products, and the domestic dairy sector continued to decline. We also saw
unexpected softness in some international markets. Our business in China continued strong in the March quarter, as customers took
programmed deliveries. Looking ahead, we do expect substantially weaker sales in China as African Swine Fever reduces demand. We
have reset our expectations for our fiscal year ending June 2019 to reflect the headwinds we are facing, including, among other
things, the disruption of African Swine Fever in China. We continue to believe our business is well positioned to support the global
protein industry as it responds to increasing demand," said Jack Bendheim, Phibro's Chairman, President and Chief Executive
"While we expect the production
of swine, poultry and other proteins to increase in the United States, Brazil and other markets to offset the lost animals in
China and meet the global demand for pork and other proteins, we are unsure at this point of the timing and other elements of
how this will play out. To give a sense of the magnitude, Rabobank's most recent analysis shows China has lost up to
200 million pigs (30% of Chinese swine production); the loss is larger than the entire current US production.
We anticipate the combination of our innovative nutritional specialty products and vaccines, plus our strong portfolio
of medicated feed additives, will be important tools for our customers as they increase production."
"In addition, profitability in the
Mineral Nutrition business was about level with the prior year for the quarter, marking encouraging progress compared with recent
trends. We have minimized operational spending wherever possible to protect current year profitability, while we continue to invest
expense dollars to develop future growth opportunities," said Mr. Bendheim.
Net sales of $205.7 million for the three
months ended March 31, 2019, decreased $3.2 million, or 2%, as compared to the three months ended March 31, 2018. Animal Health
and Mineral Nutrition declined $3.1 million and $2.3 million, respectively, while Performance Products grew $2.2 million.
Net sales of $129.2 million for the three
months ended March 31, 2019, decreased $3.1 million, or 2%. Net sales of MFAs and other increased $1.2 million, or 1%, due to increased
international volumes, particularly in the Asia Pacific and Latin America regions, partially offset by lower domestic demand from
the poultry and swine sectors. Net sales of nutritional specialty products declined by $3.1 million, or 10%, due to volume declines
from continued negative dairy industry conditions and reduced demand from poultry customers. Net sales of vaccines declined $1.1
million, or 6%, due to the loss of a domestic distribution arrangement and turbulent economic conditions in certain international
countries; volume growth in other international markets partially offset the reductions.
Net sales of $60.7 million for the three
months ended March 31, 2019, decreased $2.3 million, or 4%, on reduced volumes. A modest increase in overall selling prices contributed
to the net sales increase and partially offset the volume decline. Our selling prices of mineral nutrition products generally move
in direct correlation with the underlying commodity costs.
Performance Products
Net sales of $15.9 million for the three
months ended March 31, 2019, increased $2.2 million, or 16%, due to volume growth of personal care products.
Gross profit of $64.9 million for the three
months ended March 31, 2019, decreased $4.2 million, or 6%, as compared to the three months ended March 31, 2018. Gross profit
decreased to 31.5% of net sales for the three months ended March 31, 2019, as compared to 33.1% for the three months ended March
Animal Health gross profit decreased $4.5
million due to volume declines in nutritional specialty and vaccine products and unfavorable product mix. Mineral Nutrition gross
profit decreased $0.6 million, primarily due to lower volumes. Performance Products gross profit increased $0.9 million, primarily
due to volume growth, favorable product mix and improved manufacturing efficiencies.
Selling, general and administrative expenses
Selling, general and administrative expenses
("SG&A") of $42.3 million for the three months ended March 31, 2019, decreased $0.3 million as compared to the
three months ended March 31, 2018. SG&A for the three months ended March 31, 2019, included $0.6 million of stock-based compensation.
SG&A for the three months ended March 31, 2018, included $0.2 million in acquisition-related compensation costs.
Animal Health and Mineral Nutrition SG&A
declined $1.3 million and $0.5 million, respectively, primarily due to close control of spending and a reduction in incentive compensation.
Performance Products SG&A was even with the prior year. Corporate costs increased $1.1 million due to increased business development
expenses and public company costs associated with strengthening and testing of controls over financial reporting, partially offset
by reduced incentive compensation. Stock-based compensation and acquisition-related compensation costs resulted in a net $0.4 million
Interest expense, net
Interest expense, net of $2.9 million for
the three months ended March 31, 2019, decreased $0.1 million as compared to the three months ended March 31, 2018. Improved earnings
on short-term investments and the termination of acquisition-related accrued interest offset increased interest expense resulting
from increased debt levels and increased variable interest rates.
Foreign currency (gains) losses, net
Foreign currency (gains) losses, net for
the three months ended March 31, 2019, amounted to net losses of $0.1 million, as compared to $1.0 million in net gains for the
three months ended March 31, 2018. Foreign currency gains and losses primarily arose from cash and intercompany balances.
Provision for income taxes
The provision for income taxes
was $4.7 million and $4.5 million for the three months ended March 31, 2019 and 2018, respectively. The effective income tax rate
was 23.9% and 18.6% for the three months ended March 31, 2019 and 2018, respectively. The provision for income taxes for the three
months ended March 31, 2019 included a $0.1 million charge for the U.S. federal GILTI provisions of the comprehensive U.S. income
tax legislation. The provision for income taxes for the three months ended March 31, 2019 included a $0.5 million benefit from
increased foreign tax credits, a $0.2 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 27.8% for the three months ended March 31, 2019. The effective
income tax rate reflects the statutory 21% U.S. federal income tax rate.
The provision for income taxes
for the three months ended March 31, 2018 included a $1.0 million benefit from the exercise of employee stock options and a $0.8
million benefit from the release of unrecognized tax amounts. The effective income tax rate, without these benefits, would have
been 26.0% for the three months ended March 31, 2018. The effective income tax rate reflected the statutory 28.1% U.S. federal
income tax rate applicable to our fiscal year 2018.
Net income of $14.8 million for the three
months ended March 31, 2019, decreased $5.0 million, as compared to net income of $19.8 million for the three months ended March
31, 2018. A $4.2 million reduction in gross profit due to reduced volumes and unfavorable product mix was the principal reason
for the decline. An increased effective tax rate also contributed to the decline.
Adjusted EBITDA of $30.0 million for the
three months ended March 31, 2019, decreased $3.4 million or 10%, as compared to the three months ended March 31, 2018. Animal
Health Adjusted EBITDA decreased $3.1 million, or 8%, due to a gross profit decline, partially offset by reduced SG&A. Mineral
Nutrition Adjusted EBITDA declined $0.1 million. Performance Products Adjusted EBITDA increased $0.9 million, driven by sales growth
and favorable gross profit. Corporate expenses increased $1.2 million due to increased business development expenses and public
company costs associated with strengthening and testing of controls over financial reporting.
Adjusted provision for income taxes
The adjusted effective income tax rate for
the three months ended March 31, 2019, was 26.4%, compared to 26.8% for the three months ended March 31, 2018. The current
period was only slightly favorable to the prior year, despite a 21% U.S. federal statutory rate this year compared to a 28.1% U.S.
federal statutory rate last year. The reduced federal statutory rate was offset by an unfavorable mix of global taxable income
plus the effects of the Global Intangible Low-Tax Income (GILTI) provisions of the new federal income tax act.