Phibro Animal Health Corporation (NASDAQ: PAHC) is a leading global diversified animal health and mineral nutrition company. The company develops, manufactures, and markets a broad range of products for food and companion animals, including poultry, swine, beef and dairy cattle, aquaculture, and dogs. Phibro Animal Health Corporation's products help prevent, control, and treat diseases, and enhance nutrition to improve animal health and well-being. In addition to animal health and mineral nutrition products, the company also manufactures and markets specialty ingredients for use in the personal care, industrial chemical, and chemical catalyst industries.
Business Overview
Phibro Animal Health Corporation's operations are primarily focused on regions where the majority of livestock production is consolidated in large commercial farms. The company has a diversified portfolio of products that are classified within three main business segments: Animal Health, Mineral Nutrition, and Performance Products.
The Animal Health segment develops, manufactures, and markets products in three main categories: Medicated Feed Additives (MFAs) and other, Nutritional Specialties, and Vaccines. The MFAs and other category primarily consists of concentrated medicated products administered through animal feeds, while the Nutritional Specialties products enhance nutrition to help improve health and performance. The Vaccines segment focuses on preventing diseases in poultry, swine, beef and dairy cattle, and aquaculture.
The Mineral Nutrition segment is comprised of formulations and concentrations of trace minerals, such as zinc, manganese, copper, and iron, with a focus on customers in North America. These products are used to fortify the daily feed requirements of livestock diets and maintain an optimal balance of trace elements.
The Performance Products segment manufactures and markets specialty ingredients for use in the personal care, industrial chemical, and chemical catalyst industries.
Financials
For the fiscal year ended June 30, 2023, Phibro Animal Health Corporation reported annual net income of $32,606,000 and annual revenue of $977,889,000. The company's annual operating cash flow was $13,310,000, while its annual free cash flow was -$38,484,000.
In the third quarter of fiscal year 2023, which ended on March 31, 2023, Phibro Animal Health Corporation reported net sales of $263,223,000, an increase of 7% compared to the same period in the prior year. Gross profit for the quarter was $79,600,000, up 5% year-over-year. Adjusted EBITDA, a non-GAAP measure, increased 9% to $29,704,000.
The Animal Health segment was the primary driver of the company's performance, with net sales increasing 10% to $181,333,000. This was driven by a 16% increase in MFAs and other products and a 26% increase in Vaccines, partially offset by an 11% decline in Nutritional Specialties. The Mineral Nutrition segment grew 2% to $64,228,000, while the Performance Products segment declined 4% to $17,662,000.
On a year-to-date basis for the first nine months of fiscal year 2023, Phibro Animal Health Corporation's net sales increased 3% to $744,515,000, with the Animal Health segment growing 7% to $514,967,000. The Mineral Nutrition and Performance Products segments declined 1% and 14%, respectively, during this period.
Outlook
For the full fiscal year 2024, Phibro Animal Health Corporation has affirmed its guidance for net sales, adjusted EBITDA, and adjusted diluted EPS. The company expects net sales to be in the range of $980 million to $1.02 billion, adjusted EBITDA to be between $106 million and $112 million, and adjusted diluted EPS to be in the range of $1.04 to $1.16.
The company has also updated its GAAP net income and diluted EPS guidance to reflect one-time costs related to the recently announced acquisition of Zoetis Inc.'s medicated feed additive (MFA) product portfolio and related assets. Phibro Animal Health Corporation expects GAAP net income to be between $7 million and $12 million, and GAAP diluted EPS to be in the range of $0.17 to $0.30.
The Zoetis MFA acquisition is expected to be a strong strategic fit with the company's existing core competencies and capabilities. The transaction is expected to be significantly accretive to Phibro Animal Health Corporation's adjusted EBITDA and provide a rapid deleveraging profile.
Geographic Breakdown
Phibro Animal Health Corporation's net sales are diversified across geographic regions. In the third quarter of fiscal year 2023, the United States accounted for 60.6% of total net sales, Latin America and Canada contributed 20.4%, Europe, Middle East, and Africa made up 12.6%, and Asia Pacific represented 6.5%.
On a year-to-date basis for the first nine months of fiscal year 2023, the geographic breakdown was similar, with the United States at 57.9%, Latin America and Canada at 23.9%, Europe, Middle East, and Africa at 12.0%, and Asia Pacific at 6.2%.
Segment Performance
Animal Health
The Animal Health segment is Phibro Animal Health Corporation's largest business, accounting for 69.2% of total net sales in the third quarter of fiscal year 2023. Within this segment, MFAs and other products grew 16% year-over-year, driven by increased demand in both domestic and international regions. Vaccines sales increased 26%, primarily due to poultry product introductions in Latin America and higher demand in the U.S. market. These gains were partially offset by an 11% decline in Nutritional Specialties, mostly due to lower demand for microbial and dairy products.On a year-to-date basis for the first nine months of fiscal year 2023, Animal Health net sales grew 7%, with MFAs and other up 7%, Vaccines up 23%, and Nutritional Specialties down 5%.
Mineral Nutrition
The Mineral Nutrition segment contributed 24.4% of Phibro Animal Health Corporation's total net sales in the third quarter of fiscal year 2023. Net sales in this segment increased 2% due to higher sales volume, partially offset by lower average selling prices.On a year-to-date basis for the first nine months of fiscal year 2023, Mineral Nutrition net sales declined 1%, as the increase in sales volume was not enough to offset the decrease in average selling prices.
Performance Products
The Performance Products segment accounted for 6.7% of Phibro Animal Health Corporation's total net sales in the third quarter of fiscal year 2023. Net sales in this segment decreased 4%, driven by lower demand for personal care product ingredients and industrial chemicals.On a year-to-date basis for the first nine months of fiscal year 2023, Performance Products net sales declined 14% compared to the same period in the prior year.
Liquidity
As of March 31, 2023, Phibro Animal Health Corporation had $98,748,000 in cash and cash equivalents and short-term investments. The company generated $59,165,000 in net cash from operating activities and had $39,083,000 in net cash used in investing activities during the first nine months of fiscal year 2023.
Phibro Animal Health Corporation's gross leverage ratio was 4.4x at the end of the third quarter, based on $487,000,000 in total debt and $110,000,000 in trailing 12-month adjusted EBITDA. The company's net leverage ratio was 3.5x at the end of the quarter, based on $388,000,000 in total debt and $110,000,000 in trailing 12-month adjusted EBITDA.
The company has affirmed its commitment to maintaining its quarterly dividend of $0.12 per share, subject to approval from the Board of Directors. Phibro Animal Health Corporation also plans to continue deleveraging, with a goal of reaching a net leverage ratio below 3.0x by the end of fiscal year 2027.
Risks and Challenges
Phibro Animal Health Corporation faces several risks and challenges, including:
- Outbreaks of animal diseases that could significantly reduce demand for the company's products or impact the availability of raw materials - Perceived adverse effects on human health linked to the consumption of food derived from animals that utilize Phibro Animal Health Corporation's products - Restrictions on the use of antibacterials in food-producing animals - The potential withdrawal of approval for the company's Mecadox (carbadox) product by the FDA - Competition from a number of large and small companies, some of which have greater resources than Phibro Animal Health Corporation - Exposure to macroeconomic and geopolitical risks, such as the ongoing armed conflicts between Russia and Ukraine and Israel and Hamas - Regulatory risks related to obtaining approvals for the testing, manufacturing, and marketing of certain products
Conclusion
Phibro Animal Health Corporation is a leading global diversified animal health and mineral nutrition company with a strong portfolio of products and a diversified geographic footprint. The company's Animal Health segment, particularly its MFAs and Vaccines businesses, has been the primary driver of its recent performance, offsetting declines in the Mineral Nutrition and Performance Products segments.
Looking ahead, the strategic acquisition of Zoetis' MFA product portfolio is expected to be highly accretive and provide a rapid deleveraging profile. The company has affirmed its guidance for fiscal year 2024 and remains focused on investing in high-growth areas like Companion Animal, Vaccines, and Nutritional Specialties, while also continuing to return capital to shareholders through its quarterly dividend.
Despite the risks and challenges facing the industry, Phibro Animal Health Corporation's diversified business model, strong market positions, and strategic initiatives position the company well for continued growth and value creation for its shareholders.