PAHC - Fundamentals, Financials, History, and Analysis
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Phibro Animal Health Corporation (PAHC) is a leading global diversified animal health and mineral nutrition company that has consistently demonstrated its ability to navigate challenging industry conditions and deliver long-term value for shareholders. With a diverse portfolio of products spanning the animal health, mineral nutrition, and performance products segments, Phibro has established itself as a trusted partner to livestock producers, farmers, veterinarians, and consumers worldwide.

Business Overview Phibro Animal Health Corporation was founded in 1946 and is headquartered in Teaneck, New Jersey. The company's early focus was primarily on manufacturing and marketing medicated feed additives and other products for the animal health industry. Over the decades, Phibro experienced steady growth, expanding its product portfolio and geographic reach.

In 2014, Phibro took a significant step in its corporate journey by going public, listing its Class A common stock on the Nasdaq stock exchange. This move provided the company with additional capital and visibility to support its growth strategies.

The company's core business segments include Animal Health, Mineral Nutrition, and Performance Products. The Animal Health division, which accounted for approximately 72% of Phibro's total revenue in the most recent fiscal year, develops, manufactures, and markets a broad range of products to prevent, control, and treat animal diseases, as well as support animal nutrition to improve health and well-being. This segment includes medicated feed additives (MFAs), nutritional specialty products, and vaccines.

The Mineral Nutrition business, contributing around 21% of total revenue, focuses on formulations and concentrations of trace minerals, such as zinc, manganese, copper, and iron, which are essential for the daily feed requirements of livestock. The Performance Products segment, making up the remaining 7% of revenue, manufactures and markets specialty ingredients for use in the personal care, industrial chemical, and chemical catalyst industries.

Financial Performance and Resilience Phibro has demonstrated remarkable financial resilience in the face of industry challenges.

Financials In the fiscal year ended June 30, 2024, the company reported total revenue of $1.02 billion, a 4.4% increase from the prior year. Net income for the year stood at $2.42 million, with diluted earnings per share of $0.06. The company's operating cash flow for the fiscal year 2024 was $87.59 million, with free cash flow of $46.36 million.

For the most recent quarter (Q2 FY2025), Phibro reported revenue of $309.26 million, representing a 24% year-over-year increase. Net income for the quarter was $3.19 million. The revenue growth was driven by a 33% increase in the Animal Health segment, a 3% increase in Mineral Nutrition, and a 7% increase in Performance Products. The Animal Health segment's growth was particularly strong, with a 47% increase in MFA and other products, including $36.7 million from the Zoetis MFA portfolio acquired in October 2024, as well as 11% growth in nutritional specialties and 12% growth in vaccines.

Phibro's global presence is reflected in its revenue distribution, with 59.5% of revenues coming from the United States, 23.5% from Latin America and Canada, 10.5% from Europe/Middle East/Africa, and 6.5% from Asia Pacific in the most recent quarter.

Liquidity The company's balance sheet remains strong, with a current ratio of 3.00 and a quick ratio of 1.37 as of December 31, 2024, indicating a healthy liquidity position. Phibro's debt-to-equity ratio stood at 2.52 as of the same date. The company had cash and cash equivalents of $67.07 million, with $193.64 million available under its $310 million revolving credit facility.

This robust financial position has enabled Phibro to invest in strategic acquisitions, product development, and capital expenditures, while also returning capital to shareholders through a quarterly dividend program.

Navigating Industry Challenges Phibro's diversified business model has been instrumental in navigating the various challenges faced by the animal health and nutrition industry. The company has proactively addressed regulatory changes, such as the ongoing regulatory scrutiny surrounding its Mecadox (carbadox) product, by engaging in a collaborative process with the U.S. Food and Drug Administration (FDA) and providing extensive research and data to support the safety of the product.

Moreover, Phibro has demonstrated its ability to manage the impact of global macroeconomic and geopolitical events, such as the ongoing conflict between Russia and Ukraine and the potential implications of tariffs. The company's global footprint, with manufacturing sites in the U.S., Brazil, and Israel, has allowed it to mitigate supply chain disruptions and adapt to changing trade dynamics.

Recent Developments and Outlook In October 2024, Phibro completed the acquisition of Zoetis Inc.'s medicated feed additive (MFA) portfolio, certain water-soluble products, and related assets. This strategic move has significantly expanded Phibro's MFA and water-soluble product categories, enhancing its ability to serve a broader customer base and diversify its revenue streams.

The integration of the Zoetis assets has been progressing smoothly, with Phibro reporting that the company has been able to effectively support its customers and colleagues globally. The company expects the acquisition to be accretive to its financial performance, with the MFA portfolio generating approximately $200 million in annual revenue.

Looking ahead, Phibro remains optimistic about the growth prospects of its business. For the fiscal year 2025, the company has provided detailed guidance:

- Total net sales are expected to be in the range of $1.25 billion to $1.30 billion, representing a year-over-year growth of 23% to 28% with a midpoint of 25%. - Adjusted EBITDA is projected to be between $172 million and $180 million, reflecting a growth of 55% to 62% with a midpoint of 58%. - Adjusted net income is expected to be between $76 million and $82 million, representing growth of 57% to 70% with a midpoint of 63%. - Adjusted diluted EPS is forecasted to be in the range of $1.87 to $2.01, representing growth of 57% to 69% with a midpoint of 63%.

This guidance incorporates the expected contribution from the Zoetis MFA portfolio acquisition and reflects the early benefits of Phibro's "Phibro Forward" initiative, which is focused on driving revenue growth and cost savings.

The animal health industry has experienced growth driven by increasing global protein demand, with an estimated CAGR of 5-6% expected going forward. Phibro is well-positioned as a leading diversified animal health and mineral nutrition company to capitalize on these trends.

Phibro's strong execution, diversified portfolio, and strategic investments position the company well to navigate industry challenges and capitalize on emerging opportunities in the animal health and nutrition market. As the company continues to demonstrate its resilience and adaptability, it remains a compelling investment proposition for value-oriented investors seeking exposure to the promising animal health and nutrition sector.

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