Phibro Animal Health Corporation (PAHC) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A reveal strong financial performance, optimistic guidance, and strategic initiatives like the Phibro Forward, which are expected to drive growth. Despite some concerns over inventory buildup and unclear management responses on specific details, the overall sentiment is positive due to robust margins, favorable market trends, and promising product launches. The positive reception of Restoris and share gains in key segments further bolster the outlook, suggesting a likely stock price increase in the short term.
Key Financial Performance
Consolidated Net Sales $373.9 million, reflecting an increase of $64.6 million or a 21% increase over the same quarter 1 year ago. The increase was driven by growth in the Animal Health segment (26%), Mineral Nutrition (9%), and offset by a decline in Performance Products (-10%).
Animal Health Segment Net Sales $290 million, an increase of $60.6 million or 26% versus the same quarter prior year. Growth was driven by the new MFA business contributing $94.1 million, Nutritional Specialty net sales increasing by 9% due to North America dairy demand, and Vaccine net sales increasing by 13% due to growth in poultry products in Latin America and higher international demand.
Animal Health Adjusted EBITDA $82.2 million, a 41% increase driven by the new MFA business, higher gross profit from improved mix in the legacy business, partially offset by higher SG&A.
Mineral Nutrition Net Sales $68.9 million, an increase of $5.7 million or 9% due to an increase in demand for zinc and trace minerals.
Performance Products Net Sales $15 million, a decrease of $1.6 million or negative 10% as a result of lower demand for the ingredients used in personal care products.
Adjusted EBITDA (Consolidated) Increased $19.9 million or 41% versus prior year, driven by increased gross profit from sales growth, partially offset by higher adjusted SG&A and higher adjusted interest expense.
Adjusted Net Income Increased 60%, driven by sales growth and improved gross margin due to favorable mix, partially offset by higher SG&A and interest expenses.
Free Cash Flow $47 million for the 12 months ended December 31, 2025. Cash generation was negatively impacted by a buildup of inventory in advance of tariffs and to meet increasing customer demand.
Operating Cash Flow $93 million, with $46 million invested in capital expenditures.
Gross Leverage Ratio 3.1x at the end of the quarter, based on $737 million of total debt and $235 million of trailing 12-month adjusted EBITDA.
Net Leverage Ratio 2.8x at the end of the quarter, based on $662 million of net debt and $235 million of trailing 12-month adjusted EBITDA.
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Operating Highlights
Animal Health Sales Growth: 26% growth in Animal Health sales, driven by Medicated Feed Additives (MFA) with 34% growth, supported by gains in nutritional specialties and vaccines.
New MFA Business Contribution: The new MFA business contributed $94.1 million in sales for the quarter, driving total MFA and other growth to 34%.
Vaccine Growth: 13% increase in vaccine net sales, driven by growth in poultry products in Latin America and higher international demand.
Protein Market Momentum: Producers in poultry and broader protein markets are seeing more stability and strong demand, with customers prioritizing performance, reliability, and cost efficiency.
Mineral Nutrition Growth: 9% increase in net sales due to higher demand for zinc and trace minerals.
Operational Efficiency: Improved gross margin due to favorable mix, partially offset by higher SG&A costs.
Inventory Management: Inventory buildup in advance of tariffs and to meet increasing customer demand, expected to stabilize in coming quarters.
Leadership Transition: CEO transition planned for July 2026, with continuity in leadership team to maintain operational momentum.
Phibro Forward Strategy: Focus on sustainability and profitability through R&D and digital capabilities, aiming to lead breakthroughs in Animal Health.
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Risk or Challenges
Performance Products Segment Decline: The Performance Products segment experienced a 10% decline in net sales due to lower demand for ingredients used in personal care products.
Inventory Build-Up: Cash generation has been negatively impacted by a buildup of inventory in advance of tariffs and to meet increasing customer demand. This could pose risks to cash flow and operational efficiency if inventory levels do not stabilize as expected.
Higher SG&A Costs: Increased SG&A expenses, driven by higher employee-related costs, could pressure profitability if not managed effectively.
Legacy MFA Sales Decline: Legacy MFA's net sales decreased by 5%, driven by the timing of inventory purchases from a large customer. This indicates potential volatility in customer purchasing patterns.
Debt Levels and Leverage: The company has a gross leverage ratio of 3.1x and a net leverage ratio of 2.8x, which could pose financial risks if market conditions deteriorate or if interest rates rise.
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Guidance & Outlook
Revenue Guidance: Net sales guidance for fiscal year 2026 has been increased to a range of $1.450 billion to $1.500 billion, representing a growth range of 12% to 16% with a midpoint of approximately 14%.
EBITDA Guidance: Total adjusted EBITDA guidance has been raised to a range of $245 million to $255 million, representing a growth range of 33% to 39% with a midpoint of approximately 36%.
Net Income Guidance: Adjusted net income guidance has been increased to a range of $120 million to $127 million, representing growth of 41% to 49% with a midpoint of approximately 45%.
Market Trends: The protein markets are experiencing genuine momentum, with rising producer confidence and resilient global demand. Customers are prioritizing performance, reliability, and cost efficiency.
Operational Focus: Phibro is investing in R&D and digital capabilities to lead breakthroughs in Animal Health, focusing on sustainability and profitability through better gut health, improved feed conversion, and reduced disease pressure.
Inventory Management: Inventory levels are expected to stabilize in the coming quarters after a buildup to meet increasing customer demand and prepare for tariffs.
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Shareholder Return Plan
Quarterly Dividend: Consistent with our history, we paid a quarterly dividend of $0.12 per share or $4.9 million in aggregate.
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Key Q&A
Q:What are the main drivers of the strong gross margins this quarter, and how should we think about gross margins over the next few quarters?
A:The main drivers include additional pricing on the Zoetis portfolio, positive mix with strong performance in nutritional specialties and vaccine products, and a focus on higher-margin products. There was also a one-time impact from returns transitioning from Tier 3 to Tier 1 markets, which elevated gross margin by less than 100 basis points. Overall, strong underlying performance is expected to continue.
Q:What factors are driving the EPS and EBITDA upside in the guidance update?
A:Factors include strong revenue performance, exceeding expectations in the acquired portfolio, leveraging existing infrastructure without significant additional resources, and improved mix. These factors contribute to positive performance for the first half of the year and the full-year guidance.
Q:What is the impact of customer timing on the legacy MFA business, and how should we think about normalized growth rates for both legacy and Zoetis MFA businesses?
A:Customer timing caused a $10 million impact this quarter due to inventory level fluctuations, but this is expected to improve in the next quarter. Normalized growth rates for both legacy and Zoetis MFA businesses are expected to be in the low to mid-single digits long term, with potential for greater growth driven by field force and technical expertise.
Q:How sustainable are the favorable livestock end markets, and what factors contribute to this sustainability?
A:The demand for high-quality clean proteins remains strong, benefiting sectors like beef, chicken, pork, turkey, dairy, and eggs. Favorable feed costs, geographic diversification, and increased domestic production in key markets contribute to sustainability. Some shifts in trade due to tariffs and disease outbreaks are expected, but overall, the outlook is positive.
Q:Are there share gains in the MFA business, and what factors are driving these gains?
A:Yes, there are share gains, particularly in the poultry anticoccidial range and swine rhinitis business. A more complete portfolio and strong performance in broiler coccidiosis management have allowed for increased participation in anticoccidial programs. Customers are receptive to the portfolio's offerings.
Q:What drove the outperformance of the Zoetis MFA portfolio, and should the $10 million impact from the legacy business return in Q3?
A:The outperformance was driven by strong team execution, share gains in specific products, and addressing customer needs for larger, heavier harvest weights. The $10 million impact from the legacy business is expected to return in the second half of the year, though the split between Q3 and Q4 depends on orders.
Q:What is the commercial traction and vet feedback on Restoris since its launch?
A:Restoris has seen positive traction and excitement within the vet community since its launch late last year. The product has gained interest at events like VMX and is expected to continue gaining momentum at upcoming conferences.
Q:What is the progress of the Phibro Forward initiatives, and how much of the margin expansion is driven by structural cost initiatives versus cyclical or mix-related benefits?
A:Phibro Forward is halfway through its implementation, with significant contributions expected to accelerate through fiscal year '26 and fully materialize in fiscal year '27. Margin expansion is driven by structural changes, higher gross margins, and revenue strategies, as well as groundwork for future growth.
Q:Will innovation developments in companion animal, such as oral health, be a meaningful contributor to 2026 or beyond?
A:These developments will be more meaningful beyond 2026, with limited contributions in the current quarter and more material contributions expected in fiscal year '27 and beyond.
Q:Review of Unclear Management Responses
A:Management avoided providing specific dollar amounts for the contributions of the Phibro Forward initiatives, stating only that it is a significant driver of growth. Additionally, they did not provide a clear breakdown of how much of the $10 million impact from the legacy MFA business would return in Q3 versus Q4, citing dependency on orders.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Additives gain
Atlanta IPPE
Atlanta conversation
Barcelona IPPE
Barcelona meeting
Barcelona people
Better gut
CEO Chief
Chairman culture
Corporate CEO
Demand reliability
Director result
Donny Executive
Executive Chairman
Forward strength
Health Minerals
Health effort
Health sign
IPPE Phibro
IPPE Poultry
IPPE era
Producers
Regina
alignment
day
decade
energy
leader
moment
momentum
pressure
protein market
region
role
stability
sustainability profitability
team
transition
week
PAHC Transcript
Phibro Animal Health Corporation (PAHC) Q2 2026 Earnings Call Transcript
Positive2-5
The earnings call summary and Q&A reveal strong financial performance, optimistic guidance, and strategic initiatives like the Phibro Forward, which are expected to drive growth. Despite some concerns over inventory buildup and unclear management responses on specific details, the overall sentiment is positive due to robust margins, favorable market trends, and promising product launches. The positive reception of Restoris and share gains in key segments further bolster the outlook, suggesting a likely stock price increase in the short term.
Phibro Animal Health Corporation (PAHC) Q1 2026 Earnings Call Transcript
Positive11-6
The earnings call reveals strong financial performance, with notable growth in net sales and adjusted EBITDA, especially in the Animal Health segment. The optimistic guidance and strategic initiatives, such as the Phibro Forward Initiative and Zoetis portfolio contributions, support a positive outlook. Despite some uncertainties in growth sustainability, management's confidence in demand and profitability, along with strategic expansions into companion animals, suggest a favorable market reaction. The decision not to update guidance reflects caution rather than negative sentiment, aligning with a positive stock price outlook.
Phibro Animal Health Corporation (PAHC) Presents At Morgan Stanley 23rd Annual Global Healthcare Conference Transcript
Neutral9-9
Phibro Animal Health Corporation (PAHC) Q4 2025 Earnings Conference Call Transcript
Positive8-28
The earnings report reveals strong financial growth, with significant increases in sales and EBITDA, driven by demand in key segments like Animal Health. The Q&A section highlights optimistic guidance, despite some vague responses on tariffs and investments. The positive sales growth and strategic initiatives, such as the Zoetis integration, suggest a favorable outlook. Therefore, the stock price is likely to experience a positive movement in the short term.
PAHC Slides
PAHC Report
Frequently Asked Questions
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