Phibro Animal Health ($PAHC) missed expectations in its second fiscal quarter, reporting after the market closed on Feb. 9 that it earned 39 cents a share on $192 million in sales. Sales were up 2% year over year and earnings grew 11%, but analysts had been expecting $198.3 million in sales and EPS of 41 cents, according to Thomson Financial Network.
The company, based in Teaneck, NJ, attributed the results partly to a $1.8 million year-over-year decline in sales of its medicated feed additives, which include antibiotics. Food producers in the U.S. are no longer permitted to use antibiotics for growth promotion--a regulatory change that was prompted by widespread fears of antibiotic-resistant infections in people.
Phibro CEO Jack Bendheim said in the company's earnings release that he sees "positive trends," and that the company continues "to capture a healthy share of the business that is moving into nutritional specialty products." Nevertheless, Phibro's stock opened the next morning down 11% to $30.12, and during a conference call, Bendheim fielded a lot of questions from concerned analysts.
When asked to elaborate on the trend of food producers moving away from antibiotics, Bendheim said Phibro anticipated the change, but he does not expect the market for the drugs to completely disappear. Animals "need to fight off bacteria to remain healthy, to grow in an economical way," he said.
He also predicted that the demand for vaccines and nutritional specialty products will grow as producers look for antibiotic alternatives. "While these [products] don't work as well as antibiotics, they will replace antibiotics as growth promoters," he said.
Animal health companies are no longer permitted to market antibiotics for growth promotion, and food producers are under pressure from the USDA, FDA and Centers for Disease Control and Prevention to track and report their use of the drugs. Last year, California passed the toughest anti-antibiotics law on the books, which not only prohibits the use of the drugs for fattening up animals but also requires that they be prescribed by veterinarians.
Phibro has been working to expand its presence in other markets beyond antibiotics. A year ago it began selling vaccines from MJ Biologics, and in January it purchased the assets of MVP Laboratories, which manufactures livestock vaccines including MJ's product to prevent porcine reproductive and respiratory syndrome (PRRS). "By expanding the capabilities and species reach of Phibro vaccines, we are adding a platform for growth and value creation consistent with our vision for the future," Bendheim said in the earnings release.
During the conference call, an analyst asked Bendheim if he thought the concern over antibiotics use in animals was nothing more than "political noise." Bendheim replied by predicting that the market for antibiotics would continue to grow, along with the demand for vaccines and growth-promoting alternatives like nutritional additives. "We will get our fair share of that," he said.