Two major health events are creating upheaval in one of the markets served by Phibro Animal Health ($PAHC), which makes nutritional products--including antibiotics-laden feed additives--for the food-animal industry. The first is an outbreak of avian flu, which has forced poultry producers to kill millions of affected birds. The second is a crackdown by the FDA on the improper use of antibiotics to promote weight gain in food animals.
Phibro acknowledged the news during its third-quarter earnings release--but the company seemed no worse for wear because of it. During the quarter, Phibro brought in sales of $187 million, up 8% year-over-year. Earnings before interest, taxes, depreciation and amortization (EBITDA) jumped 23% to $27.5 million.
Phibro also updated its earnings guidance for its fiscal year ending in June. The company expects to report net sales of $749 million to $754 million, up at least 8% from last year. It expects EBITDA to rise 20% to about $109 million.
Still, Phibro's executives acknowledged that the weight of current events can't be ignored. At least 24 million birds have been affected by the H5N2 avian influenza outbreak in more than 14 states, leading to temporary layoffs at Hormel Foods ($HRL) and an additional $330 million in federal funds to be poured into fighting the illness. At the same time, the FDA is implementing tough new guidelines for food-animal producers meant to curb the use of antibiotics for improper uses such as promoting weight gain. Fast-food chain McDonald's ($MCD) and food producers such as Tyson have sworn off chickens raised with antibiotics that are important in human healthcare.
Phibro CEO Jack Bendheim told analysts during a conference call after the earnings report that if the avian flu outbreak continues to spread, it could have "a short-term effect on our U.S. business, until the industry rebuilds production." He's not so worried about the poultry industry cutting back on antibiotics use, however. Bendheim predicted that poultry producers would never move to a completely antibiotics-free approach because "consumers and the industry want animals kept healthy and treated when they are sick. As a result there is a role to play going forward," he said.
But when one analyst asked during the question-and-answer session what percentage of Phibro's sales would be affected by changing antibiotics policies, Bendheim demurred, saying only that it was a "relatively small" part of the business but that he would decline to "talk about that level of granularity."
Investors don't seem to be worried, at least not yet. Phibro's stock, which has doubled in the last 12 months, rose nearly 9% to $37.05 on Tuesday, after the earnings report was released.
- here's the earnings release
- access the earnings call transcript here