Phibro’s (PAHC) Big Acquisition Bet Just Cleared Its First Full Year

Phibro Animal Health (PAHC) reported strong results for fiscal year 2026, with full-year net sales surpassing $1.5 billion, adjusted EBITDA increasing 39% to $255 million, and adjusted diluted earnings per share rising 48% to $3.22. This marks the first full fiscal year since the company completed a significant acquisition of a medicated feed additive portfolio.

The acquired feed additive business grew 70% in sales, contributing $354.3 million to the company's total sales. However, the company's other segments also performed well, with overall Animal Health sales up 21% to $1.162 billion, Mineral Nutrition sales up 11% to $282.3 million, and vaccine sales up 14% to $156.4 million. The nutritional specialties segment also grew, likely due to increased demand from North American dairy customers.

Management attributes the company's success to its Forward efficiency program, which is expected to add $50 million in cumulative EBITDA benefit in fiscal 2027. The planned closure of its Chicago Heights plant is also projected to save $15 million to $20 million annually starting in fiscal 2028. Despite the strong performance, the company's free cash flow for fiscal 2026 was relatively low at $9.9 million, due to a significant buildup in inventory.

Management expects modest growth for fiscal 2027, with net sales projected between $1.55 billion and $1.6 billion, and adjusted EBITDA between $258 million and $268 million. This represents roughly a 4% and 3% increase from this year's figures. However, the company faces challenges such as regulatory uncertainty and potential negative EBIT growth in the first quarter due to higher selling general and administrative expenses.

Hedge fund ownership of Phibro has decreased, and short interest stands at 6.96% of float, indicating some bearish sentiment in the market. Management believes that the acquired feed additive business and other growth levers like Rejensa joint health product and livestock value increases are essential for the company's continued growth.