Phibro Animal Health Corporation Class A 2026 Q4 Earnings Call

Please go ahead. Thank you, Regina.

Good day, and welcome to the Phibro Animal Health Corporation earnings call for our fiscal fourth quarter and full year ended June 30, 2026. My name is Glenn David, and I am the Chief Financial Officer of Phibro Animal Health Corporation. I am joined on today's call by Daniel Bendheim, President and Chief Executive Officer, and Larry Miller, Chief Operating Officer. Today, we will cover financial performance for our fourth quarter and full year 2026, and provide financial guidance for our fiscal year ending June 30, 2027. At the conclusion of our remarks, we will open the lines for your questions. I would like to remind you that we are providing a simultaneous webcast of this call on our website, pahc.com.

Also, on the investor section of our website, you will find copies of the earnings press release and annual form 10-K, as well as the transcript and slides discussed and presented on this call. Our remarks today will include forward-looking statements, and actual results could differ materially from those projections. For a list and description of certain factors that could cause results to differ, I refer you to the Forward-Looking Statements section in our earnings press release. Our remarks include references to certain financial measures which were not prepared in accordance with generally accepted accounting principles or U.S. GAAP. I refer you to the non-GAAP financial information section in our earnings press release for a discussion of these measures. Reconciliations of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures are included in the financial tables that accompany the earnings press release.

We present our results on a GAAP basis and on an adjusted basis. Our adjusted results exclude acquisition-related items, unusual non-operational or non-recurring items, including stock-based compensation, other income expense as separately reported in the consolidated statement of operations, including foreign currency losses, gains net, and income taxes related to pre-tax income adjustments and unusual or non-recurring income tax items. Now, let me introduce our President and Chief Executive Officer, Daniel Bendheim, to share his opening remarks.

Thanks, Glenn, and good morning, everyone. Fiscal 2026 was a strong year for Phibro. We delivered record net sales of more than $1.5 billion and increased adjusted EBITDA by 39% to $255 million. In the fourth quarter, sales grew 5% and adjusted EBITDA grew 29%. More importantly, these results reflect a company that is executing better, operating more efficiently, and positioning itself for long-term growth. Let me spend a few minutes discussing the key themes behind those results. We experienced continuous sales momentum throughout the year. Our total legacy business grew 10% in the fourth quarter and 7% for the full year. Mineral Nutrition delivered particularly strong performance, with sales increasing 20% in the quarter and 11% for the year. Growth came from multiple parts of the portfolio and reflects the benefits of serving a diverse set of customers, species, and end markets.

Animal Health, our core business, remained the primary growth engine. Our legacy Animal Health business grew 8% in the quarter and 7% for the full year. Legacy MFAs increased 11% during the quarter, while Nutritional Specialties and vaccines grew 5% and 4%, respectively. For the full year, legacy MFA increased 4%, Nutritional Specialties increased 9%, and vaccines increased 14%. Sales from the acquired Zoetis MFA portfolio were down 11% in the quarter, largely reflecting a difficult comparison against a strong prior year period. The result was in line with our expectations and internal planning. For the full year, the portfolio grew 70%, and beyond the strong sales of the acquired products themselves, we are extremely pleased with both the integration and the strategic benefit the acquisition is bringing to the company, which we believe will continue to play out across our entire portfolio in the years to come.

Now that we have completed a full fiscal year with the integrated business, we do not expect to continue reporting the acquired portfolio separately. Before turning to fiscal 2027 guidance, let me touch on two important business updates. First, June marked the formal conclusion of Phibro Forward, our three-year transformation program. While the program has for the most part ended, the capabilities it created remain embedded throughout the organization. The stronger execution, accountability, and discipline developed through Phibro Forward continues to shape how we run the company today. Based on our current outlook, the expected cumulative EBITDA contributions from the program reaches approximately $50 million in fiscal 2027 compared with our fiscal 2024 baseline. Second, we announced yesterday the planned closure of our Chicago Heights manufacturing facility following a comprehensive review of the manufacturing network added through the MFA acquisition.

This was a difficult decision, particularly because of the impact on our employees, and is certainly not a reflection of their dedication or performance. I believe leadership requires balancing multiple responsibilities. We have a responsibility to our employees to treat them with honesty, respect, and fairness. We also have a responsibility to our customers, shareholders, and the long-term health of the business. Those responsibilities occasionally require difficult decisions, and this is one of them. This action better aligns our manufacturing footprint with the future needs and supports stronger long-term returns. Our focus now is on supporting employees, maintaining customer service, and managing the transition responsibly. One of the key uncertainties we considered developing our fiscal 2027 outlook is the regulatory status of virginiamycin in Brazil. We continue to work constructively with Brazilian regulatory authorities and remain very optimistic regarding the long-term outcome.

However, we have assumed only a minimal contribution from virginiamycin sales in Brazil in our planning for this fiscal year. As a result, a favorable outcome will represent upside to our expectations rather than something required to achieve our outlook. With that context, our fiscal 2027 guidance reflects confidence in the underlying business while taking a prudent view of known uncertainties. We expect net sales of $1.55 billion to $1.6 billion, adjusted EBITDA of $258 million to $258 million, and adjusted diluted EPS of $3.41 to $3.59. In closing, as I begin my tenure as CEO, my priorities are straightforward: serve our customers, advance innovation, improve operating performance, allocate capital with discipline, and create long-term value for all stakeholders. We enter fiscal 2027 with a broader portfolio, a more profitable animal health business, and a stronger operating model.

I believe the actions we are taking today are setting the stage for us to exit fiscal 2027 in an even stronger position, with a more competitive company, a more efficient asset base, and an additional opportunity to create value. We've made significant progress over the last several years, but I believe our best opportunities remain ahead of us. With that, let me turn the call back to Glenn.

Thanks, Tony. Starting with our Q4 performance on Slide 4, consolidated net sales for the quarter ended June 30, 2026, were $396.7 million, reflecting an increase of $18.1 million or a 5% increase over the same quarter one year ago. The animal health segment grew 2%, while mineral nutrition grew 20%, and the performance products segment grew by 1%. GAAP net income and diluted EPS increased 26%, driven by the successful integration of the new MFA business, increases in demand, improved gross margin due to favorable mix and lower input costs, and the net impact of tariff recoveries, partially offset by increased SG&A due to higher employee-related costs. After making our standard adjustments to GAAP results, including acquisition-related items, foreign currency losses, and certain one-off items, the fourth quarter adjusted EBITDA increased $14.3 million or 29% versus prior year.

Adjusted net income increased 37%, and adjusted diluted EPS increased 35%. Increased gross profit, driven by sales growth and an improved adjusted tax rate, was partially offset by higher adjusted SG&A and higher adjusted interest expense. Moving to the full year, consolidated net sales for the year ended June 30, 2026, were $1.518 billion, reflecting an increase of $221.9 million, or a 17% increase over the prior year. The animal health segment grew 21%, while mineral nutrition grew 11%, and performance products decreased by 8%. GAAP net income and diluted EPS increased significantly, driven by the successful integration of the new MFA business, the positive impact of our Phibro Forward initiative, and favorable gross profit due to higher product demand in the animal health segment, which were partially offset with increased SG&A due to higher employee-related costs and higher interest expense.

After making our standard adjustments to GAAP results, including acquisition-related items, foreign currency losses, and certain one-off items, full-year adjusted EBITDA increased $71.3 million or 39%. Adjusted net income and adjusted diluted EPS both significantly increased as well. Increased gross profit, driven by sales growth, was partially offset by higher adjusted SG&A and higher adjusted interest expense. Moving to segment-level financial performance. The Animal Health segment posted $297.6 million net sales for the quarter, an increase of $5.1 million or 2% versus the same quarter prior year. Within the Animal Health segment, we reported legacy MFA net sales increase of $11.7 million, or an increase of 11%, primarily due to increased demand for certain antimicrobials sold by our Ethanol Performance business. The new MFA business had sales of $83.9 million in the quarter, a decrease of $10.6 million or 11%, driven by a strong comparator quarter in Q4 2025.