Phibro Animal Health - Earnings Call - Q4 2025

Executive Summary

• Q4 FY2025 delivered strong top-line growth: net sales rose 39% to $378.7M; adjusted diluted EPS increased 39% to $0.57; adjusted EBITDA rose 49% to $50.0M.
• Versus S&P Global consensus, PAHC posted a beat on revenue ($378.7M vs $362.2M*) and EPS ($0.57 vs $0.52*), with a slight miss on EBITDA ($49.1M vs $50.6M*) — driven by robust Animal Health demand and Zoetis MFA integration, offset by higher SG&A and interest expense.
• FY2026 guidance calls for continued momentum: net sales $1.43B–$1.48B, adjusted EBITDA $225M–$235M, adjusted EPS $2.52–$2.70; management cited ongoing strength across MFAs, nutritional specialties, and vaccines, plus execution of “Phibro Forward” initiatives.
• Capital and cash: TTM free cash flow $41.8M, gross leverage 3.1x (total debt $725.1M, cash/short-term investments $77.0M); quarterly dividend maintained at $0.12 per share (declared July 29, 2025).
• Stock catalysts: integration milestones (90% independent operations for Zoetis MFAs, full independence expected by calendar Q4), estimate beats in Q4, and above-trend FY2026 growth guide; ongoing tariff monitoring and SG&A investments are watch items.

What Went Well and What Went Wrong

• What Went Well

  • Animal Health strength: segment sales +53% to $292.5M in Q4, with MFAs & Other +77% (Zoetis MFA contribution $94.5M), nutritional specialties +11%, vaccines +21%.
  • Strategic execution: “Phibro delivered exceptional fourth-quarter and full-year results… Zoetis MFA portfolio exceeded expectations… Phibro Forward initiatives… unlocking efficiencies and driving sustainable growth” — CEO Jack Bendheim.
  • Integration progress and portfolio expansion: “All major system implementations are now complete… operating independently for ~90% of revenue… full independence by calendar Q4” — CFO Glenn David; entry into U.S. beef cattle segment broadens market access — COO Larry Miller.

• What Went Wrong

  • Margin compression: Q4 gross margin decreased 290 bps YoY to 29.0% (29.7% ex-purchase accounting), reflecting higher distribution costs, inventory write-offs, and unfavorable mix.
  • Elevated SG&A and interest: Q4 SG&A +11% YoY to $76.3M; interest expense +82% YoY to $8.6M due to acquisition financing; these dampened EBITDA vs consensus.
  • Tax rate volatility and FX: Q4 effective tax rate at 27.8% (with GILTI impact); FX losses of $1.3M (vs $7.3M losses prior year) still a headwind, with notable shekel and peso fluctuations.

Transcript

Speaker 5

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Phibro Animal Health Corporation Fourth Quarter and Fiscal Year 2025 Results Webcast and Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press * then the number 1 on your telephone keypad. To withdraw your question, press *1 again. I would now like to turn the conference over to Glenn David, Chief Financial Officer. Please go ahead.

Speaker 2

Thank you, Regina. Good day, and welcome to the Phibro Animal Health Corporation Earnings Call for our fiscal fourth quarter and full year ending June 30, 2025. 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 Jack Bendheim, Phibro's Chairman, President, and Chief Executive Officer, Donny Bendheim, Director and Executive Vice President of Corporate Strategy, and Larry Miller, Chief Operating Officer. Today, we will cover financial performance for our fourth quarter and full year 2025 and provide financial guidance for our fiscal year ending June 30, 2026. At the conclusion of our remarks, we will open the line 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 Chairman, President, and Chief Executive Officer, Jack Bendheim, to share his opening remarks. Jack?

Speaker 3

Thanks, Glenn, and good morning, everyone. I'm pleased to report another strong quarter and a standout finish to fiscal 2025 for Phibro Animal Health Corporation. Our results this quarter reflected continued momentum across the business, led once again by Animal Health, where we saw a 53% sales growth and a 47% increase in adjusted EBITDA. Within Animal Health, our medicated feed additives (MFA) and other portfolio, bolstered by the Zoetis Inc. MFA integration, grew 77% in the fourth quarter. Nutritional specialties and vaccines also delivered solid gains of 11% and 21%, respectively. These results underscore the strength of our diversified portfolio and the value we're delivering to customers across geographies and species. Looking at the full year, Animal Health sales rose 36% with adjusted EBITDA up 53%. MFAs and other grew 54%, while nutritional specialties and vaccines increased 9% and 13%, respectively.

Our legacy Animal Health business contributed meaningfully with a 7% growth for the year, once again outpacing the growth of the underlying industry. Beyond Animal Health, we saw continued growth in mineral nutrition and performance products, both in the quarter and for the full year. Consolidated net sales were up 39% in the fourth quarter and 27% for the year, while adjusted EBITDA rose 49% and 65%, respectively, highlighting the operating leverages we're achieving through disciplined execution. Clear to guidance for fiscal year 2026, outlook reflects continued confidence in our trajectory. We're projecting net sales between $1,425 million and $1,475 million, adjusted EBITDA of $225 to $235 million, and adjusted EPS $2.52 and $2.70. These targets are grounded in the strength of our portfolio and the momentum we've built. They also reflect the tangible impact of our Phibro Forward initiative.

We've made deliberate investments in scaling operations, strengthening our global footprint, and enhancing our innovation pipeline. While it's a long-term initiative, we're already seeing benefits in how we operate and deliver value. I'll now turn it back to Glenn for more detail on our performance and guidance, and I look forward to your questions at the end.

Speaker 2

Thanks, Jack. Starting with our Q4 performance on slide four, consolidated net sales for the quarter ended June 30, 2025, were $378.7 million, reflecting an increase of $105.5 million, or a 39% increase over the same quarter one year ago. The Animal Health segment grew 53%, while Mineral Nutrition grew by 3%, and the Performance Products segment grew by 13%. GAAP net income and delivered EPS increased significantly, driven by the successful integration of the new medicated feed additives (MFA) business, increases in demand, improved gross margin due to favorable mix, and lower input costs, 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 $16.5 million, or 49% versus prior year. Adjusted net income and adjusted delivered EPS both increased 39%.

Increased gross profits, driven by sales growth, 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, 2025, were $1,296 million, reflecting an increase of $278.5 million, or a 27% increase over the prior year. The Animal Health segment grew 36%, while Mineral Nutrition grew 4%, and Performance Products grew by 19%. GAAP net income and delivered EPS increased significantly, driven by the successful integration of the new medicated feed additives (MFA) business, the initial positive impact of our Phibro Forward initiative, and favorable gross profit due to higher product demand in the Animal Health segment, 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 $72.4 million, or 65%. Adjusted net income and adjusted delivered 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 $292.5 million net sales for the quarter, an increase of $101 million, or 53%, versus the same quarter prior year. Within the Animal Health segment, we've reported legacy MFA net sales declined to $4.6 million, or a decline of 4% due to the timing of specific customer orders and strong performance in Q4 last year. The new MFA business contributed a full quarter of sales of $94.5 million, driving the total MFA and others growth to 77%.

Nutritional specialties net sales increased $4.6 million, or 11%, mostly due to higher demand for microbial and companion animal products. Vaccine net sales growth of $6.6 million, a healthy 21% increase, driven by continued growth of poultry products in Latin America and higher international demand. Animal Health adjusted EBITDA was $60.6 million, a 47% increase, driven by the new MFA business, higher gross profit from improved mix in the legacy business, partially offset by higher SG&A. Moving to full-year performance for Animal Health on slide seven, the Animal Health segment posted $962.8 million in net sales for the year, an increase of $256.3 million, or 36% versus the prior year. Within the Animal Health segment, we reported legacy MFA and other net sales growth of $17.6 million, or 4%, due to demand in both domestic and international regions.

The new MFA business contributed $208.2 million in sales in the eight months post-acquisition in fiscal year 2025, driving the total MFA and other growth to 54%. Nutritional specialties net sales increased $14.6 million, or 9%, primarily due to increased domestic demand for dairy and higher sales of microbial and companion animal products. Vaccine net sales growth of $16.3 million, a 13% increase, driven by continued growth of poultry products in Latin America and increased domestic demand for swine products. Animal Health adjusted EBITDA was $222.3 million, a 53% increase, driven by the new MFA business, higher gross profit from improved mix in the legacy business, partially offset by higher SG&A. Moving on to fourth quarter financial performance for our other business segments on slide eight.

Starting with Mineral Nutrition, net sales for the quarter were $64.2 million, an increase of $2.1 million, or 3%, due to an increase in demand for copper and trace minerals. Looking at our Performance Products segment, net sales of $22.1 million reflect an increase of $2.5 million, or 13%, primarily because of higher demand for the ingredients used in personal care products. Mineral Nutrition and Performance Products adjusted EBITDA were nearly the same as the prior year. Corporate expenses increased $2.9 million, driven by higher employee-related costs and strategic investments. Moving on to the full year financial performance for our other business segments. Starting with Mineral Nutrition, net sales for the year were $253.2 million, an increase of $9.6 million due to increase in demand for copper and trace minerals.

Mineral Nutrition adjusted EBITDA was $20.8 million, reflecting a year-on-year increase of $4.4 million, or 27%, driven by increased gross profit. Looking at our Performance Products segment, net sales of $80.2 million for the year reflect an increase of $12.6 million, or 19%, as a result of higher demand for the ingredients used in personal care products. Adjusted EBITDA was $10.5 million, an increase of $2.8 million versus the prior year. Corporate expenses increased to $11.5 million due to higher incentive-related employee costs and strategic investments. Turning to key capitalization-related metrics on slide ten, we generated $42 million of positive free cash flow for the 12 months ended June 30, 2025. We generated $80 million of operating cash flow and invested $38 million in capital expenditures. Cash and cash equivalents and short-term investments were $77 million at the end of the year.

Our gross leverage ratio was 3.1 times at the end of the fourth quarter, based on $725 million of total debt and $231 million of trailing 12-month adjusted EBITDA. Our net leverage ratio was 2.8 times at the end of the fourth quarter, based on $648 million of net debt and $231 million of trailing 12-month adjusted EBITDA. Please note that the trailing 12 months of adjusted EBITDA includes 12 months from the Zoetis medicated feed additives portfolio, four months of Zoetis history, and eight months from Phibro ownership. In September of 2024, we entered a new swap arrangement for $150 million at a fixed rate of 3.18% plus applicable margin that runs through September 2029. In March of 2025, we entered a new swap arrangement for $275 million at a fixed rate of 3.64% plus the applicable margin that runs through February 2030.

In March 2025, we also entered into a forward starting interest rate cap, starting in July 2025 for $250 million, with an interest rate cap and floor of 4.75% and 1.99%, respectively, through June 2026. Turning to dividends, consistent with our history, we paid a quarterly dividend of $0.12 per share or $4.9 million in aggregate. Now let's turn to slide 11, which lays out our guidance for fiscal year 2026. Please note that this guidance includes a full 12 months of the Zoetis medicated feed additives portfolio. Also included in this guidance for fiscal year 2026 are benefits related to our Phibro Forward income growth initiative that will help drive additional EBITDA and margin growth. One-time costs related to this initiative are also included in our GAAP guidance and primarily consist of one-time consulting fees.

This initiative is focused on unlocking additional areas of revenue growth and cost savings, areas such as potential price increases, expanded product offerings, procurement initiatives, and other cost-saving initiatives. Our guidance for fiscal year 2026 is as follows: net sales of $1,425 million to $1,475 million. This represents a growth range of 10% to 14% and a midpoint of approximately 12%. Total adjusted EBITDA of $225 million to $235 million. This represents a growth range of 22% to 28% and a midpoint of approximately 25%. Adjusted net income of $103 million to $110 million. This represents growth of 21% to 29% with a midpoint of approximately 25%. GAAP net income and EPS assumes constant currency and no gains or losses from FX movements. Also included in our GAAP net income and EPS are one-time costs related to our Phibro Forward income growth initiative.

In closing, we're excited about the strong performance we saw throughout fiscal year 2025 and the momentum we are carrying into fiscal year 2026. We are confident in the demand for our products around the world and look forward to seeing continued improvement in our business as we move forward in the coming months. With that, Regina, could you please open the line for questions?

Speaker 5

We will now begin the question and answer session. To ask a question, simply press *1. Our first question will come from the line of Erin Wright with Morgan Stanley. Please go ahead.

Speaker 6

Great. Thanks for taking my question. What does guidance now assume in terms of the underlying organic growth? Can you speak to some of those key headwinds and tailwinds embedded in your guidance assumptions for 2026? Thanks.

Speaker 7

Thanks for the question. In terms of underlying organic growth, there are a number of things that are driving the sales performance as we move into fiscal year 2026. Obviously, the full 12 months of Zoetis versus eight months is a key driver. In terms of the underlying growth of the legacy business, we're essentially assuming what we see more in the long term. We look at our medicated feed additives business sort of growing in that flat to low single-digit area, and then we expect accelerated growth or continued higher levels of growth in both vaccines and nutritional specialties. Both of those businesses perform particularly well in fiscal year 2025. We expect them to continue to perform well in fiscal year 2026. However, parts, particularly our vaccine portfolio, grew over 13% this year.

We do expect that to start to stabilize a little bit, but still provide significant growth as we move into fiscal year 2026.

Speaker 6

Okay, great. On Phibro Forward, can you quantify anything for us in terms of your expectations there and what's ultimately kind of dropping through in terms of cost saved and what some of the key low-hanging fruit areas are for you there? Also, on the cost side, some of the strategic investments that you're making, could you expand a little bit on that? Is it more about global expansion efforts, or is it more focused on innovation? Is any of that more one-time in nature, or how should we think about those investments going forward?

Speaker 7

Yeah, thanks, Erin. I'll address the first part of your question, and then I'll let Donny address some of the strategic investments that we're making. In terms of Phibro Forward, we saw contributions from Phibro Forward in fiscal year 2025, and that helped generate the significant earnings growth that we've seen on top of a lot of the other areas that we talked about as well. We expect that to continue as we move into fiscal year 2026. When you look at the guidance range for EBITDA, for example, it's a growth of anywhere from $40 to $50 million. As we look at that, a good part of that growth is coming from the annualization of the Zoetis portfolio, but the remainder comes from contributions from the legacy business and contributions from Phibro Forward as well.

The other thing is we look at Phibro Forward, we expect that to peak in fiscal year 2027. We do expect it to continue to be a driver of growth as we move into fiscal year 2027 as well. I'll let Donny talk about some of these strategic areas of investment.

Speaker 3

Yeah, thanks, Erin. Phibro Forward really is across the entire business, and on the sales side, it involves customer-related focus. It involves CRMs, building up our churn desk, for instance, looking at customers. In other areas, it would cover areas like setting up a global procurement organization. Previously, we had not had a global procurement organization. It was more regional. We've now stood up a global procurement organization. I think that's giving you a color of, it's across the organization. It's not one-time. It's embedded in the SG&A numbers that you're looking at. There are areas on the R&D side as well. Those are more kind of baked into the business as opposed to one-time, increasing our focus across the business, both on the livestock business as well as companion animal. We see opportunities there still. I think it's an inflection point for our business.

As Glenn said, we'll see even more in 2027. We hope to embed it within the business itself and to continue to see growth in the years to follow.

Speaker 6

Okay, that's great. Thank you so much.

Speaker 5

Our next question comes from the line of Ekaterina Kiskova with JPMorgan. Please go ahead.

Speaker 1

Thank you so much, and congratulations on the results. First question is on the Zoetis medicated feed additives business. You've had the asset, I think, for several quarters now. Where are we in terms of the integration process, and is there anything that you guys are still working through? Anything left for you to do? As you've been going through the process, are you seeing any areas where you can maybe put additional resources behind the portfolio, both on the manufacturing side and the commercial side? The second question is just around tariffs. Can you remind us what you're embedding in terms of the impact this year and maybe specifically talk about the Brazil side, which has given some of the headlines? Thank you.

Speaker 7

Thanks, Katerina. I'll talk a little bit about the Zoetis integration, and Larry will join in as well. From a tariff perspective, in terms of the Zoetis integration, we had eight months of results in this year, and we're another two months in now at this point. The integration is going very well. All of the major system implementations are now complete. We continue to progress in terms of doing the market transitions and authorizations across the globe. We're pretty much operating independently for about 90% of the revenue at this point in time. There are a number of markets that still need to transition over the next few months, but we expect to be operating fully independently by calendar Q4 this year. Everything's going very well and according to plan, and all of the major integration items have been complete or on schedule.

I'll let Larry talk to you a little bit about additional resources.

Speaker 3

Yeah, we're seeing opportunities that we have, we're exposing our current products to new markets and new customers, particularly in areas like Asia, Western Europe, and also this allowed us entry into the U.S. beef cattle segment. That has really helped us bring not only the acquired products, but also the combined basket of the type of solutions that we can bring to our customers. We are seeing some geographic as well as some market segment expansion opportunities.

Speaker 7

In terms of tariffs, Katerina, our guidance does include tariffs as we know them today. Any significant changes, any changes in pharmaceutical tariffs or things of that nature are not fully embedded in the guidance. That being said, obviously, we have a guidance range, and we could probably accommodate some of that, but any major shifts have not been out of the blind lines.

Speaker 1

Thank you.

Speaker 5

Our next question comes from the line of Michael Riskin with Bank of America. Please go ahead.

Speaker 0

Hey, thanks for taking the question, and congrats on a strong end to fiscal year 2025. Starting on the 2026 guide, maybe just to follow up on an earlier question, you did a $208 million from the Zoetis MFA contribution in 2026. Should we be assuming about $100 million in fiscal year 2026 of inorganic contribution before it turns organic from those first four months? Additionally, if you could say anything, Glenn, in terms of how much of the EBITDA and EPS, adjusted EBITDA and adjusted EPS in 2026, is some of that lapping those last four months before it turns organic? Just so we can break that out. Thanks.

Speaker 7

Sure. No, thanks for the question, Mike. As you said, we did $208 million in fiscal year 2025. We initially guided to about $200 million, so we're pleased with the results that we saw in fiscal year 2025 for the Zoetis medicated feed additives (MFA) portfolio. Within that $208 million, as we talked about previously, the first few months, there was some destocking. If you're going to run rate out another four months, it would probably be a little higher than just half of the $208 million. When you look at the contribution from Zoetis to the EBITDA, as I mentioned, when you look at our current guidance range, it implies anywhere from $40 million to $50 million in incremental EBITDA next year.

I would say at least half of that is coming from the contribution of having the full 12 months of Zoetis versus eight months in fiscal year 2025. The remainder comes from the growth in the legacy business and the contributions that we're seeing from the Phibro Forward initiative.

Speaker 0

Okay, that's really helpful. For follow-up, I want to go back to last year, the animal health business, you know, 7% overall. I'm talking about the legacy business, to be clear. 7% total growth, you know, four in MFAs, nine, 13 in nutritional specialties vaccines. I think as you answered earlier to Erin's question, Glenn, those are really strong numbers. It sounds like your assumptions for going forward are just a little bit more sort of back to historical trends for MFAs, maybe a little bit more low single digits, maybe a little bit more, you know, high single digits, 10% for NF and vaccines. Could you just talk about what worked so well for you in fiscal year 2025? Why were you able to execute so much better to hit that, you know, 7% in animal health this past year?

Any specific drivers you could call out or just sort of what drove that outsized performance?

Speaker 7

Thanks. I'll start just from a number perspective, and then I'll have Larry add in a little more of a strategic color. I think one of the things to look at from a number perspective, particularly when you look at the MFA growth that we saw this year, is when you look at fiscal year 2024, the start to fiscal year 2024 was pretty subdued from an MFA perspective. The comparators that we had this year helped enable stronger growth for the overall year, sort of seeing, as you mentioned, a little above what we would typically see with the 4%. I think some of that was driven by a weak comparator than last year. Whereas going into fiscal year 2026, we had strong performance this year from the MFA business, which is why we would expect slightly slower growth as we move into fiscal year 2026.

Speaker 3

In addition to the MFAs, we saw a very continued strong sales growth in demand for our vaccines, really across all of our geographic regions, and also growth in our nutritional specialties products. That growth in both of those segments has come through some new product introductions in countries, but also penetration.

Speaker 7

Okay, that's all really helpful. Thanks for that, guys.

Speaker 5

Our next question will come from the line of Niventee with BNP Paribas. Please go ahead.

Speaker 4

Thanks for taking my question. Sorry if I missed it, but can you discuss the expectations of the legacy medicated feed additives business? What are your expectations of the line market growth? Are you expecting the legacy medicated feed additives to outpace market growth here? Also, have you seen any pull forward ahead of tariffs in the international quarter? Thank you.

Speaker 7

You're a little hard to hear them out, but I'm going to try to interpret what I think the questions were. In terms of the expectation of the legacy MFA business, you know, as we said, this year we had strong growth, 4%. We generally expect that market, being a very mature market, to grow sort of flat to low single digits, and that's the expectation that we have been built into our guidance for fiscal year 2026. I think your questions around tariffs, were there any pull forward ahead of tariffs into fiscal year 2025? Obviously, from an inventory perspective, if there are opportunities for us to purchase inventory in advance of any potential tariffs, we took advantage of that where we could.

From our sales perspective, we don't believe that there was any advancement of sales, and the sales that we had for Q4 and fiscal year 2025 represented a good reflection of underlying demand.

Speaker 4

Thank you. Thanks, Glenn.

Speaker 5

That will conclude our question and answer session. I'll hand the call back to Glenn for any final comments.

Speaker 7

Thank you, Regina, and thank you, everyone, for listening on today's call. We really appreciate your time, attention, interest, and support at Phibro Animal Health. I hope you all have a great day. Thank you.

Speaker 5

This concludes today's call. Thank you all for joining. You may now disconnect.