Phibro Animal Health Corporation Q2 FY2026 earnings call

Management Statement and Operational Highlights

• Financial Performance: Consolidated net sales for the quarter ended Dec 31, 2025, were $373.9 million, a 21% increase. EBITDA was up 41%. Animal health sales grew 26%, and Animal Health adjusted EBITDA was up 41%.
• Leadership Transition: Daniel M. Bendheim to become CEO in July 2026, with Jack Clifford Bendheim continuing as Executive Chairman. The management team remains stable.
• Events: Over 150 global leaders met in Barcelona, and IPPE in Atlanta showed positive sentiment in protein markets with producers prioritizing performance and cost efficiency.
• Integration: MFA integration is resonating with customers, and strong technical support is noted. The unity of the leadership team and focus on customer partnerships are highlighted.
• Cash Flow: Generated $47 million of positive free cash flow in the twelve months ended Dec 31, 2025. Cash and cash equivalents and short-term investments were $74.5 million at quarter end. Gross leverage ratio was 3.1 times, net leverage ratio was 2.8 times.

Segment Performance

• Animal Health Segment: Net sales were $290 million for the quarter, a 26% increase from the prior year. Legacy MFA had a 5% net sales decrease due to inventory timing from a large customer, but excluding that, legacy MFA growth would have been 3%. The new MFA business contributed $94.1 million for the full quarter, driving total MFA and other growth to 34%. Nutritional specialties net sales increased $4.3 million (9%) due to increased North America dairy demand. Vaccine net sales grew $4.5 million (13%) driven by Latin America poultry and international demand. Animal Health adjusted EBITDA was $82.2 million, a 41% increase.
• Nutrition Segment: Net sales were $68.9 million, a 9% increase due to higher demand for zinc and trace minerals.
• Performance Product Segment: Net sales were $15 million, a 10% decrease due to lower demand for ingredients used in personal care products.

Guidance

• Net Sales: Raised from a range of $1.425 billion to $1.475 billion to $1.450 billion to $1.500 billion, representing a growth range of 12% to 16%.
• Adjusted EBITDA: Raised from $230 million to $240 million to $245 million to $255 million, with a growth range of 33% to 39%.
• Adjusted Net Income: Raised from $108 million to $115 million to $120 million to $127 million, with a growth range of 41% to 49%.

Risks

• Inventory Buildup: Cash generation was negatively impacted by inventory buildup in advance of tariffs and to meet customer demand, but inventory is expected to stabilize in coming quarters.
• Market Fluctuations: Potential shifts in trade and disease outbreaks could impact end markets.

Question and Answer

Q: Congrats on the results. So first question is just on gross margins, obviously a very strong number this quarter. You've touched upon this, but what are the main drivers of this and how much is mix or anything potentially one-time in there? And how should we think about gross margins over the next few quarters? Then second bigger picture question just on the guidance update. Can you just elaborate a bit what's kind of doing better than expected as you kind of think about the EPS and the EBITDA upside? How much of this is Phibro Forward versus mix versus commercial execution versus anything else?

A: Sure. Thanks for the question, Ekaterina. So in terms of the gross margin, there are a number of factors that are driving it, particularly in this quarter and also on a year-to-date basis as well. So, a, we've been successful in taking additional price particularly on the Zoetis portfolio, which has exceeded our expectations and helps drive improved margin. We've also seen very positive mix. We continue to see strong performance in our nutritional specialties, our vaccine products, which do come in at a higher margin as well. So really strong mix, strong price, and strong overall performance. And also just a focus internally on driving growth on the higher margin products as well has helped. In the quarter in particular, I think I mentioned in last quarter's call, that we should have some returns coming as part of our transition from what we call tier three markets to tier one markets. Those returns came at full cost, so the price of sales the price of cost was the same. So that partially elevated the gross margin as well for that quarter, but that's less than, call it, a 100 basis points. But overall, really strong underlying performance from a gross margin perspective. And from an EPS and guidance perspective, a number of factors that have driven the positive view that we have for the rest of the year. A strong revenue performance, as I mentioned, a really strong performance in our acquired portfolio. Really exceeding our expectations in how we're performing there. And our ability to leverage our existing infrastructure without building, you know, as quite as much additional staff or resources to support the new business as well has continued to perform positively, and the improved mix that we mentioned as well that helps us for the full year guidance as well. So a lot of factors that are going in the right direction and helping our performance for the first half of the year. But also for our guidance for the full year.

Q: This is Alexa on for Mike. I was wondering about if you could talk about the impact of the timing on the MFA business. If you could give any details on what happened there and if it will slip into 3Q and how should we think about legacy MFA business and Zoetis MFA and those normalized growth rates going forward? For both businesses given some of the lumpiness in recent quarters? And then I have a follow-up question.

A: Okay, sure. So in terms of the customer timing that we mentioned for the legacy MFA business, that's one customer that we do a significant amount of business for. They hold different inventory levels at different times, so sometimes within a quarter, we'll have pretty significant fluctuations. That ends up varying throughout the year and evening out through the year. It was roughly $10 million in this quarter. We do expect it to improve as we move into the next quarter, so we don't expect that significant negative hit as we move into the second half of the year. In terms of the legacy MFA and the Zoetis MFA, as we move into the second half of the year, we'll have a full comparative. Right? So this is the last quarter we sort of had a partial quarter of the previous year. So as we move into the second half, we'll have a full comparative for both the legacy portfolio as well as the recently acquired portfolio, which will obviously slow growth. And, you know, I think what we talked about for the long term is we expect this business to grow sort of in the low to mid single digits, you know, with the strength that we have from a field force perspective and technical expertise, we'll look to drive that greater. But overall, you know, we expect this business to be a low to mid single digit growth business.

Q: Can you just talk about how sustainable this is for it being a cyclical upside?

A: Yeah. Larry, you want to address the protein markets and the sustainability? Larry L. Miller: Yeah. Sure. Thanks for the question. So you know, the demand for high-quality clean proteins continues to be very strong. And we see benefits, for that, particularly in our beef sector, our chicken broiler sector, pork, turkey, dairy, and also for eggs. We certainly see continued favorable feed costs which is obviously the largest input cost of producing animals. And that's helping to maintain margins. We'll probably expect to see a little bit of some shift, you know, in trade between certain countries which is sometimes driven by tariffs. And also some disease outbreaks. But I want to emphasize, we really feel good about our amongst our livestock species as well as geographic presence in all the key global livestock production markets. Including many markets which are increasing their domestic production to be more food secure and less reliant on imports. Our diversity has certainly been enhanced with the MFA acquisition.

Q: On the MFA business again. I want to talk about share gains. Are you taking share from others given the stronger combined portfolio?

A: Thank you. So, Larry, you want to address the share gains? So I would say that we in the quarter and in the first half, we've certainly seen strong performance in our poultry anoxidil range. We are able to offer a much more complete portfolio of offerings particularly in broiler coccidiosis management. Often people, you know, change and rotate every few months on these, so it's allowed us to have, you know, more opportunities to participate in those anoxidil programs. We've also seen good growth in our swine enteritis business.

Q: Good morning. Thanks for taking my questions. What drove the outperformance of the Zoetis MFA portfolio specifically? And a clarification on the legacy one. So shall we expect $10 million to come back in Q3, just to make sure?

A: Yes. So just in terms of the legacy business, and the negative impact to the quarter, we will expect that to come back in the second half of the year. How much of it comes between Q3 and Q4? That will depend on the orders that we receive, but we do expect it to come back within the second half of the year. I'll start on the drivers of the Zoetis MFA. But, Larry, you know, if you could add as well. In terms of the outperformance. I think, A, it's been tremendous execution. From the team in terms of the integration. We've built a very strong team that's been extremely effective in their interactions with our customers. We have been able to take share on some, you know, particular products in the marketplace as we continue to gain momentum, and we expect that, you know, hopefully to continue as well. But, Larry, I don't know if you have additional things to add on the Zoetis MFA outperformance. Larry L. Miller: You know, I think, you know, our team has done a really good job of focusing on these. We've got a lot of shifts, particularly in the segments and people are our customers are growing animals to larger heavier harvest weights. And so that's changing some of the dynamics that they have to deal with, and our team is really doing a great job in promoting the and reminding customers of the indications and claims that we have for these new products and how those fit some of these trends and challenges of feeding animals longer. So, you know, we're really seeing good receptivity from our customers. Obviously, the value of animals are at historic highs, so customers are very interested in investing to protect their animals to keep them healthy. And healthier animals are more efficient. And help optimize the margin and opportunities for returns. Jack and Daniel talked about our presence at the International Poultry and Egg Conference last week in Atlanta. I'm actually at the National Beef Cattlemen's Association right now in Nashville. Where we're able to have a presence, you know, in the trade show and in a lot of the activities here. And, we're meeting a lot of great customers here that are in the beef production segment. And I have to say their interest in these products how they can fit and help them solve the challenges they're facing, really are excited to see us with representing these products, owning these products, and investing in these products. And, enthusiasm for this beef segment is really high right now. Obviously, consumption of beef has grown for the first time in quite a long time. And so people are feeling really good about this acquisition as are we.

Q: In companion animal, can you maybe expand on the commercial traction and the vet feedback of Restore since the launch?

A: So hi. It's Daniel. I'll take that. So we launched it, obviously, late last year, you know, into the holiday season. It's actually gone more or less according to plan. I don't know if you had a chance to be in Orlando for VMX. We actually had our first time that we have been an exhibitor. A lot of foot traffic, a lot of interest. We've seen a boost since then. We'll be continuing, you know, on the circuit. We'll be in Vegas for the Western Veterinary Conference, and overall, there is a lot of excitement within the vet community for what Restore offers.

Q: This is Linda on for Erin Wilson Wright. So could you please provide an update on the Phibro Forward initiatives, specifically what's been realized to date versus what may remain ahead? Also how much of the margin expansion embedded in the latest outlook is driven by structural cost initiatives versus cyclical or mixed related benefits?

A: Sure. So on the Phibro Forward, as in the past, we haven't given specific dollar amounts in terms of the contributions or the expectations. What we have said is it continues to be a significant driver of our growth. You know, we are now halfway through, you know, fiscal year 2026. And we expect sort of the optimal or the max coming, you know, from a full year fiscal year of '27. Let's say, you know, we're sort of halfway through the process. You know, we expect the contributions from Phibro Forward to continue to accelerate as we move through the end of fiscal year 2026. And then, you know, we'll get a full annualization of benefits as we move into fiscal year 2027, and that will be, you know, a key contributor to growth in fiscal year 2027. I'll turn it to Daniel to see if he has anything additional to add. Daniel M. Bendheim: Thanks, Glenn. What I'd say is Phibro Forward really touches upon all parts of our company. So there are the structural changes and we are seeing it in our higher gross margin. I think we're seeing it in some of our revenue strategies, but, you know, it's also overall on how we approach R&D on how we approach technology. We've laid the groundwork for future growth with these initiatives. And it puts us in a really strong place both for today and as we enter kind of the next era.

Q: And also, there have been a number of innovation developments across companion animal, notably oral health. Is this a meaningful contributor to 2026 or more so going forward?

A: So that'll be more so going forward. So within the quarter, it was a limited contributor. We'll expect, you know, a little more in the second half of the year. I think we'll start to see more material contributions in fiscal year '27. And then beyond.