Phibro Animal Health (PAHC) reported solid results for fiscal 2023 with Q2 net sales rising 5.1% from the prior year to $244.6 million, which was 1.4% ahead of the $241.3 million analysts had been projecting. This beat was led by the company’s core Animal Health business, which delivered its seventh consecutive quarter of year-over-year sales growth in each of its three major product categories on strong demand for medicated feed additives (MFAs) in Latin America, processing aids used in the ethanol fermentation industry, vaccines, and its Rejensa companion animal product, as well as increased domestic demand and higher average selling prices for dairy products. Together with a 27% jump in sales of Performance Products that was driven by increased demand/prices for copper-based products and higher average selling prices for personal care product ingredients, this more than made up for a dip in Mineral Nutrition sales as lower demand for trace minerals outweighed higher prices.

What’s more, while greater interest expense stemming from an increased debt level and a much higher effective income tax rate of 34.3% (versus 25.5% last year) resulting from changes in the final foreign tax credit regulations (that went into effect on July 1, 2022) led to an 8.1% drop in adjusted earnings to 34 cents per share, this exceeded the 30-cent consensus estimate by an even bigger margin of 13.3% thanks to an additional boost from lower production costs and a favorable product and geographical mix.

More importantly, this strong operating performance also keeps PAHC well on pace to deliver on its full-year net sales and adjusted EPS targets of $960 million to $1 billion and $1.21 to 1.31, which it reiterated. At the midpoint, this implies a much stronger second half—with net sales and adjusted earnings improving from $477.2 million and 55 cents realized in H1 to $502.8 million and 71 cents—and a return to year-over-year growth in the bottom line over the remainder of the year driven by the continued strong demand the company is seeing for its current portfolio of products and the similarly high interest in the stacked pipeline of future nutritional specialty vaccine and companion animal solutions it has in development. If this is accompanied by the drastic improvement in operating cash flow production PAHC also anticipates as it works down the extra inventory it has built up over the past year in order to mitigate the risk of supply chain disruptions, I think the stock’s recent momentum can persist.