Prestige Consumer Healthcare Earnings: Stable Demand and Leftover Pricing Impact Make Solid Results

Narrow-moat Prestige Consumer Healthcare PBH reported solid second-quarter results that were in line with our expectations. Total sales were down 1% year over year, but results from second quarter last year benefited from pent-up demand from COVID-19 recovery and the firm exited certain private-label businesses during early 2023 (which accounted for about 100 basis points of total sales), so we expected difficult comparisons. That being said, demand for Prestige’s overall portfolio remains stable with eye and ear care and dermatological products as well as international markets showing good sales growth. We maintain our fair value estimate of $68 per share.

Prestige is still feeling good tailwinds from strong pricing that it took last year. Recall that inflation in the U.S. rose to a level that we have not seen in recent history, which afforded Prestige more pricing power than usual. But we expects those impacts to roll over next year with majority of organic growth for the second half to come from volume. On a full-year basis, we expect organic growth to be divided evenly between price and volume.

As inflation cools, we expect Prestige to lose some of the pricing tailwinds, but we also think margin will improve accordingly. Last year’s margin was weighed down by the adverse price/cost dynamic and saw that the firm wasn’t fully effective at passing over rising costs to consumers. While we expect some of that to persist throughout fiscal 2024, we forecast improving conditions for margin in our medium-term outlook, supported by the firm’s continued investments in reducing logistic costs. With this, we anticipate the firm to put some of the savings back into advertising and marketing. Prestige during the call provided an example of how it grew Goody’s (powder for headaches and hangovers) through omnichannel campaigns targeting various social media and digital channels.