Phibro Animal Health Corporation PAHC reported adjusted earnings per share (EPS) of 38 cents in the third quarter of fiscal 2016, reflecting an upside of 5.5% from the year-ago quarter. Adjusted EPS however lagged the Zacks Consensus Estimate by 11.6%.Phibro Animal Health Corporation - Earnings Surprise | FindTheCompany The upside in the fiscal third-quarter earnings can be attributed to considerable growth in the company’s adjusted EBITDA, which was partially offset by increased cash income tax payments on account of the mix of international pre-tax income.Including one-time items, the company reported EPS of 47 cents, reflecting an increase of 9.3% from the year-ago quarter’s comparable figure of 43 cents.Net SalesIn the reported quarter, Phibro’s net sales dropped 1% year over year to $183.5 million, excluding the prior year vaccine licensing milestone revenue of $2 million. Including the one-time vaccine licensing milestone revenues, the company witnessed a 2% decline in its third-quarter sales. Among the three segments of the company, revenue growth in Animal Health was offset by the sales decline in Performance Products and Mineral Nutrition.Sales by SegmentsNet sales at the Animal Health segment increased 3% to $118.3 million (excluding the prior year vaccine licensing milestone revenues) in the reported quarter, primarily driven by volume increases observed across nutritional specialty and vaccine product groups, partly offset by sluggish sales in MFAs and Other. Nutritional specialty products sales increased 15%, driven by volume growth in the U.S. for Phibro’s dairy and poultry products. Sales from Vaccines increased 8% owing to volume growth, including results from the MVP Laboratories’ acquisition, partly offset by decline in international volumes. On the other hand, sales at MFAs and Other (the biggest section of this segment) declined 1% on volume decline in the U.S., as well as unfavorable currency translation in some international markets.Net sales at the Mineral Nutrition segment declined 7% to $53 million, owing to lower average selling prices on account of declines witnessed in underlying raw material commodity price. However, this was partially offset by increased volumes from improved demand for trace mineral products.Net sales at the Performance Products segment dropped 6% to $12.1 million on reduced volumes of copper-based and chemical catalyst products as well as lower average selling prices of personal care ingredients. However, higher volumes of personal care ingredients partially offset this decline.Operational UpdatePhibro’s adjusted gross profit increased 8% year over year (excluding the prior year vaccine licensing milestone revenues and current year acquisition-related cost of goods sold from the inventory step-up related to the MVP acquisition) to $61.6 million. Consequently, the adjusted gross margin improved 280 basis points (bps) to 33.6%.Adjusted selling, general and administrative expenses (SG&A) increased 1.7% to $36.3 million. Adjusted operating margin was 13.8% in the quarter, up 230 bps from the comparable year-ago quarter.Financial Update Year to date, Phibro has generated $5 million in cash flow from operations compared with the year-ago quarter’s $21.1 million. Capital expenditure amounted to $11 million in the quarter, highlighting a substantial increase from $5.4 million incurred in the third quarter of fiscal 2015.Our TakePhibro ended the fiscal third quarter on a disappointing note, with its bottom line lagging the Zacks Consensus Estimate by a solid margin and its revenues failing to expand on a year-over-year basis. However, Animal Health remained the key contributing business delivering positive growth on a year-over-year basis. The company’s robust double-digit growth in adjusted EBITDA also encourages us. Despite the weakness in its MFA and other segments in the U.S., international volume growth was strong for the company. Going ahead, volume expansion in the overseas market is expected to make up for the lackluster performance in the U.S.Zacks Rank & Key PicksCurrently, the company carries a Zacks Rank #3 (Hold). Better-ranked medical stocks are Baxter International Inc. BAX, SurModics, Inc. SRDX and LeMaitre Vascular, Inc. LMAT. While Baxter and SurModics sport a Zacks Rank #1 (Strong Buy), LeMaitre Vascular carries a Zacks Rank #2 (Buy).Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report PHIBRO ANIMAL (PAHC): Free Stock Analysis Report BAXTER INTL (BAX): Free Stock Analysis Report SURMODICS (SRDX): Free Stock Analysis Report LEMAITRE VASCLR (LMAT): Free Stock Analysis Report To read this article on Zacks.com click here.