It has been about a month since the last earnings report for Zoetis (ZTS). Shares have added about 0.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Zoetis due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Zoetis Beats on Earnings in Q3, Reports In-Line Sales
Zoetis posted third-quarter 2019 adjusted earnings of 94 cents per share (excluding one-time items), which not only increased 13% year over year but also beat the Zacks Consensus Estimate of 89 cents.
Total revenues rose 9% year over year to $1.58 billion, which were in line with the Zacks Consensus Estimate.
The company reports business results under two geographical operating segments — the United States and International. It has a diverse portfolio of products for livestock and companion animals.
Revenues from the United States segment increased 11% year over year to $844 million. Sales of companion animal products in this region were up 26%, primarily owing to higher sales of the dermatology portfolio across the ProHeart, Revolution and Simparica franchises. New product introductions, notably Revolution Plus for cats and ProHeart 12 for dogs, were key drivers. Increased sales from key dermatology portfolio and revenues from the acquisition of Abaxis also contributed to growth. However, sales of livestock products declined 9% in the quarter, due to continued weakness across both the beef and dairy cattle sectors, as well as the timing of promotional activities in swine.
Revenues at the International segment inched up 2% year over year on a reported basis (up 5% operationally) to $721 million. Livestock sales declined 4% (down 1% operationally) in the quarter. However, growth in the poultry portfolio was aided by higher sales in key markets, including China, Australia and Brazil. Cattle product sales grew owing to favorable market conditions in Mexico, the U.K. and Canada. However, sales in this category were negatively impacted by an unfavorable comparison to the prior-year quarter, which benefited from the end of the national trucking strike in Brazil.
Moreover, sales of companion animal products grew 12% on a reported basis, reflecting a rise in the dermatology portfolio and parasiticides, including Simparica and Stronghold Plus. The acquisition of Abaxis also fueled growth.
The company raised its guidance for the full year. It expects adjusted earnings of $3.57-$3.62 per share, compared with the previous expectation of $3.53-$3.60. Revenues are expected to be $6.200-$6.250 billion compared with the prior projection of $6.175-$6.275 billion.
The guidance reflects the current strength and performance of its business. Plus, it takes into account the foreign exchange rates in late October.
During the third quarter, Zoetis received approval in the European Union and Canada for its three-way combination parasiticide for dogs, Simparica Trio (sarolaner/moxidectin/pyrantel) chewable tablets, and expects to launch it in these markets in the first quarter of 2020. Regulatory reviews are also underway in the United States, Australia, Brazil and Japan, with submissions expected globally.
In October, Zoetis received the United States Department of Agriculture’s (USDA) approval for Poulvac Procerta HVT-ND, the company’s first vector vaccine to protect against Marek’s disease and Newcastle disease, highly contagious viral infections affecting poultry.
The company completed the acquisition of Phoenix Lab to enter the veterinary reference laboratory space. The acquisition will further build on Zoetis’ buyout of Abaxis. Phoenix Lab provides Zoetis a reference laboratory, highly valued by veterinarians for quality assurance and customer care.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
Currently, Zoetis has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Zoetis has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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