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Zoetis' (ZTS) Q1 Earnings Beat Estimates, Revenues In Line

Zacks Equity Research

Zoetis Inc. ZTS posted first-quarter 2020 adjusted earnings of 95 cents per share (excluding one-time items), which not only increased 7% year over year but also beat the Zacks Consensus Estimate of 87 cents.

Total revenues rose 5% year over year to $1.5 billion, which meet the Zacks Consensus Estimate.

Shares of Zoetis have dipped 0.8% so far this year compared with the industry’s decrease of 11.8%.


Quarterly Highlights

Zoetis reports business results under two geographical operating segments, namely the United States and International. It has a diverse portfolio of products for livestock and companion animals.

Revenues from the United States segment increased 9% year over year to $786 million. Sales of companion animal products in this region grew 12%, primarily owing to higher sales of Apoquel and Cytopoint brands in the dermatology portfolio. Simparica franchise including some initial stocks of the new triple combination parasiticide, Simparica Trio, also led to this increase. Moreover, sales of livestock products rose 5% in the quarter due to double-digit growth in both poultry and swine. However, point-of-care diagnostic business witnessed a downside and a decline in cattle products was the result of persistently unfavorable market conditions in beef and dairy sectors.

Revenues at the International segment inched up marginally 1% year over year on a reported basis (up 4% operationally) to $728 million. Livestock sales slipped 1% (down 2% operationally) in the quarter. Growth of cattle products was flat in the quarter. Notably, sales of swine products surged as a result of expanding herd production and beefed-up biosecurity measures in the wake of African Swine Fever in China. Alpha Flux, a recently-launched parasiticide, was the primary driver of growth in fish while price rises in Argentina, Mexico and Brazil fueled growth for poultry.

Sales of companion animal products grew 5% on a reported basis, reflecting a rise in the dermatology portfolio and parasiticide, Simparica franchise, including the launch of Simparica Trio in certain markets in the European Union (EU) as well as growth across key markets in China. Per the company, the COVID-19 pandemic left a minimal impact on Zoetis’ first-quarter results.

2020 Guidance

Due to the COVID-19 impact, Zoetis is lowering its full-year guidance.

The company now expects adjusted earnings of $3.17-$3.42 per share, indicating an improvement from the previous guidance of $3.90-$4.00. Revenues are now projected between $5.950 billion and $6.250 billion, the mid-point of which is $6.100 billion, lower than the Zacks Consensus Estimate of $6.450 billion. Revenues were earlier anticipated in the range of $6.650-$6.800 billion.

The guidance takes into account the foreign exchange rates of late April.

Other Updates

In February 2020, Zoetis announced that the FDA-approved Simparica Trio (sarolaner, moxidectin and pyrantel chewable tablets), the first once-monthly, chewable tablet in the United States that delivers all-in-one protection from heartworm disease, ticks and fleas, roundworms and hookworms.

Meanwhile, last month, Zoetis acquired Performance Livestock Analytics, a provider of cloud-based data management to beef producers, to enhance its animal health solutions across the continuum of care for beef producers.

We note that Zoetis expanded its reference laboratory capabilities in the United States with the acquisitions of Phoenix Lab and ZNLabs in November 2019 and Ethos Diagnostic Science in February 2020.

Our Take

Zoetis’ first-quarter earnings exceeded estimates while sales meet the same. Domestic revenues increased in the first quarter of 2020 owing to growth in new parasiticide products and a robust dermatology portfolio.

Though the COVID-19 outbreak left a limited financial impact on its first-quarter results, the company expects a more significant impact from the pandemic on its full-year performance.

Zoetis Inc. Price, Consensus and EPS Surprise

Zoetis Inc. Price, Consensus and EPS Surprise

Zoetis Inc. price-consensus-eps-surprise-chart | Zoetis Inc. Quote

Zacks Rank & Stocks to Consider

Zoetis currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the healthcare sector include Menlo Therapeutics Inc. MNLO, Avenue Therapeutics, Inc. ATXI and Denali Therapeutics Inc. DNLI, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Menlo Therapeutics’ loss per share estimates have been narrowed 38.2% for 2020 and 66.7% for 2021 over the past 60 days.

Avenue Therapeutics’ loss per share estimates have been narrowed 28.6% for 2020 and 26% for 2021 over the past 60 days.

Denali Therapeutics’ loss per share estimates have been narrowed 2% for 2020 and 0.4% for 2021 over the past 60 days.

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