A month has gone by since the last earnings report for Zoetis (ZTS - Free Report) . Shares have lost about 2.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Zoetis due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Zoetis' Q2 Earnings and Revenues Surpass Estimates
Zoetis posted second-quarter 2020 adjusted earnings of 89 cents per share (excluding one-time items), which was lower than the year-ago quarter’s earnings of 90 cents but beat the Zacks Consensus Estimate of 66 cents.
Total revenues were flat year over year at $1.55 billion, which beat the Zacks Consensus Estimate of $1.36 billion.
Zoetis 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 6% year over year to $823 million. Sales of companion animal products in this region grew 19%, primarily owing to higher sales of the Simparica franchise, including some initial stocks of the new triple-combination parasiticide, Simparica Trio. Apoquel and Cytopoint brands in the dermatology portfolio also led to this increase. However, sales of livestock products decreased 18% in the quarter. Disruptions in the food supply chain, including reduced producer processing capacity and continued channel migration, were also reasons behind the decline. The decline in the cattle portfolio was also the result of continued unfavorable market conditions in beef and dairy, while swine product sales were negatively impacted by increased competition
Revenues in the International segment decreased 5% year over year on a reported basis (up 3% operationally) to $708 million. Livestock sales dropped 5% (up4% operationally) 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 the African Swine Fever in China. Alpha Flux, a recently-launched parasiticide, was the primary driver of growth in fish. Sales of cattle products declined in the quarter due to the impact of COVID-19 in certain markets as well as the discontinuation of non-core products in Brazil.
Sales of companion animal products declined 3% on a reported basis and grew 2% on an operational basis. Sales of companion animal products in China continued to grow rapidly, driven by strong underlying market dynamics. Growth in companion animal products was partially offset by the impact of COVID-19 and social-distancing measures in certain EU markets and Latin America, including Brazil. This resulted in decreased veterinary clinic traffic.
Zoetis updated its full year 2020 guidance. The company now expects adjusted earnings of $3.52-$3.68 per share, compared with the previous guidance of $3.17-$3.42 per share.
Revenues are now projected between $6.300 billion and $6.475 billion, raised from the previous range of$5.950-$6.250 billion.
The guidance takes into account the foreign exchange rates of mid-July.
In July, the company acquired Fish Vet Group as a strategic addition to its Pharmaq business, which develops and commercializes fish vaccines and offers services in vaccination and diagnostics for aquaculture.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 6.59% due to these changes.
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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Zoetis has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.