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Zoetis (ZTS) Beats on Q2 Earnings & Revenues, Lifts Outlook

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Zoetis Inc.’s (ZTS - Free Report) second-quarter 2016 earnings of 49 cents per share came in above the Zacks Consensus Estimate of 44 cents. Earnings also increased 14% from the year-ago period.

Zoetis Inc. (ZTS - Free Report) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Total revenues increased 3% year over year to $1.21 billion in the second quarter of 2016. Revenues were also above the Zacks Consensus Estimate of $1.16 billion. Foreign currency movements affected revenues negatively by 3%. Excluding the impact of foreign currency, total revenue in the reported quarter increased 6% from the year ago-quarter.

Companion Animal Products Deliver

Zoetis manages its business across two regional operating segments: the U.S. and International. Within these segments, the company delivers a diverse portfolio of products for livestock and companion animals.

In the reported quarter, sales of livestock products accounted for 55.7% of the total revenue while 43.3% of revenues in the quarter came from the sale of companion animal products and the remaining from contract manufacturing.

Revenues in the U.S. segment increased 10% from the year-ago period to $594 million. Sales of companion animal products climbed 17%, reflecting increased sales of Apoquel and several new product launches, including Simparica. Livestock revenue was up 2%, mainly due to increased sales of cattle products as a result of improving market conditions and expanding herd sizes.

Livestock revenue growth was partially offset by product rationalizations as part of the company’s operational efficiency initiative that impacted poultry and swine (also declined due to increased competition).

Revenue at the International segment were, however, down 3% to $602 million (up 2% operationally) in the reported quarter. Sales of companion animal products were up 2% (up 6% operationally), driven by sales of Apoquel across a variety of markets and growth in China, primarily from the company’s vaccines portfolio. This was partially offset by product rationalizations as a result of the company’s operational efficiency initiative and business reductions in Venezuela.

Sales of livestock products were down 5% (up 1% operationally) in the reported quarter. Poultry and cattle products declined primarily due to business reductions in Venezuela and India in addition to product rationalizations as a result of the company’s operational efficiency initiative.

2016 Outlook Upped Again

Zoetis has raised its outlook for 2016 yet again. The company now expects earnings in the range of $1.86 to $1.93 per share (old guidance: $1.83 to $1.90 per share) on revenues of $4.8 billion and $4.9 billion (old guidance: 4.775 billion and $4.875 billion). The Zacks Consensus Estimate for earnings is $1.87 per share on revenues of $4.86 billion.

Our Take

Zoetis’ second-quarter results were better than expected with the company beating on both top- and bottom-line estimates. However, unfavorable currency movement continued to hurt the top line. Performance of the companion animal business was encouraging though the livestock business performed disappointingly, recording a year-over-year decline in revenues. The company raised its guidance once again for 2016, which is encouraging. Meanwhile, Zoetis’ efforts to boost operational efficiency is reassuring.

Zoetis currently is a Zack Rank #1 (Strong Buy) stock. Other equally ranked stocks in the health care sector are ANI Pharmaceuticals, Inc. ANIP, Anika Therapeutics ANIK and Fibrocell Science, Inc. FCSC.

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