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Zoetis (ZTS) Tops Q3 Earnings Estimates, Updates Outlook

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Zoetis Inc.’s (ZTS - Free Report) third-quarter 2016 earnings of 52 cents per share, comfortably surpassed the Zacks Consensus Estimate of 46 cents. Earnings were also up 4% from the year-ago period.

Total revenue increased 4% year over year to $1.24 billion in the third quarter of 2016. Moreover, revenues were marginally above the Zacks Consensus Estimate of $1.22 billion. Foreign currency movements hurt revenues by 2%. Excluding the impact of foreign currency, total revenue in the reported quarter increased 2% from the year-ago quarter.

Quarterly Highlights

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

In the reported quarter, sales of livestock products accounted for 59.2% of the total revenue, 39.5% came from the sale of companion animal products and the remaining constituted contract manufacturing.

Revenues in the U.S. segment inched up 1% to $640 million. Sales of companion animal products were up 5%, reflecting higher sales of Apoquel and other product launches, partially offset by a decline in the company’s surgical fluid products. Livestock revenues slipped 2% mainly due to product rationalizations as part of the company’s operational efficiency initiative, which impacted both poultry and swine. Swine was also down due to stiff competition. The declines were partially offset by higher sales of cattle products backed by promotional activities.

Revenues at the International segment grew 3% on a reported basis to $585 million (up 6% operationally) in the third quarter. Growth was partially offset by product rationalizations as a result of the company’s operational efficiency initiative, and business changes in Venezuela and India.

Sales of companion animal products surged 14% on a reported basis (up 15% operationally), driven by higher sales of Apoquel, due in part to initial customer purchases in Japan, and other new product launches. Additionally, sales grew in China, primarily in the vaccine portfolio, due to increased field force expansions and positive medicalization trends.

Sales of livestock products dipped 2% on a reported basis in the quarter. The figure was, however, up 2% operationally mainly driven by the Nov 2015 Pharmaq acquisition, with sales primarily in Chile and Norway. Growth was also driven by an increase in sales of cattle products in Brazil and swine products in China.

2016 & 2017 Outlook Updated

Zoetis has updated its outlook for 2016 buoyed by a strong performance through the first nine months of the year, continued strength in the company’s business model and an upbeat view for the rest of the year.

Zoetis has raised the earnings outlook for 2016 once again. The company now expects earnings in the range of $1.91 to $1.96 per share (old guidance: $1.86–$1.93). It has updated the low end of the revenue guidance for 2016 and now expects revenues of $4.85 billion to $4.9 billion (old guidance: $4.8–$4.9 billion).

The Zacks Consensus Estimate for earnings is $1.89 per share on revenues of $4.9 billion.

Zoetis has also raised the low end of both earnings and revenue guidance for 2017. In 2017, the company now expects earnings in the range of $2.28 to $2.38 per share (old guidance: $2.24–$2.38 per share) on revenues of $5.15 billion to $5.275 billion (old guidance: $5.075–$5.275 billion).

The Zacks Consensus Estimate for earnings is pegged at $2.34 per share on revenues of $5.23 billion.

ZOETIS INC Price, Consensus and EPS Surprise

 

Our Take

Zoetis’ third-quarter results were better than expected, with the company surpassing bottom-line estimates by a wide margin. The company also managed to beat revenue expectations, albeit marginally. Performance of the companion animal business was encouraging due to higher global sales of Apoquel and other new products. Excluding the impact of product rationalizations, the livestock business recorded growth in the quarter. However, unfavorable currency movement continued to hurt the top line.

Meanwhile, the company is on track to cross $300 million in savings in 2017 on the back of its operational efficiency initiative.

Zacks Rank & Stocks to Consider

Zoetis is a Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the health care sector include Exelixis, Inc. (EXEL - Free Report) , Incyte Corporation (INCY - Free Report) and Geron Corporation (GERN - Free Report) . While Geron sports a Zacks Rank #1 (Strong Buy), Exelixis and Incyte carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Incyte’s earnings estimates for 2016 and 2017 were up a respective 10% and 2.1% over the last 60 days. The company has beaten earnings estimates thrice in the last four quarters with an average surprise of 335.16%.

Exelixis has an average positive surprise of 9.10% over the trailing four quarters. Its share price has jumped more than 90% year to date. Loss estimates for both 2016 and 2017 have narrowed over the past 60 days.

Geron has posted a positive earnings surprise in all of the four trailing quarters with an average beat of 20.78%.

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