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Zoetis (ZTS) Beats on Q2 Earnings & Sales, Updates '18 View

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Zoetis Inc. (ZTS - Free Report) posted second-quarter 2018 adjusted earnings of 77 cents per share (excluding one-time items), which increased 45.3% year over year from 53 cents and beat the Zacks Consensus Estimate of 71 cents.

Total revenues rose 11.5% year over year (up 9% operationally excluding the impact of currency) to $1.42 billion in the quarter and beat the Zacks Consensus Estimate of $1.38 billion.

A look at Zoetis’ share price movement shows that the stock has outperformed the industry on a year-to-date basis. The stock has gained 23.6% against the industry’s decline of 0.1%.

 

Quarterly Highlights

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

Revenues at the International segment grew 15% year over year (up 10% operationally) on a reported basis to $728 million. Livestock sales were up 10% on a reported basis (up 6% operationally) in the quarter despite a decline in Brazil as a result of a national trucking industry strike. Growth of cattle products was driven by favorable market conditions.

Moreover, sales of companion animal products grew 24% on a reported basis, reflecting higher sales of dermatology portfolio and two new parasiticide products, Simparica (sarolaner) for dogs and Stronghold Plus (selamectin/sarolaner) for cats.

Revenues from the United States segment increased 9% year over year to $677 million. Sales of companion animal products in this region were up 15%, primarily due to higher sales of dermatology portfolio and Simparica. This was partially offset by lower sales of some in-line products. Livestock revenues increased 1% mainly as growth in poultry and swine was offset by cattle. 

2018 Outlook 

Zoetis updated its outlook for 2018. The company expects adjusted earnings in the range of $3.00 to $3.10 per share revised from its previous expectation of $2.96-$3.10 per share.

Revenues are now expected in the range of $5.70 billion to $5.80 billionupdated from the previous guidance range of $5.675-$5.800 billion. The Zacks Consensus Estimate for earnings and revenues is pegged at $3.05 per share and $5.73 billion, respectively.

The updated guidance reflects the addition of Abaxis and changes in foreign exchange.

Other Updates

Zoetis completed the acquisition of Abaxis, Inc., a leading global provider of veterinary point-of-care diagnostic instruments for approximately $2 billion or $83 per share in cash. The deal is aimed to strengthen Zoetis’ presence in the animal health diagnostics market. This diagnostics category is a fast-growing portion of the animal health industry and has grown at a compound annual growth rate of approximately 10% over the last three years.

The company announced a five-year collaboration agreement with Regeneron Pharmaceuticals (REGN - Free Report)  to develop monoclonal antibody (mAb) therapeutics. Per the terms, Regeneron has granted Zoetis a license for its proprietary VelocImmune antibody technology, which the latter will use to develop monoclonal antibodies modified for species-specific use in companion and livestock animals. In particular, Zoetis is exploring treatments for animals with allergic and immune-related conditions, pain, inflammatory disease and cancer.

Our Take

Zoetis’ second-quarter results exceeded both earnings and sales expectations on the back of growth from new parasiticide products (Simparicaand Stronghold Plus), vaccines and strong dermatology portfolio. The acquisition of Abaxis will further strengthen the company’s strong portfolio. We expect a strong performance in the second half as well.

Zoetis Inc. Price, Consensus and EPS Surprise

Zoetis Inc. Price, Consensus and EPS Surprise | Zoetis Inc. Quote

Zacks Rank & Other Stocks to Consider

Zoetis currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks worth considering are Gilead Sciences Inc. (GILD - Free Report) and Vanda Pharmaceuticals Inc. (VNDA - Free Report) . Both of them carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Gilead’s earnings per share estimates have increased from $6.11 to $6.57 for 2018 and from $6.36 to $6.48 for 2019 over the past 30 days. The company delivered a positive earnings surprise in three of the trailing four quarters with an average beat of 6.43%. The stock has rallied 8.8% so far this year.

Vanda’s earnings per share estimates have increased from 18 cents to 20 cents for 2018 and from 77 cents to 80 cents for 2019 over the past 30 days. The company delivered a positive earnings surprise in all of the trailing four quarters with an average beat of 133.1%. The stock has rallied 35.9% so far this year.

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