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Zoetis (ZTS) Beats on Q3 Earnings & Sales, Updates '18 View

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Zoetis Inc. (ZTS - Free Report) posted third-quarter 2018 adjusted earnings of 83 cents per share (excluding one-time items), which increased 27.7% year over year from 65 cents and beat the Zacks Consensus Estimate of 77 cents.

Total revenues rose 9.9% year over year (up 12% operationally, excluding the impact of currency) to $1.48 billion and beat the Zacks Consensus Estimate of $1.46 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 28.8%, against the industry’s decline of 7.0%.

 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 from the United States segment increased 11% year over year to $757 million. Sales of companion animal products in this region were up 20%, primarily due to higher sales of dermatology portfolio and Simparica, and the acquisition of Abaxis. This was partially offset by lower sales of some in-line products due to anticipated competition. Livestock revenues increased 1%, mainly as growth in poultry and swine was offset by cattle. 

Revenues at the International segment grew 8% year over year (up 12% operationally) on a reported basis to $709 million. Livestock sales were up 5% (up 10% operationally) in the quarter. Growth of cattle products was driven by Brazil due to recovery from the effects of the national trucking industry strike in the previous quarter, increased local consumption of beef and increased exports.

Moreover, sales of companion animal products grew 16% 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 — and the acquisition of Abaxis.

2018 Outlook 

Zoetis updated its outlook for 2018. The company expects adjusted earnings of$3.08-$3.13 per share, revised from its previous expectation of $3.00-$3.10 per share

Revenues are now expected to be $5.75-$5.80 billion, updated from the previous guidance of $5.70-$5.80 billion

The Zacks Consensus Estimate for earnings and revenues is pegged at $3.06 per share and $5.78 billion, respectively.

The updated guidance reflects foreign exchange rates as of mid-October and includes the partial year impact of Abaxis.

Other Updates

Zoetis received approval in the United States for an additional indication for Cytopoint. This novel monoclonal antibody (mAb) therapy for dogs is now approved to treat allergic dermatitis in addition to atopic dermatitis. Cytopoint is also approved in the European Union and several other international markets.

Our Take

Zoetis’ third-quarter results exceeded both earnings and sales expectations on the back of growth from new parasiticide products (Simparicaand Stronghold Plus), vaccines, strong dermatology portfolio and the addition of the Abaxis diagnostics portfolio. The company updated its revenue and earnings guidance for 2018. We expect a strong performance in the fourth quarter as well.

Zacks Rank & Stocks to Consider

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

Some better-ranked stock from the same space worth considering are Bristol-Myers Squibb Co. (BMY - Free Report) Eli Lilly and Co. (LLY - Free Report) and Merck & Co. Inc. (MRK - Free Report) . While Bristol-Myers carries a Zacks Rank #1 (Strong Buy), Lilly and Merck carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bristol-Myers’ earnings per share estimates have increased from $3.59 to $3.81 for 2018 and from $3.83 to $4.03 for 2019 over the past 60 days. The company delivered a positive earnings surprise in all of the trailing four quarters with an average beat of 11.99%.

Lilly’s earnings per share estimates have increased from $5.42 to $5.47 for 2018 and from $5.69 to $5.78 for 2019 over the past 60 days. The company delivered a positive earnings surprise in all of the trailing four quarters with an average beat of 10.15%. The stock has rallied 9.4% so far this year. The stock has rallied 30.8% year to date.

Merck’s earnings per share estimates have increased from $4.26 to $4.34 for 2018 and from $4.58 to $4.71 for 2019 over the past 60 days. The company delivered a positive earnings surprise in all of the trailing four quarters with an average beat of 3.96%. The stock has rallied 30.8% year to date.

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