Zoetis Misses Marginally on Q2 Earnings, Up Y/Y, View Adjusted


Zoetis’ (ZTS) second quarter 2014 earnings (excluding special items) of 38 cents per share fell short of the Zacks Consensus Estimate by a penny. Second quarter 2014 earnings were above the year-ago figure by 2 cents. The year-over-year increase was primarily due to higher revenues. Including one-time items, Zoetis reported earnings of 27 cents per share, up 4%.

Revenues at Zoetis climbed 4% to $1.2 billion in the second quarter of 2014. Foreign currency movements adversely impacted revenues during the quarter by 2%. Revenues were in line with the Zacks Consensus Estimate.

Zoetis boasts of a robust and diversified product portfolio. The product portfolio is divided into five categories – anti-infectives, vaccines, parasiticides, medicated feed additives and other pharmaceuticals for veterinarians and livestock producers.

Zoetis markets its offerings primarily across the following species: cattle, swine, poultry, others (livestock) and dogs, cats and horses (companion animals). In the second quarter of 2014, sales of livestock products accounted for 60.7% of total revenues. Approximately 37.9% of revenues in the quarter came from the sale of companion animal products. The balance came from contract manufacturing.

Geographically, the company operates in four segments – the U.S, Europe/Africa/Middle East (EuAfME), Canada/Latin America (CLAR), and Asia/Pacific (:APAC). Sales improved in the U.S. by 5% driven by strong sales of livestock products. Sales in the EuAfME market climbed 7%. However, sales in the CLAR and APAC markets were flat and down 1% respectively. The growth rates are inclusive of foreign exchange impact. We note that Zoetis came into existence following Pfizer’s (PFE) decision to spin off its animal health business.  The entity started trading on NYSE from Feb 1, 2013 under the name, Zoetis.

2014 Outlook Adjusted

Zoetis tweaked its outlook for 2014 both with respect to revenues and earnings while releasing the second quarter 2014 results. The company now expects revenues in the range of $4.675 billion to $4.75 billion (old guidance: $4.65 billion to $4.75 billion). Adjusted earnings per share are now projected in the range of $1.50 to $1.54 (old guidance: $1.48–$1.54 per share). The Zacks Consensus Estimate currently hints at earnings of $1.53 per share on revenues of $4.7 billion.

Zoetis carries a Zack Rank #2 (Buy). Some better-ranked stocks in the health care sector are Actelion (ALIOF) and Endo International (ENDP). Both are Zacks Ranked #1 (Strong Buy) stocks.

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