It has been about a month since the last earnings report for Zoetis Inc. ZTS. Shares have added about 3.1% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Zoetis Tops Earnings Estimates, Updates Outlook
Zoetis fourth-quarter 2016 earnings of $0.47 per share surpassed the Zacks Consensus Estimate of $0.45. Earnings were also up from $0.43 reported in the year-ago period.
Total revenue growth was relatively flat year over year at $1.28 billion in fourth-quarter 2016, in line with the Zacks Consensus Estimate.
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 61.8% of the total revenue. Of this, 37.3% came from the sale of companion animal products and the remaining revenues were generated from contract manufacturing.
Revenues in the U.S. segment were down 1% to $631 million due to fewer calendar days and product rationalizations. Within this segment, sales of companion animal products were up 2%, reflecting higher sales of Apoquel and other product launches (Simparica Chewables and Cytopoint), partially offset by a decline in the company’s surgical fluid products. However, Livestock revenues slipped 3% mainly due to product rationalizations as part of the company’s operational efficiency initiative, which impacted swine.
Revenues at the International segment grew 2% on a reported basis to $636 million. Sales of livestock products were roughly flat on a reported basis in the quarter as the impact of product rationalizations and fewer calendar days were offset by growth from the acquisition of Pharmaq along with growth in cattle and swine products in key emerging markets. Sales of companion animal products grew 8% on a reported basis (up 10% operationally), driven by higher sales of Apoquel and other launches
Revenues came in at $4.9 billion, up from $4.8 billion in 2015, in line with the Zacks Consensus Estimate. Earnings per share came in at $1.96, up from $1.77 in 2015 and beat the Zacks Consensus Estimate of $1.95.
2017 Outlook Updated
Zoetis narrowed its outlook for 2017 to account for currency impact. In 2017, the company expects earnings in the range of $2.26 to $2.36 per share (old guidance: $2.28 to $2.38 per share) on revenues of $5.10 billion and $5.225 billion (old guidance: $5.15 billion and $5.275 billion).
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three downward revisions for the current quarter. In the past month, the consensus estimate also shifted downward by 6.2% due to these changes.
Zoetis Inc. Price and Consensus
Zoetis Inc. Price and Consensus | Zoetis Inc. Quote
At this time, Zoetis' stock has an average Growth Score of 'C', though it is lagging a lot on the momentum front with an 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the stock is suitable for value and growth investors.
Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.
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