Why Is Zoetis (ZTS) Down 1.3% Since Last Earnings Report?
It has been about a month since the last earnings report for Zoetis (ZTS). Shares have lost about 1.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Zoetis due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Zoetis’ Q2 Earnings and Revenues Surpass Estimates
Zoetis Inc. delivered second-quarter 2023 adjusted earnings (excluding one-time items) of $1.41 per share, which beat the Zacks Consensus Estimate of $1.32 per share. In the year-ago quarter, the company delivered earnings of $1.20 per share.
Total revenues grew 6% year over year to $2.2 billion, surpassing the Zacks Consensus Estimate of $2.17 billion in the reported quarter.
Quarterly Highlights
Zoetis derives the majority of its revenues from a diversified product portfolio of medicines and vaccines used to treat and protect livestock and companion animals. The company reports business results under two geographical operating segments — the United States and International.
Revenues from the U.S. segment increased 7% year over year to $1.165 billion in the second quarter, missing the Zacks Consensus Estimate of $1.174 billion. The reported figure beat our estimate of $1.156 billion in total U.S. revenues.
Sales of companion animal products in the U.S. region rose 7% from the prior-year quarter’s level due to increased sales of the company’s key dermatology portfolio, including Apoqueland Cytopoint. Growth in the sales of Zoetis’ vaccine portfolio and Solensia, a monoclonal antibody product for osteoarthritis pain in cats, also contributed to the increased revenues in the second quarter.
Sales of livestock products surged 5% year over year in the reported quarter, fueled by an increase in cattle product sales like Draxxin and implant product Synovex. Revenues from poultry products also increased, driven by the sales growth of vaccines and medicated feed additives.
However, the growth trend in revenues was partially offset by a decline in swine product revenues due to lower disease prevalence.
Revenues in the International segment improved 6% year over year and 11% on an operational basis to $995 million in the second quarter, beating the Zacks Consensus Estimate of $980 million. The reported figure missed our estimate of $998 million in total International revenues.
Sales of companion animal products grew 13% on a reported basis and 17% on an operational basis, driven by growth in several key products. These include monoclonal antibody products for osteoarthritis pain like Librela for dogs and Solensia for cats, dermatology products like Apoquel and Cytopoint as well as Zoetis’ new parasiticide products, such as Revolution/Stronghold and the Simparica Trio.
On a year-over-year basis, livestock product sales declined 1% on a reported basis and 4% operationally. Growth in the cattle portfolio was driven by expansion as well as rotating medicated feed additives into core poultry markets like Latin America, the European Union and Middle East.
In the second quarter, Zoetis’ fish portfolio also witnessed an uptick in sales on the back of increased sales of vaccines across key salmon markets, primarily Norway and Chile. Livestock product sales in this segment increased during the quarter due to pricing in hyperinflationary markets and supply recovery, partially offset by pricing in hyperinflationary markets and supply recovery.
Swine product sales suffered a decline in the International segment as well, owing to supply constraints in Western Europe.
2023 Financial Guidance
Zoetis updated its previously issued guidance for 2023.
Revenues are now projected in the range of $8.500-$8.650 billion (previously $8.575-$8.725 billion), adjusting the impact of foreign exchange rates, although maintaining expected operational growth of 6-8%.
The company now expects adjusted earnings in the band of $5.37-$5.47 per share (previously $5.34-$5.44 per share) for the full-year 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
Currently, Zoetis has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Zoetis has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Zoetis belongs to the Zacks Medical - Drugs industry. Another stock from the same industry, Corcept Therapeutics (CORT), has gained 4.5% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.
Corcept reported revenues of $117.72 million in the last reported quarter, representing a year-over-year change of +13.9%. EPS of $0.25 for the same period compares with $0.24 a year ago.
Corcept is expected to post earnings of $0.20 per share for the current quarter, representing a year-over-year change of -33.3%. Over the last 30 days, the Zacks Consensus Estimate has changed +1%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Corcept. Also, the stock has a VGM Score of C.
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