Pet owners committed to spend on quality petcare: Zoetis CFO

Animal healthcare company Zoetis (ZTS) reports beating revenue expectations in the fourth quarter. Zoetis CFO Wetteny Joseph joins Yahoo Finance to discuss Zoetis' guidance across segments — which include both pets and livestock animal treatments — and how willing consumers are willing to spend on their pets.

"In fact, 95% of pet owners see them as members of their family, and if they were faced with a 20% decrease in their budget, they wouldn't reduce how much they spend on their pet health care," Joseph explains. "So as we look at the space today, we see broad-based growth across the different therapeutic areas within [the] companion animal, and we see significant opportunity to continue to really meet unmet needs in the space,

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Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

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JULIE HYMAN: Animal health company Zoetis, the shares taking a bit of a hit in today's trade after a mixed fourth quarter. Looking to the year ahead, the company which makes medications for both pets and livestock emphasized confidence and sustained growth on its earnings call, thanks to the range and diversity of its product offerings. We're joined by Wetteny Joseph, Zoetis' CFO. Wetteny, it's great to see you. Thank you so much for joining us.

WETTENY JOSEPH: Julie, thanks so much for having me on your show.

JULIE HYMAN: So I want to get right to it and talk a little bit about the reaction that we're seeing in the shares today, which do seem to be in part due to the fourth quarter, in part due to the forecast-- some concern around clarity around margins. What do you think? As you see the stock reaction, do you think that the Street is getting it wrong here or what message would you want to give to investors?

WETTENY JOSEPH: Look, Zoetis is the global leader in a very resilient and essential animal health industry that's proven to grow across different economic cycles. We're very pleased today, actually, with our top line growth for the quarter, which is 8% operational growth. That's the third straight quarter of 8% to 9% operational growth in a row, fueled by a companion animal portfolio, with innovative products across the world. So we're very pleased with that.

Now, when you get down to the bottom of our P&L, we did see some impact from foreign exchange, particularly in the hyperinflationary markets that have an outsized effect on our results-- bottom line results, as well as a non-recurring item, which was an impairment of a small acquisition in our precision animal health space.

But the fundamentals of our industry remain strong. And we exited 2023 with momentum and actually, issued guidance for 2024 today, that has 7% to 9% operational growth at the top line and 9 to 11 at the bottom, which means we are looking forward to expanding our margins and growing the bottom line faster than the top line.

And just to dig into the results that you guys posted today, digging into the segment. So livestock revenue beats companion animal revenue. Looks like it clocked in at 1.45 billion, so it did just miss the Street's estimates. And it kind of puts and takes there for that segment that maybe the Street wasn't aware of. And what's your outlook for that segment for the rest of 2024?

WETTENY JOSEPH: Yeah, Josh, look, companion animal was 10% growth on the quarter, which is the third straight quarter, again, double digit growth in companion animal. As you know, our business, 2/3 companion animal and one third livestock. We're very pleased to see livestock grow this year at 6%. I'm actually here in Salt Lake City, Utah, where our sales team is having their national sales meeting for the year, very pleased and really seeing the momentum that we have coming out of 2023 going into '24.

But companion animal, third straight quarter of double digit growth. And our guide actually, implies that companion animal will continue to be the key driver of our growth in 2024 to deliver that 7% to 9%. So with livestock being a third of the business growing in the low single digits that's in line with the market, that leaves companion animal essentially, growing double digits as we go into 2024. So we couldn't be more pleased with that.

And it's really driven by our broad portfolio that we have lots, of diversity across the business, both in geography, as well as across species and therapeutic area, but also fueled by innovation. We have groundbreaking innovation like LIBRELA and SOLENSIA. These are all a pain franchise that just launched in the US in the fourth quarter. And we're very pleased with the results so far. And this is the next billion dollar franchise for us at Zoetis.

JULIE HYMAN: That's right. LIBRELA for osteoarthritis, for folks who aren't familiar. For people-- for the companion animal segment, where are you seeing the biggest demand here? I mean, you know, we love our pets, particularly here in the US, but obviously, of a big global business as well. So what's the most acute need for pet owners for their pets health?

WETTENY JOSEPH: Pet owners actually see their pets as members of their family, and that human-animal bond is undeniable. 95% of pet owners consider their pets a member of their family, and so they're demanding higher quality pet health care for those pets, and they're willing to spend on. In fact, 95% of pet owners see them as members of their family. And if they were faced with a 20% decrease in their budget, they wouldn't reduce how much they spend on their pet health care.

So as we look at the space today, we see broad-based growth across the different therapeutic areas within companion animal. And we see significant opportunity to continue to really meet unmet needs in the space, be it across cardiology, whether it's renal. Chronic kidney disease is a particularly, difficult disease state for veterinarians to treat. And so we see those as areas that we see significant opportunity as we look ahead, that will be the next billion dollar markets that we will go after.

JOSH LIPTON: And Wetteny, one big theme for investors this earnings season has been China. So I'm interested to get your take. How is business there and what do you see in the quarters ahead?

WETTENY JOSEPH: Yeah, look, China is under 5% of our business, of our revenues. And we've seen economic pressure in China, and we expect those to continue through at least the first half of 2024. However, long-term, we continue to believe in the potential for China. And over the last decade, our revenues in China have grown, significantly, and we expect that to be the case as we look on the long-term horizon.

But for now, the consumer sentiment in China, as well as some really difficult comps that we have coming back from last year will continue to put some pressure on the numbers for China. But we look forward to continuing to see the long-term prospects that we expect there.

JOSH LIPTON: Wetteny, thanks so much for joining us today. Really, appreciate your time.

WETTENY JOSEPH: Thanks so much, Josh and Julie.