Zoetis’ (ZTS) third-quarter 2014 earnings (excluding special items) of 41 cents per share were above the Zacks Consensus Estimate of 37 cents. Third-quarter 2014 earnings were above the year-ago figure by 7 cents. The year-over-year increase was primarily due to higher revenues. Including one-time items, Zoetis reported earnings of 33 cents per share, up 27%. We expect investors to react positively to the news.
Revenues at Zoetis climbed 10% to $1.2 billion in the third quarter of 2014. Foreign currency movements did not have any significant impact on revenues. 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 third quarter of 2014, sales of livestock products accounted for 65.3% of total revenues. Approximately 33.7% 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 7% driven by strong sales of livestock products. Sales in the EuAfME market climbed 14%. Sales in the CLAR and APAC markets also increased by 13% and 7% 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
Zoetis reaffirmed its outlook for 2014 with respect to earnings while releasing the third-quarter 2014 results. Adjusted earnings per share are projected in the range of $1.50 to $1.54. The company tweaked its revenue guidance to the range of $4.7 billion to $4.75 billion (old guidance: $4.675 billion to $4.75 billion). The Zacks Consensus Estimate for earnings is $1.53 per share on revenues of $4.7 billion.
Our Take
We are impressed with the company’s performance in the third quarter driven primarily by total livestock revenue growth. We are also positive on the company’s cost management efforts.
Zoetis carries a Zack Rank #4 (Sell). Some better-ranked stocks in the health care sector are Valeant Pharmaceuticals International, Inc. (VRX) and Endo International (ENDP). Both are Zacks Ranked #2 (Buy) stocks.
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