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Zoetis (ZTS) Beats on Q2 Earnings & Sales, Ups 2017 View


Zoetis Inc. ZTS second-quarter 2017 earnings of 53 cents per share increased 8.2% year over year and beat the Zacks Consensus Estimate of 52 cents. Earnings were up 11% excluding the impact of currency.

Total revenue rose 5% year over year (up 6% operationally excluding the impact of currency) to $1.27 billion in the quarter and beat the Zacks Consensus Estimate of $1.25 billion.

A look at Zoetis’ share price movement shows that the stock has outperformed the industry on a year-to-date basis. The stock was up 15.5% compared with the industry’s gain of 1.3%.

Quarterly Highlights

Zoetis’ business is categorized into two geographical operating segments – the U.S. and International. Within these segments, the company offers a diverse portfolio of products for livestock and companion animals.

Revenues in the U.S. segment were up 5% to $623 million. Within this segment, sales of companion animal products were up 7%, reflecting higher sales of dermatology portfolio and product launches (Simparica Chewables and Cytopoint), partially offset by lower sales of pain products. Livestock revenues rose 3% mainly due to increased sales of cattle and poultry products, partially offset by lower swine product sales.

Revenues at the International segment grew 5% (up 7% operationally) on a reported basis to $634 million. Sales of livestock products were up 2% on a reported basis (up 3% operationally) in the quarter due to increased sales of swine products in China and cattle products in Brazil. Nonetheless, livestock sales were adversely impacted by product rationalizations.

Sales of companion animal products grew 12% on a reported basis (up 15% operationally), driven by higher sales of Apoquel and product launches, particularly that of Simparica.

2017 Outlook Updated

Zoetis increased its sales and earnings outlook for 2017. The company expects earnings in the range of $2.30 to $2.37, up from the prior guidance of $2.26 to $2.36 per share.

Revenues are expected in the range of $5.15 billion to $5.25 billion, up from $5.10 billion to $5.225 billion expected previously. The Zacks Consensus Estimate for earnings and revenues is pegged at $2.33 per share and $5.2 billion, respectively.

Other Updates

The company received approval for Clavamox Chewable in the U.S. in May 2017, Cytopoint in the European Union in Apr 2017 and in Canada in Mar 2017. The approvals will help the company to strengthen its canine dermatology portfolio. In fact, Cytopoint is the first monoclonal antibody (mAb) therapy approved to help provide a reduction in the clinical signs associated with atopic dermatitis such as itching in dogs.

Zoetis has expanded its dermatology portfolio following approval for Apoquel in Vietnam, Cytopoint in New Zealand and Simparica in Peru.

Subsequent to the quarter, the company completed the acquisition of Nexvet Biopharma plc. The latter is an innovator in monoclonal antibody therapies for companion animals used in managing chronic pain as well as in other therapeutic areas.

Our Take

Zoetis’ second-quarter results were better than expected. Performance of the companion animal business was encouraging due to higher global sales of Apoquel and other new products. The company also increased its outlook for 2017.

Notably, successful launches and expansion of markets boosted performance in the quarter. However, unfavorable currency movement continued to hurt the top line.

Zoetis Inc. Price, Consensus and EPS Surprise

Zoetis Inc. Price, Consensus and EPS Surprise | Zoetis Inc. Quote

Zacks Rank & Key Picks

Zoetis carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the pharma sector include Summit Therapeutics PLC SMMT, Aduro Biotech, Inc. ADRO and Alnylam Pharmaceuticals, Inc. ALNY. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Summit’s loss estimates narrowed from $2.36 to 32 cents for 2017 over the last 30 days. The company delivered positive earnings surprise in each of the four trailing quarters with an average beat of 25.55%. Its share price is up 69% so far this year.

Alnylam’s loss estimates narrowed from $5.16 to $5.08 for 2017 over the last 30 days. The company came up with a positive earnings surprise in two of the four trailing quarters with an average beat of 3.69%. The stock is up 121.5% so far this year.

Aduro Biotech’s loss per share estimates narrowed from $1.46 to $1.36 for 2017 over the last 30 days. The company delivered positive surprises in two of the four trailing quarters with an average beat of 2.53%. The stock is up 7.4% so far this year.

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