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Zoetis (ZTS) Beats on Q4 Earnings & Sales, Gives 2018 View


Zoetis Inc. ZTS posted fourth-quarter 2017 adjusted earnings of 69 cents per share (excluding one-time items and a provisional net tax charge of $212 million related to recently enacted tax legislation in the United States) increased 47% year over year and beat the Zacks Consensus Estimate of 66 cents.

Total revenues rose 14% year over year (up 13% operationally excluding the impact of currency) to $1.5 billion in the quarter and beat the Zacks Consensus Estimate of $1.40 billion.

A look at Zoetis’ share price movement shows that the stock has outperformed the industry on a year-to-date basis. The stock has moved up 35.1% compared with the industry’s gain of 0.4%.

Quarterly Highlights

Zoetis reports business under two geographical operating segments — the United States and International. The company has a diverse portfolio of products for livestock and companion animals.

Revenues in the United States segment were up 13% year over year to $712 million. Sales of companion animal products in this region were up 15%, primarily due to higher sales of dermatology portfolio and new product launches, especially Simparica. Livestock revenues increased 11% mainly due to increased sales of cattle and poultry products, partially offset by declines in swine products.

Revenues at the International segment grew 16% year over year (up 13% operationally) on a reported basis to $740 million. Livestock sales were up 14% on a reported basis (up 11% operationally) in the quarter mainly driven by balanced growth across the portfolio. Moreover, sales of companion animal products grew 23% on a reported basis and 18% on an operational basis, reflecting higher sales of dermatology portfolio and Simparica.

2017 Results

Adjusted earnings came in at $2.40 per share, up 22% year over year and exceeded the Zacks Consensus Estimate of $2.36.

The company posted revenues of $5.3 billion, an increase of 9% y/y. The results surpassed the Zacks Consensus Estimate of $5.25 billion.

2018 Outlook

Zoetis provided outlook for 2018. The company expects adjusted earnings in the range of $2.96-$3.10 per share.

Revenues are expected in the range of $5.675-$5.800 billion. The Zacks Consensus Estimate for earnings and revenues is pegged at $2.94 per share and $5.64 billion, respectively.

Other Updates

The company continued to expand the availability of its oral flea and tickmedication, Simparica, into new markets, with additional approvals in Chile, Panama, the Philippines and Switzerland. The product also received approval in the European Union for the treatment of two additional types of skin mites.

In the United States, the company enhanced its medicated feed additives portfolio with an expanded claim for Lincomix (lincomycin hydrochloride), a popular feed medication.

Our Take

Zoetis’ fourth-quarter results exceeded both earnings and sales expectations. Zoetis posted a strong performance in 2017 generating morethan $5 billion in revenue based on the strength of its business model and the growth opportunities that are uniquely available in animal health. The company achieved operational revenue growth for the year of 8%, based on the diversity of its product portfolio and balanced performance across the United States and all of its major international markets.

For 2018, the company expects to improve its working capital and fund investments that will support its ability to create long-term value for its shareholders.

Zoetis Inc. Price, Consensus and EPS Surprise

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

Zacks Rank & Other Key Picks

Zoetis carries a Zacks Rank #2 (Buy). Some other top-ranked stocks from the health care space are XOMA Corp. XOMA, Exelixis EXEL and Enanta Pharma ENTA. All of them carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

XOMA’s loss per share estimates have narrowed from 99 cents to 42 cents for 2018 in the last 60 days. The company pulled off a positive earnings surprise in one of the last four quarters, with an average beat of 47.92%. Share price of the company has skyrocketed 393% over a year.

Exelixis’ earnings per share estimates have moved up from 72 cents to 77 cents for 2018 in the last 60 days. The company delivered a positive earnings surprise in the last four quarters, with an average beat of 572.92%. Share price of the company has surged 33.7% over a year.

Enanta Pharma delivered a positive surprise in three of the last four quarters, with an average beat of 373.1%. Share price of the company has soared 173.5% over a year.

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