Zoetis (ZTS) Down 13.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Zoetis (ZTS). Shares have lost about 13.4% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Zoetis' Earnings and Revenues Beat Estimates in Q4

Zoetis posted fourth-quarter 2019 adjusted earnings of 92 cents per share (excluding one-time items), which not only increased 16% year over year but also beat the Zacks Consensus Estimate of 88 cents.

Total revenues rose 7% year over year to $1.67 billion, which beat the Zacks Consensus Estimate of $1.64 billion.

Quarterly Highlights

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

Revenues from the United States segment increased 6% year over year to $861 million. Sales of companion animal products in this region grew 15%, primarily owing to higher sales of Apoquel and Cytopoint brands in the dermatology portfolio. ProHeart 12 and Simparica also led to the increase. However, sales of livestock products declined 3% in the quarter due to continued weakness across beef and dairy cattle sectors, which more than offset double-digit growth in poultry and swine.

Revenues at the International segment increased 9% year over year on a reported basis (up 12% operationally) to $791 million. Livestock sales grew 2% (up 5% operationally) in the quarter. Growth in the cattle portfolio was aided by higher sales in key markets, including Australia, Germany and Mexico. Alpha Flux, a recently launched parasiticide, was the main growth driver in fish, while promotional activities across Russia, India and Brazil drove growth in poultry. However, sales of swine products declined as a result of the ongoing impact of the African swine fever in China and other smaller markets in Southeast Asia.

Sales of companion animal products grew 23% on a reported basis, reflecting a rise in the dermatology portfolio and parasiticides, including Simparica and the Revolution/Stronghold franchise, as well as growth across key markets in Western Europe and China.

2019 Results

The company’s adjusted earnings were $3.64 per share, up 16% year over year.

The revenues came in at $6.26 billion, reflecting an increase of 7% year over year.

2020 Guidance

The company expects adjusted earnings of $3.90-$4.00 per share. Revenues are expected to be $6.650-$6.800 billion.

Other Updates

During the fourth quarter, Zoetis received approval for Rimadyl (carprofen) for dogs in China, one of the fastest-growing companion animal markets in the world. Rimadyl, approved in both chewable and injectable formulations, is indicated for the relief of pain and inflammation associated with osteoarthritis (chewables), and for the control of postoperative pain associated with soft tissue and orthopedic surgeries (injectable).

Zoetis expanded its reference laboratory capabilities in the United States with the acquisitions of Phoenix Lab and ZNLabs in November 2019 and Ethos Diagnostic Science in February 2020.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months.

VGM Scores

Currently, Zoetis has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Zoetis has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.