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How Zoetis Beat Expectations Yet Again with Its Q4 Results

By Keith Speights – Feb 13, 2020 at 2:00PM

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Just as it did in Q3, the animal health company topped Wall Street's top- and bottom-line estimates in Q4.

Investors really experienced some animal spirits after Zoetis' (ZTS -1.76%) performance in 2019. Shares skyrocketed 55% last year, handily beating a very good performance by the S&P 500 index.

Zoetis provided more good news with its 2019 fourth-quarter and full-year results, announced before the market opened on Thursday. Here are the highlights from the animal health company's Q4 update.

Veterinarian holding a puppy and a ktiten

Image source: Getty Images.

By the numbers

Zoetis reported revenue in the fourth quarter of $1.7 billion. This reflected a 7% increase from the prior-year period revenue total of $1.56 billion and topped the consensus Wall Street Q4 revenue estimate of $1.64 billion.

The company reported net income of $384 million, or $0.80 per share, based on generally accepted accounting principles (GAAP). In the fourth quarter of 2018, Zoetis recorded GAAP earnings of $345 million, or $0.71 per share. 

Zoetis posted adjusted non-GAAP net income in Q4 of $440 million, or $0.92 per share. This was considerably better than the adjusted earnings of $382 million, or $0.79 per share, generated in the prior-year period. It also beat the average analysts' Q4 earnings estimate of $0.88 per share.

Behind the numbers

The company makes the most money with its livestock business. However, livestock revenue slipped slightly in Q4 to $868 million, down from $872 million in the prior-year period. This decline was primarily due to weakness in the U.S. beef and dairy cattle markets, offset partially by solid sales growth for products targeting poultry and swine. Zoetis also reported lower revenue from its contract manufacturing and human health business, with sales falling to $22 million in Q4 from $28 million in the prior-year period.

But Zoetis' companion animal business more than made up for these declines. Companion animal revenue jumped 18% year over year to $784 million. The company stated that its Apoquel and Cytopoint dermatology brands were key drivers of this growth. It also attributed some of the Q4 revenue growth to stronger sales of parasiticide products including ProHeart 12 and Simparica.

International markets served as a tailwind for Zoetis in Q4. While U.S. revenue increased by 6% year over year, international sales grew by 9%. The international livestock market was stronger than the U.S. market during the fourth quarter, thanks in part to positive dynamics in the cattle markets in Australia, Germany, and Mexico. However, Zoetis' swine products didn't perform as well because of the impact of African swine fever in China and other Southeast Asia markets. 

Looking ahead

Zoetis expects that revenue for full-year 2020 will be between $6.65 billion and $6.8 billion. The company anticipates 2020 GAAP earnings per share (EPS) of $3.53 to $3.65, with adjusted non-GAAP EPS between $3.90 and $4.00. While Zoetis' revenue guidance was in line with Wall Street expectations, the top end of its adjusted earnings outlook range was lower than the consensus 2020 adjusted EPS estimate of $4.01.

New CEO Kristin Peck stated that Zoetis is "excited about the launch of Simparica Trio, our new triple combination parasiticide for dogs." She said the company will also continue to advance its pipeline candidates in 2020, including new parasiticides, monoclonal antibodies, and vaccines. In addition, Peck highlighted that Zoetis will "invest in newer growth areas for us such as diagnostics, digital and data analytics."

While many healthcare stocks could be subject to increased volatility in 2020 with the U.S. presidential election season shifting into full gear, Zoetis should be relatively immune to political headwinds.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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