Key Points
- Adjusted earnings per share topped analyst estimates.
- Net income fell 7% year over year to $624 million.
- Full-year guidance for revenue and adjusted net income was raised.
Animal health specialist Zoetis (ZTS -0.56%) posted second-quarter earnings on Tuesday that topped analysts' consensus estimates on both top and bottom lines.
While revenue was up 8% year over year net income fell by 7% to $624 million due to higher operational costs. Despite this, Zoetis raised its full-year 2024 revenue guidance to $9.10-$9.25 billion and increased its adjusted net income outlook, reflecting its confidence in sustained growth.
| Metric | Q2 2024 | Analyst Estimates | Q2 2023 | Change (YOY) |
|---|---|---|---|---|
| Revenue | $2.36 billion | $2.31 billion | $2.18 billion | 8% |
| Net income | $624 million | - | $670 million | (7%) |
| Adj. net income | $711 million | - | $652 million | 9% |
| Adj. EPS (diluted) | $1.56 | $1.49 | $1.41 | 7% |
| Adj. cost of sales | $667 million | - | $602 million | 11% |
| Adj. R&D expenses | $171 million | - | $146 million | 17% |
Source: Zoetis. Note: Analyst consensus estimates provided by FactSet. YOY = Year over year.
Zoetis: Business Overview
Zoetis is a prominent player in the global animal health market, providing comprehensive healthcare solutions for pets and livestock. Its portfolio includes medicines, vaccines, diagnostics, and genetic tests. The company is committed to innovation, focusing on products that drive significant growth. In recent quarters, Zoetis has put significant emphasis on enhancing its product portfolio and geographic revenue distribution.
Second-Quarter Highlights
Revenue growth in Q2 was driven by strong performance in its companion animal portfolio, which saw an 11% growth due to key products like Simparica Trio and Apoquel. Additionally, its new monoclonal antibody (mAb) products, Librela and Solensia, for osteoarthritis continued to show promise.
The U.S. segment reported a 12% increase in revenue, with companion animal products up 13%. The livestock portfolio also grew by 3%, although slower compared to companion animals. Internationally, Zoetis exhibited a 4% revenue increase on a reported basis and a 10% operational increase, benefiting from growth in areas like Brazil and Europe.
Cost of sales increased by 10% year over year to $668 million, while R&D expenses saw a 17% increase to $171 million, underscoring Zoetis's commitment to future growth through innovation. Adjusted net income improved by 9% to $711 million, reflecting solid operational margin management.
Notable product innovations included market approvals in Canada for Simparica Trio and in Japan for Draxxin KP. New diagnostic products like Vetscan® Opticell™ were also introduced, enhancing Zoetis's analytical capabilities. However, safety concerns related to Librela and Solensia require continuous monitoring to ensure the long-term adoption and growth of these key products.
The company also announced divestitures of less core segments, such as the medicated feed additive portfolio, to focus more on high-growth, innovation-driven areas. This strategic shift aligns with the company's goal of reinforcing its product portfolio and market leadership.
Looking Ahead: Guidance and Future Focus
For the remainder of 2024, Zoetis increased its revenue guidance to $9.1 billion to $9.25 billion, reflecting an adjusted net income target of $2.64 billion to $2.69 billion, up from the previous range of $2.62 billion to $2.67 billion. Adjusted diluted EPS guidance was also raised to $5.78-$5.88. This upward revision underscores management’s confidence in the company's robust operational performance and market strategies.
Investors should keep an eye on Zoetis’s ability to manage its cost structure and navigate product-specific challenges, particularly regarding Librela and Solensia. The company’s ongoing investments in R&D and innovative products, along with geographic expansion and market adaptation strategies, will be crucial in maintaining its growth trajectory.
