Livestock products lead Zoetis’ 3Q14 revenue growth



Zoetis’ 3Q14 results beat estimates

As discussed earlier, in November, Bill Ackman’s Pershing Square Capital Management disclosed an activist position in Zoetis Inc. (ZTS) via a 13D filing. The activist investor revealed an 8.5% stake in the animal health company that Pfizer (PFE) spun off last year. In this article, we’ll go through the highlights of Zoetis’ 3Q14 results.

Zoetis posted revenue of $1.2 billion for the third quarter of 2014, a 10% increase from the year ago period. Net income grew 27% to $166 million, or $0.33 per diluted share. Adjusted net income for the quarter was $207 million, or $0.41 per diluted share, an increase of 20% and 21%, respectively. Both revenue and earnings beat analysts’ estimates.

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Livestock sales grew 13% operationally

Zoetis’ management stated, “This quarter’s performance was driven largely by 13% operational revenue growth in our livestock products and continued discipline around our operating expenses.” Companion animal product sales rose 5% operationally, with strong sales of Apoquel, its anti-itch drug, in the United States and some European markets.

Revenue grew across all operating segments

Zoetis said it saw operational revenue growth across each of its operating segments. The increase was led by the U.S. segment, where revenue grew 7%, to $532 million, driven by sales of livestock products, mainly cattle and swine. This was followed by the Europe, Africa, Middle East (EuAfME) region, particularly in France and the United Kingdom, and the Canada, Latin America (or CLAR) region, particularly in Venezuela and Brazil. Revenue in EuAfME rose 12%, to $293 million, while revenue in CLAR was $194 million, an increase of 17%. Revenue in the Asia, Pacific (or APAC) region grew 7%, to $179 million, with 9% growth in livestock products, while sales of companion animal products were flat.

The company reiterated on the earnings call that population growth, especially in emerging markets, is driving the demand for animal protein. There is also an increasing use of medicines and vaccines to treat pets and livestock.  These positive trends have benefited Zoteis and its peers in the sector such as Merck & Co. (MRK); Merial, the animal health division of Sanofi (SNY); Elanco, the animal health division of Eli Lilly and Company (LLY); and Bayer Animal Health, the animal health division of Bayer AG (BAYZF).

In the next part of the series, we’ll talk about Pershing Square Capital Management’s investment in Canadian Pacific Railway (CP).


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