Embattled Zoetis beats Q4 expectations, but tempers 2015 forecasts

Despite currency fluctuations dragging down overseas growth, Zoetis ($ZTS) reported fourth-quarter revenues and earnings Wednesday that beat analysts' expectations. The company's fourth-quarter and full-year revenues each increased 5% year over year, to $1.3 billion and $4.8 billion respectively.

Earnings in the last quarter, minus acquisition-related costs and other expenses, jumped 13% to $203 million, or 40 cents per share, surpassing forecasts from analysts polled by Thomson Reuters, who had expected quarterly earnings of 36 cents on revenues of $1.27 billion.

That was the good news. The bad news was that Zoetis trimmed its sales outlook for this year, telling investors to expect revenues to come in between $4.8 billion and $4.9 billion, down from its earlier estimate of $4.85 billion to $4.95 billion. The problem: foreign exchange rates. 

During a conference call with investors, Zoetis CEO Juan Ramón Alaix pointed to "several important product milestones," including an FDA filing on a new oral flea-and-tick fighter for dogs. When asked during the Q&A how quickly the company might be able to launch that product, Alaix said the company was working hard to get it on the market by spring of 2016. Executives are also optimistic about the company's $255 million purchase of Abbott Laboratories' ($ABT) animal health unit, which was completed Tuesday.

Zoetis has faced a fair amount of pressure over the last few weeks, primarily from activist investor William Ackman of Pershing Square Capital, which became the company's largest shareholder last year. William Doyle of Pershing Square won a seat on Zoetis' board last week, and speculation that the company will be pressured into selling itself is running high. Valeant ($VRX) had been mentioned as a likely suitor, though CEO J. Michael Pearson recently quashed those rumors.

Ackman had been griping about Zoetis' cost structure, which the company's CFO, Paul Herendeen, addressed during the earnings call. He said Zoetis revised its expectations for sales, general and administration expenses downward by $35 million for the year.

During the call, one analyst asked Alaix to comment on Doyle's "agenda" and the notion that Zoetis might be too large to be considered a prime acquisition target. Alaix didn't rule out M&A, saying the entire board, including Doyle, would be focused on increasing shareholder value. "This value can come from many different [sources]," he replied, "including margins, growing revenues and any kind of potential transaction."

- here's the earnings release
- access a transcript of the earnings call here
- read more at The Wall Street Journal (sub. req.) 

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