Zoetis beats estimates on strength of livestock products and allergy drug for dogs

Zoetis CEO Juan Ramón Alaix

Despite competitive pressures in the companion animal space and the ongoing negative impact of foreign exchange rates, animal health giant Zoetis ($ZTS) announced Tuesday that its third-quarter revenues jumped 10% year-over-year to $1.2 billion and its earnings per share flew 27% to 33 cents. The results exceeded Wall Street expectations and prompted the company to boost its full-year projections. Zoetis now expects revenues to come in between $4.7 billion and $4.75 billion for the year.

One of the quarter's bright spots was Zoetis' livestock divison, which chalked up sales growth of 12% in the U.S. and 13% in Europe, Africa, and the Middle East. Zoetis also enjoyed strong demand for Apoquel, its new drug to relieve itching in dogs with allergic dermatitis.

"We saw an increase in the use of our premium cattle products in key markets, as well as continued acceptance of new products in our swine and poultry portfolios," said Zoetis CEO Juan Ramón Alaix in a press release from the company. "Our overall companion animal product sales grew 5% operationally, reflecting strong sales of Apoquel in the U.S. and certain European markets."

But Alaix was quick to acknowledge that Zoetis is facing tough competition in the companion animal market. During a call with analysts after the earnings release, he explained that pet owners are rapidly abandoning topical flea-and-tick preventers and embracing chewable parasiticides--a market in which Zoetis does not participate.

When asked whether Zoetis would introduce a chewable parasiticide of its own, Alaix responded, "Definitely, we see oral parasiticides an important part of preventing animals, dogs and cats against ticks and fleas and also heartworm." He promised to provide more details about the company's specific R&D plans during its upcoming Investor Day on Nov. 18 in New York.

No doubt the entry of oral parasiticides has shaken up the companion animal market. Last week, Sanofi ($SNY) announced that third-quarter sales in its animal health division, Merial, jumped 13.3% to €317 million ($403.8 million), thanks to strong pickup of its chewable flea-and-tick preventer, NexGard. Now Merck ($MRK) is launching a rival product.

Still, the third quarter handily demonstrated Zoetis' sustained dominance in animal health, particularly in the food-animal sector. Alaix predicted continued strong performance earlier this year, when he noted in an earnings call with analysts that the combination of declining feed prices and increasing worldwide demand for meat protein was prompting livestock producers to clamor for animal health products. And the company boosted its offerings in September, when it won conditional approval from the U.S. Department of Agriculture for its vaccine to combat porcine epidemic diarrhea virus (PEDv).

Zoetis has been cited as a prime takeover target, most recently in late September, when analysts speculated that Bayer may be interested in acquiring it. But investors seem to be applauding the company's performance as an independent entity: Zoetis's shares rose more than 3% to $38.95 following its strong third-quarter earnings results, and the stock is up 15% from the start of the year.

- here's the earnings release
- access the earnings call transcript here
- read more at the Associated Press
- get another take at The Wall Street Journal (sub. req.)