Zoetis beats estimates in Q4 but dampens 2016 sales forecast on currency woes

Zoetis ($ZTS) spent much of 2015 slimming down and developing new products most likely to capitalize on demand trends in animal health. Those moves seem to be paying off, judging from the company's better-than-expected fourth-quarter results, which it released Feb. 16. But currency fluctuations continue to impact Zoetis' top and bottom line, putting pressure on the animal health giant to strengthen its efficiency initiatives.

During the period, Zoetis' revenues grew 6% year-over-year to $1.3 billion, excluding the impact of foreign currency, and adjusted net income came in at $214 million, or 43 cents per share--beating the average analyst estimate of 39 cents, according to Zacks Investment Research. For the full year, Zoetis reported that operational revenues grew 8% to $4.8 billion and that adjusted net income was up 13% to $889 million ($1.77 per share).

Last year, Zoetis slashed 165 employees from its Florham Park, NJ, headquarters and began eliminating 5,000 underperforming SKUs. The company has also started to exit some of its manufacturing plants, striking recent deals to offload one plant in India to Zydus Cadila and three of its U.S. plants to Bulgaria-based Huvepharma.

Zoetis CEO Juan Ramón Alaix

But Zoetis started 2016 on a sour note, reporting in January that it would be taking a net tax charge in the first quarter of $35 million to $45 million, after the European Commission ruled that a tax strategy used by the company in Belgium is not legal. The company knocked 20 cents to 22 cents off its projected 2016 reported EPS as a result.

In Tuesday's earnings release, Zoetis reaffirmed its EPS guidance of $1.71 to $1.81 per share, which included the Belgian tax charge, but it did dampen its revenue forecasts for the year. The company is now expecting sales of $4.650 billion to $4.775 billion, down from the previous forecast of $4.750 billion to $4.875 billion. The company attributed the updated forecast to the latest foreign exchange rates and to its ongoing pullout from Venezuela, a volatile market that was once considered a promising growth market for Zoetis.

In addition to completing its restructuring, dubbed "Zoetis Next," the company continues to look for opportunities to enhance innovation in R&D. Zoetis attributed much of its revenue growth in the fourth quarter to Apoquel, its drug to treat atopic dermatitis in dogs that was in such hot demand that its launch was hampered by limited manufacturing capacity. The company has solved that problem and sales are up both in the U.S. and overseas, according to the earnings release.

The company also highlighted its efforts to boost its vaccine portfolio. During the fourth quarter of 2015, it began marketing its vaccine to treat the latest strain of dog flu, H3N2, and it closed its $765 million acquisition of Pharmaq, giving it an entrée into the booming market for aquaculture vaccines.

"In our three years as a public company, we have been delivering consistent operational revenue growth, and we expect our 2015 growth to show once again that we are growing faster than the industry," said CEO Juan Ramón Alaix in a press release announcing the results. "We also grew our adjusted net income faster than sales as we focus on greater efficiency in our business."

Shares of Zoetis were up nearly 3% to $41.56 in premarket trading on Tuesday.

- here's the earnings release

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