Zoetis Inc (NYSE:ZTS) Morgan Stanley 22nd Annual Global Healthcare Conference September 4, 2024 1:05 PM ET Company Participants Kristin Peck - Chief Executive Officer Wetteny Joseph - Chief Financial Officer Conference Call Participants Erin Wright - Morgan Stanley Erin Wright Thanks, and good afternoon, everyone. Welcome to the Morgan Stanley Healthcare Conference. I'm Erin Wright, Lead Healthcare Services Analyst at Morgan Stanley. We're happy to have with us today, Zoetis' CEO, Kristin Peck with us; as ...

Olena Miroshnichenko/iStock via Getty Images Last month, I published a deep dive into Zoetis' (NYSE:ZTS) business. As with any pharma company, its pipeline is critical to its future growth. Librela is expected to be one of their most successful drugs, but I believe management is heavily sandbagging its $1B peak sales target for the medication: Management's expectation (2023 Investor Day) What Is Librela Librela is a first-of-its-kind medication targeting the treatment of Osteoarthritis (OA) in dogs, a ...

Group 1 - Zoetis (ZTS) has surpassed resistance at the 20-day moving average, indicating a short-term bullish trend [1] - The stock has rallied 6.3% over the past four weeks, suggesting potential for further gains [3] - Positive earnings estimate revisions have occurred, with one revision higher for the current fiscal year and none lower, leading to an upward movement in the consensus estimate [3] Group 2 - The 20-day simple moving average is a favored tool among traders, providing insights into short-term price trends and trend reversals [1] - The combination of technical indicators and earnings estimate revisions positions ZTS favorably for potential upward movement [3]

From a technical perspective, Zoetis (ZTS) is looking like an interesting pick, as it just reached a key level of support. ZTS recently overtook the 200-day moving average, and this suggests a long-term bullish trend.The 200-day simple moving average is widely-used by traders and analysts, and helps establish market trends for stocks, commodities, indexes, and other financial instruments over the long term. The indicator moves higher or lower together with longer-term price moves, serving as a support or re ...

Monty RakusenI published my ‘Hold’ thesis on Zoetis (NYSE:ZTS) in July 2023, highlighting the high quality of Zoetis’ companion business while expressing concerns about its elevated stock price. Since my last publication, the stock price increased by 8.6%, underperforming compared to the S&P 500 (SP500) index return of 15.8%. The company released its Q2 earnings on August 6th before the market opened and raised its full-year guidance. I believe the companion business will experience double-digit growth ...

Zoetis (ZTS) reported $2.36 billion in revenue for the quarter ended June 2024, representing a year-over-year increase of 8.3%. EPS of $1.56 for the same period compares to $1.41 a year ago.The reported revenue compares to the Zacks Consensus Estimate of $2.3 billion, representing a surprise of +2.53%. The company delivered an EPS surprise of +4.70%, with the consensus EPS estimate being $1.49.While investors scrutinize revenue and earnings changes year-over-year and how they compare with Wall Street expect ...

Core Insights - Zoetis raised its full-year revenue guidance by $50 million at the midpoint, now expecting revenue between $9.1 billion and $9.25 billion [1] - The company exceeded second-quarter revenue expectations but fell short on earnings per share (EPS) [1] - Shares of Zoetis surged 6% in intraday trading following the announcement [1] Financial Performance - For Q2, Zoetis reported EPS of $1.37, a decrease of 6% year-over-year, and revenue of $2.36 billion, which represents an 8% increase [2] - The U.S. market saw a 12% revenue growth, while international operational revenue grew by 10% [2] - The companion animal portfolio achieved a 12% global operational growth, and the livestock portfolio saw a 9% growth [2]

On Tuesday, Zoetis Inc ZTS stock is trading higher after the company reported better-than-expected second-quarter financial results and raised its 2024 guidance above estimates.The animal health company reported second-quarter revenue of $2.36 billion, up 8% year-over-year on reported and 11% on an operational basis, beating the consensus of $2.31 billion.“We achieved 12% revenue growth in the U.S. and 10% operational revenue growth internationally, with both our companion animal and livestock portfolios se ...

Revenue Growth - Total revenue for the three months ended June 30, 2024, increased by $181 million, or 8%, compared to the same period in 2023, with operational growth of $243 million, or 11%[81] - For the six months ended June 30, 2024, total revenue increased by $371 million, or 9%, compared to the same period in 2023, with operational growth of $482 million, or 12%[81] - Revenue for the three months ended June 30, 2024, was $2,361 million, an 8% increase from $2,180 million in the same period of 2023[82] - Revenue for the U.S. segment increased by $143 million, or 12%, in Q2 2024 compared to Q2 2023, driven by a $121 million increase in companion animal products and a $22 million increase in livestock products[106] - International segment revenue increased by $40 million, or 4%, in Q2 2024 compared to Q2 2023, with operational revenue growth of $101 million, or 10%[106] - For the six months ended June 30, 2024, U.S. revenue increased by 14% to $2,471 million compared to $2,170 million in the same period of 2023[107] - International segment revenue increased by $69 million, or 3%, in the six months ended June 30, 2024, compared to the same period in 2023[111] Operational Performance - Price growth contributed approximately 8% to the operational revenue increase for the three months ended June 30, 2024[81] - Volume growth from new products accounted for approximately 3% of the operational revenue increase for the three months ended June 30, 2024[81] - Adjusted net income for the six months ended June 30, 2024, was $1,345 million, compared to $1,259 million in the same period of 2023, reflecting a 7% increase[73] - Adjusted net income for the three months ended June 30, 2024, was $711 million, a 9% increase from $652 million in the same period in 2023[122] - U.S. segment earnings increased by $275 million, or 20%, in the six months ended June 30, 2024, compared to the same period in 2023[110] - International segment earnings increased by $3 million, or 1%, in the three months ended June 30, 2024, compared to the same period in 2023[109] Costs and Expenses - Cost of sales for the three months ended June 30, 2024, was $668 million, representing 28.3% of revenue, compared to 27.8% in the same period of 2023[84] - Selling, general and administrative (SG&A) expenses increased by $25 million, or 4%, to $581 million for the three months ended June 30, 2024[87] - Research and development (R&D) expenses rose by $25 million, or 17%, to $171 million for the three months ended June 30, 2024[91] - Cost of sales for the six months ended June 30, 2024, was $1,311 million, maintaining 28.8% of revenue, compared to 28.6% in the same period of 2023[85] - Corporate expenses increased by $123 million, or 27%, in the six months ended June 30, 2024, compared to the same period in 2023[117] Foreign Exchange Impact - Approximately 42% of the company's revenue for the six months ended June 30, 2024, was denominated in foreign currencies, impacting overall revenue due to exchange rate fluctuations[77] - Foreign exchange negatively impacted reported revenue growth by approximately 3% for both the three and six months ended June 30, 2024[81] - International segment revenue was negatively impacted by foreign exchange, decreasing revenue by $111 million, or 6%[111] - The company is facing higher foreign currency losses in the current period, which affected the overall financial performance[100] - A significant portion of the company's revenue and costs are exposed to changes in foreign exchange rates[143] Tax and Earnings Per Share - The effective tax rate for the three months ended June 30, 2024, was 20.0%, down from 23.2% in the same period of 2023[82] - The effective tax rate decreased to 20.0% in Q2 2024 from 23.2% in Q2 2023, primarily due to lower net discrete tax expenses and a more favorable jurisdictional mix of earnings[102] - The effective tax rate on adjusted pretax income was 20.1% for the three months ended June 30, 2024, compared to 21.5% for the same period in 2023[121] - GAAP reported diluted EPS for Q2 2024 was $1.37, a decrease of 6% from $1.45 in Q2 2023; non-GAAP adjusted diluted EPS increased by 11% to $1.56 from $1.41[123] - For the six months ended June 30, 2024, GAAP reported diluted EPS was $2.67, up 1% from $2.64 in the same period of 2023; non-GAAP adjusted diluted EPS rose by 8% to $2.94 from $2.71[123] Cash Flow and Financial Position - Net cash provided by operating activities for the six months ended June 30, 2024, was $1,097 million, an increase of $365 million from $732 million in 2023[129] - The company reported a net decrease in cash and cash equivalents of $(467) million for the six months ended June 30, 2024, a significant improvement from $(1,864) million in 2023[129] - Net cash used in investing activities decreased to $263 million for the six months ended June 30, 2024, compared to $296 million in the same period of 2023, mainly due to capital expenditures[131] - Net cash used in financing activities reduced to $1,287 million for the six months ended June 30, 2024, down from $2,296 million in the same period of 2023, primarily due to treasury share purchases and dividend payments[132] - Cash and cash equivalents decreased to $1,574 million as of June 30, 2024, from $2,041 million as of December 31, 2023[135] - Long-term debt remained stable at $6,563 million as of June 30, 2024, compared to $6,564 million as of December 31, 2023[135] Risks and Challenges - The company faces risks from competing products, including generic alternatives, which may impact its market position[142] - Unanticipated safety, quality, or efficacy concerns about the company's products could adversely affect performance[142] - The company is subject to fluctuations in global economic conditions, including inflation and regional conflicts[142] - Legal factors, including product liability claims and antitrust litigation, may negatively impact profitability[142] - The company is at risk of cyberattacks and information security breaches that could compromise data[142] - The company must generate sufficient cash to service its substantial indebtedness[142]

Financial Data and Key Metrics Changes - The company reported $2.4 billion in revenue for Q2 2024, growing 8% on a reported basis and 11% operationally [18] - Adjusted net income was $711 million, growing 9% on a reported basis and 18% operationally [18] - Adjusted diluted EPS grew 20% operationally for the quarter [34] Business Line Data and Key Metrics Changes - The companion animal portfolio grew 12% operationally, while the livestock portfolio saw 9% operational growth [7] - The OA pain mAbs generated $149 million in revenue, and the Simparica franchise posted $384 million [18] - The key dermatology franchise contributed $414 million, with Apoquel and Cytopoint driving strong growth [18] Market Data and Key Metrics Changes - US revenue grew 12% in the quarter, with companion animal growing 13% and livestock posting 11% growth [25] - International revenue grew 4% on a reported basis and 10% operationally, with companion animal growing 12% and livestock growing 8% [30] - The international Simparica franchise grew 35% operationally, driven by increased use in Latin America and Eastern Europe [31] Company Strategy and Development Direction - The company is focused on delivering consistent results through innovation and market expansion, with a commitment to excellence in animal health [7] - A $6 billion share repurchase program was announced, reflecting confidence in the company's growth trajectory [16][35] - The company is investing in direct-to-consumer marketing to enhance awareness and compliance among pet owners [13][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing growth trajectory, particularly in the OA pain franchise and key dermatology products [15][37] - The company raised its 2024 guidance, expecting revenue between $9.1 billion and $9.25 billion, representing 9% to 11% operational growth [36][37] - Management noted that while macroeconomic headwinds persist, the animal health industry remains resilient [15] Other Important Information - The company is developing a market for breakthrough products that are safer and more effective, with significant growth in the OA pain franchise [10] - The company highlighted the potential addressable market of 11 million dogs in the US that could benefit from its therapies [12] - The planned divestiture of the Medicated Feed Additives portfolio is expected to close in the second half of the year [36] Q&A Session Summary Question: Pricing and Volume Split for the Quarter - The quarter had about 8% price and 3% volume growth, with a balanced picture year-to-date [40][41] Question: DTC Spending and Returns - The company is investing significantly across various channels, with a focus on driving compliance and market growth [43][44] Question: Librela Sales Trends - Librela sales grew 142% in the quarter, with expectations for continued growth and positive reception from pet owners [47][48] Question: Competitive Positioning in Dermatology - The company raised expectations for dermatology growth to double digits, reflecting strong performance and competitive positioning [49] Question: Apoquel Chewable Contribution - Apoquel chewable is primarily contributing to conversion from traditional Apoquel, with significant long-term growth potential [56]