Zoetis(ZTS)2023-05-04 15:26Financial Data and Key Metrics Changes - The company reported Q1 2023 revenue of 607 million, declining 3% on both a reported and operational basis [14][15][28] - The operational revenue growth of 4% was driven by a 5% increase from price and a 1% decline in volume, primarily due to U.S. companion animal distributor destocking [14][15] - Adjusted gross margins were 70.8%, declining 80 basis points compared to the prior year, attributed to higher manufacturing costs and unfavorable product mix [25][26] Business Line Data and Key Metrics Changes - The livestock portfolio led growth with a 12% operational increase, while companion animal product revenues were flat operationally [6][15] - U.S. livestock sales grew 15%, driven by improved supply of key products, while companion animal products in the U.S. declined 7% [19][23] - International revenue grew 10% operationally, with both companion animal and livestock segments contributing to this growth [23][24] Market Data and Key Metrics Changes - U.S. veterinary clinic visits increased by 2%, with clinic revenue growth of 11% and average spend per visit up 9% [9][20] - Sales out of distributors to clinics were up 8% on a volume basis, and retail sales to pet owners increased by 35% [8][37] - The international livestock segment also grew 10% operationally, driven by cattle and sheep portfolios [25] Company Strategy and Development Direction - The company plans to continue investing in key product areas such as parasiticides, dermatology, monoclonal antibodies, vaccines, and diagnostics to support future growth [11][12] - A new manufacturing site outside Atlanta, Georgia, was purchased to expand capacity for monoclonal antibodies and vaccines, expected to begin operations in 2026 [12] - The company remains committed to delivering strong growth in 2023 based on market leadership and innovative franchises [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year guidance despite economic uncertainties, expecting operational growth of 6% to 8% in revenue and 7% to 9% in adjusted net income [5][29] - The company anticipates a return to growth in U.S. diagnostics and expects strong demand for innovative companion animal products [10][11] - Management noted that the first quarter results were in line with expectations and emphasized the importance of a diverse portfolio for steady growth [14][29] Other Important Information - Capital expenditures in Q1 were 283 million of shares and increased dividends by over 15% compared to Q1 2022 [28] Q&A Session Summary Question: Is the channel now normalized in the U.S.? - Management confirmed that the channel is at normalized levels and discussed the destocking dynamics that occurred in Q1, which were anticipated [32][35] Question: Was there a stocking benefit across livestock in the segment in the quarter? - Management indicated that livestock growth was driven by resupply and increased supply of key products, but expects flat growth for the year [39][40] Question: What drove the decline in the dermatology segment? - The decline was attributed to destocking from pre-price buy-ins and promotional impacts, but management expects double-digit growth for the rest of the year [41][68] Question: Any feedback from the price increases at the beginning of the year? - Management reported no pushback from veterinarians or pet owners regarding price increases, with significant growth observed in distributor sales to clinics and retail sales to pet owners [70][73]