Zoetis Cuts Outlook as U.S. Pet-Drug Weakness Persists
The animal-health company lowered its full-year adjusted earnings forecast to $6.15 to $6.25 a share.
Zoetis Inc. (ZTS), the animal-health company, cut its full-year outlook after second-quarter revenue stalled and weakness in its U.S. companion-animal business persisted.
Revenue was $2.468 billion, flat from a year earlier and down 1% organically. The result marked a slowdown from the first quarter, when revenue rose 3% on a reported basis and was unchanged organically.
Net income increased sequentially to $691 million from $601 million, though it declined 5% from a year earlier after holding flat in the first quarter. Adjusted diluted earnings rose 5% to $1.87 a share, compared with 9% growth in the preceding quarter.
U.S. revenue fell 7%, a slight improvement from the first quarter’s 8% decline. Companion-animal sales in the market dropped 11% for a second consecutive quarter as softer demand, price sensitivity, competition, generic pressure on Cerenia and Convenia, and lower Librela sales persisted. U.S. livestock revenue rose 23%, accelerating from 7% growth in the first quarter on stronger cattle and poultry sales.
International revenue rose 8%, slowing from 17% growth in the preceding quarter. International companion-animal sales followed the same trajectory, with reported growth easing to 8% from 15%.
Zoetis now expects full-year revenue of $9.12 billion to $9.32 billion, down from its previous forecast of $9.68 billion to $9.96 billion. Its organic revenue outlook calls for a decline of 3% to 1%, compared with the prior projection for growth of 2% to 5%, while adjusted net-income guidance was reduced to $2.57 billion to $2.62 billion.
Margin pressure also increased. Adjusted cost of sales rose 40 basis points to 27.1% of revenue in the quarter, and Zoetis raised its full-year expectation to about 29.0% from 28.5%. Restructuring and acquisition- and divestiture-related charges climbed to $77 million from $30 million, including $75 million primarily tied to employee termination costs.
The company completed its acquisition of VitalRADS, adding around-the-clock veterinary teleradiology and extending its diagnostics business into imaging interpretation. That expansion came as Zoetis increased its forecast for full-year significant items and acquisition- and divestiture-related costs to about $150 million from $100 million.