Animal health behemoth Zoetis posted an unusual first quarter, an analyst said Thursday after ZTS stock clawed back from a premarket dive.
Unlike in previous quarters, sales of health products to treat pets slipped in the March quarter, dipping 3% to $1.23 billion. Meanwhile, revenue from the livestock segment climbed 8% to $758 million. That's a reverse from recent history in which companion animal sales surged while livestock sales fell.
"The way this quarter unfolded was different from our expectations," Edward Jones analyst John Boylan said in a note to clients. "Sales to distributors slowed as they stocked up on products in anticipation of an expected price increase."
On today's stock market, ZTS stock rose 0.4%, ending the regular session at 178.47 and reversing a premarket decline. Shares recently broke out of a flat base with a buy point at 176.76, MarketSmith.com shows.
ZTS Stock: Guidance Retained
Across all segments, Zoetis' sales inched ahead 1% to $2 billion. That was narrowly below estimates for $2.01 billion, according to FactSet. Adjusted earnings fell by a penny year over year to $1.31 per share, but topped expectations for $1.25.
Overall companion animal sales remain strong, "as evidenced by good sales rates to veterinarians," Boylan said.
Further, he noted livestock sales rebounded from a recent slowdown. In the livestock segment, only sales of products for swine declined. Sales for cattle products surged 10% to $399 million. Sales from the smaller poultry and fish businesses grew a respective 12% and 11%, while revenue from sheep products rocketed 53%.
"Still, some may be disappointed that Zoetis did not raise guidance by as much as this quarter's outperformance, and may interpret that as companion animal markets being less robust," Boylan said. "Our view is that guidance is appropriately conservative, as it is still early in the year."
Zoetis kept its outlook for the year at adjusted earnings of $5.34-$5.44 per share and $8.58 billion to $8.73 billion in sales. ZTS stock analysts projected earnings of $5.40 a share on revenue of $8.64 billion.
Boylan expects companion animal sales to accelerate, driven by new products and higher spending per pet. Further, livestock sales should also grow due to higher protein consumption worldwide.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
