Animal health care company Zoetis ( ZTS ) reports beating fourth-quarter earnings expectations. Zoetis CFO Wetteny Joseph joined Yahoo Finance to discuss Zoetis’ guidance across all segments — which includes both pet and animal treatments — and how consumers are willing to spend on their pets.
“In fact, 95% of pet owners see them as members of their family, and if they are faced with a 20% decrease in their budget, they will not reduce how much they spend on their pet health care,” Joseph explained. “So as we look at the space today, we’re seeing extensive growth in different therapeutic areas within [the] companion animal, and we see significant opportunity to continue to really address unmet needs in the space,
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Editor’s note: This article was written by Luke Carberry Morgan.
Video Transcript
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JULIE HYMAN: Animal health company Zoetis, shares took a bit of a hit in trading today after a mixed fourth quarter. Looking ahead to next year, the company that makes medicines for both pets and cattle emphasized confidence and continued growth in its earnings call, thanks to the range and diversity of its offerings. this product. With us is Wetteny Joseph, CFO of Zoetis. Wetteny, good to see you. Thank you very much for joining us.
WETTENY JOSEPH: Julie, thank you so much for having me on your show.
JULIE HYMAN: So I want to pick up on this and talk a little bit about the reaction that we’re seeing in shares today, which seems to be in part because of the fourth quarter, in part because of forecast– some concerns around that. clarity around the margins. What do you think? As you see the stock’s reaction, do you think the Street is getting it wrong or what message do you want to give investors?
WETTENY JOSEPH: See, Zoetis is the global leader in a highly resilient and valuable animal health industry that has proven to grow through various economic cycles. We’re very pleased today, actually, with our top line growth for the quarter, which was 8% operating growth. That was the third quarter in a row of 8% to 9% operating growth sequentially, fueled by an inclusive animal portfolio, with innovative products around the world. So we are very happy with it.
Now, when you get down to the bottom of our P&L, we’ve seen some impact from foreign exchange, particularly in hyperinflationary markets that has had a tremendous impact on our results– bottom line results, as well as a non-recurring item, which is a handicap of a small acquisition in our precision animal health space.
But the fundamentals of our industry remain strong. And we exited 2023 with momentum and actually, gave guidance for 2024 today, which has 7% to 9% operating growth on the top line and 9 to 11 on the bottom, which means we expect to expand our margins. and grow the bottom. line faster than the top line.
And just to dig into the results that you guys posted today, digging into the segment. So livestock income beats companion animal income. It looks like it came in at 1.45 billion, so it just beat Street estimates. And it’s kind of putting and getting out there for that segment that maybe the Street doesn’t know. And what is your outlook for that segment for the rest of 2024?
WETTENY JOSEPH: Yeah, Josh, look, companion animal was 10% growth in the quarter, which is the third quarter in a row, again, double digit growth in companion animal. As you know, our business, 2/3 companion animals and a third pet. We are very pleased to see that animals have grown this year by 6%. I’m actually here in Salt Lake City, Utah, where our sales team is having their national sales meeting for the year, very pleased and really seeing the momentum we’ve had in 2023 heading into ’24.
But companion animal, third consecutive quarter of double digit growth. And our guidance actually, indicates that companion animals will continue to be the main driver of our growth in 2024 to deliver 7% to 9%. So livestock is the third part of the business that’s growing in the low single digits in line with the market, leaving companion livestock essentially, which is growing double digits as we go into 2024. So we’re not more enjoy it there.
And it’s really driven by our broad portfolio that we have a lot of, of diversity across the business, both geographically, as well as across species and therapeutic areas, but also fueled by innovation. We have groundbreaking innovations like LIBRELA and SOLENSIA. It’s all a sick franchise that just launched in the US in the fourth quarter. And we are very pleased with the results so far. And this is the next billion dollar franchise for us at Zoetis.
JULIE HYMAN: That’s right. LIBRELA for osteoarthritis, for people who are not familiar. For humans– for the companion animal segment, where do you see the biggest demand here? I mean, you know, we love our pets, especially here in the US, but obviously, a big global business as well. So what are the most pressing needs for pet owners for the health of their pets?
WETTENY JOSEPH: Pet owners truly see their pets as members of their family, and the human-animal bond is undeniable. 95% of pet owners consider their pets a member of their family, so they demand higher quality pet health care for those pets, and they are willing to spend. In fact, 95% of pet owners see them as members of their family. And if they are faced with a 20% decrease in their budget, they will not reduce how much they spend on their pet’s health care.
So as we look at the space today, we see extensive growth in various therapeutic areas within the companion animal. And we see a huge opportunity to continue to really address unmet needs in the space, whether it’s across cardiology, whether it’s stone. Chronic kidney disease is a particular, difficult disease state for veterinarians to treat. So we see those as areas where we see significant opportunity as we look ahead, those are the next billion dollar markets that we’re going after.
JOSH LIPTON: And Wetteny, a big theme for investors this earnings season is China. So I’m interested to get your opinion. How is business there and what do you see in the quarters ahead?
WETTENY JOSEPH: Yes, look, China is under 5% of our business, of our revenues. And we’ve seen economic pressures in China, and we expect those to continue through the first half of 2024. However, long-term, we continue to believe in the potential for China. And over the past decade, our revenues in China have grown significantly, and we expect that to continue as we look at the long-term horizon.
But right now, consumer sentiment in China, as well as some really tough comps that we’ve come back from last year will continue to put some pressure on the numbers for China. But we expect to continue to see the long-term prospects that we expect there.
JOSH LIPTON: Wetteny, thank you so much for joining us today. Really, appreciate your time.
WETTENY JOSEPH: Thank you so much, Josh and Julie.
