In an August 8^th release, Zoetis Inc. (ZTS) posted financial results for the 2^nd quarter of FY 2023 ending June 30^th. The Company can be regarded as a bellwether for enterprises manufacturing pharmaceuticals, biologics and nutritional additives for companion animals and livestock and marketing in the Americas, Asia and Europe. Along with competitors Elanco, Phibro, Merck, and Boehringer-Ingelheim, all are subject to the risks of currency fluctuation, disruption of supply-chains and increased costs for products, labor and transport. They all operate in a competitive environment with livestock producers and consumers impacted by inflation and declining demand. Zoetis is clearly growing companion animal business at a higher rate compared to livestock.

For the 2^nd Quarter of FY 2023 ending June 30^th 2023, net income attained $671 million on revenue of $2,180 million, higher than a consensus estimate of $2,170 million and representing a profit margin of 30.8 percent.  Comparable figures for the 2^nd quarter of fiscal 2022 were net income of $529 million on total revenue of $2,052 million. Diluted EPS attained $1.45 for the most recent quarter of fiscal 2023, above the estimate of $1.32 and compared to $1.12 for the 2^nd Quarter of 2022. Gross margin increased from 69.5 percent in Q2 of FY 2022 to 72.2 percent for the most recent quarter. Operating margin attained 40.0 percent for Q2 FY 2023 compared to 37.2 percent in the 2^nd quarter of 2022.

In reviewing the components of revenue for the 2^nd quarter of FY 2023 the Companion Animal Segment represented 68.3 percent of Company revenue with Livestock accounting for 30.8 percent. Within this segment, cattle comprised 49.0 percent; poultry, 19.5 percent (up from 18.3 percent); swine, 19.8 percent with aquaculture and other species contributing to the remaining 11.7 percent. Sales to the International segment of livestock amounted to 69.2 percent  (down from 79.0 percent) with the remaining 30.8 percent derived from the U.S.

Zoetis has expanded its poultry vaccine portfolio in the U.S. with the 2022 approval of Poulvac^® Procerta^® HVT-IBD-ND, a trivalent vector vaccine that protects against Marek’s disease, infectious bursal disease and Newcastle disease. This is the third recombinant vector vaccine from Zoetis, following the introduction of Poulvac^® Procerta^® HVT-ND in 2020 and Poulvac^® Procerta^® HVT-IBD in 2021.

In reviewing Q2 results Kristin Peck, CEO stated, “Today, we reported strong second quarter results of 9 percent operational growth in revenue and 12 percent operational growth in adjusted net income, based on our diverse portfolio across markets and species," Ms. Peck added “As expected, we returned to more balanced segment growth, with 11 percent operational revenue growth internationally and 7 percent revenue growth in the U.S. Our companion animal portfolio grew 11 percent operationally, driven by our major franchises in dermatology, osteoarthritis pain and pet parasiticides. Our livestock portfolio grew 4 percent operationally, driven by sales of poultry, cattle and fish products.”

Ms. Peck concluded “With the first half of the year playing out largely as expected, we are maintaining our full year guidance for operational growth of 6 to 8 percent in revenue and 7 to 9 percent in adjusted net income. We expect continued strong growth in the second half, led by our companion animal portfolio. Looking ahead, we remain confident in the sustainable, underlying demand for animal health, based on the strength of the human-animal bond, people’s willingness to spend on pet health, and the essential need for a safe and secure food supply. I remain very positive about achieving our full year guidance thanks to our purpose-driven colleagues, innovation-driven culture and diverse portfolio that continue to drive our success.”

Guidance for FY 2023 was upgraded to revenue in a range of  $8,500 to $8,650 million; net income of $2,500 to $2,550 million and a reported diluted EPS ranging from $5.37 to $5.47.

On March 31^st 2023 Zoetis posted assets of $13,754 million of which $4,195 million comprised intangibles and goodwill against long-term debt and lease obligations of $6,329 million. The Company had an intraday market capitalization of $83,500 million on August 8^th 2022. ZTS traded on the release date with a forward P/E of 33.4 and has ranged over the past 52-weeks from $124.15 to $194.99 with a 50-day moving average of $172.65. Twelve-month trailing operating margin was 35.5 percent and profit margin 25.6 percent percent.  Return on assets was 13.0 percent and 45.2 percent on equity. At close of trading on August 7^th pre-release, ZTS was priced at $180.70 and post-release on August 8^th rose to $188.85 at 15H00 on a market-day with the S&P lower by 0.5 percent.