Zoetis - $ZTS - Earnings Analysis: Strong operational growth in key companion animal franchises (Simparica, Dermatology, OA Pain mAbs).

Business Model

Zoetis generates revenue through a diverse portfolio of animal health products, including medicines, vaccines, diagnostic products and services, biodevices, genetic tests, and precision animal health solutions.

Revenue Sources

• Companion Animal Products (approximately 68% of 2024 revenue): Parasiticides, vaccines, dermatology products, anti-infectives, pain and sedation medications, diagnostics.
• Livestock Products (approximately 31% of 2024 revenue): Vaccines, anti-infectives, parasiticides for cattle, swine, poultry, fish, and sheep.
• Client Supply Services (CSS) and Human Health Products (approximately 1% of 2024 revenue): Contract manufacturing services to third parties, and human health products.

Revenue Distribution by Channel

• Companion animal products are primarily sold through veterinarians or veterinary distributors, and in some markets through retail and e-commerce outlets.
• Livestock products are sold primarily to veterinarians and livestock producers, as well as veterinary distributors and retail outlets.

Income Statement Analysis

• Revenue increased by 5% compared to Q4 2023, driven by operational growth.
• Cost of Sales decreased by 3%, leading to improved gross profit.
• Selling, General and Administrative Expenses increased by 11% due to higher SG&A expenses.
• R&D expenses increased by 7% due to higher spend in project investments.
• Net income grew by 11% due to the factors mentioned above.

Balance Sheet Analysis

• Total Assets decreased slightly by 0.3%.
• Total Stockholders' Equity decreased by 4.4% due to share repurchases.
• Total Liabilities increased by 1.9% primarily due to increased borrowing.

Cash Flow Analysis

• Net Cash Provided by Operating Activities increased by 25.5%, reflecting strong cash generation.
• Net Cash Used in Investing Activities decreased by 59.5% due to lower capital expenditures and acquisitions.
• Net Cash Used in Financing Activities decreased by 14.4% as a result of higher share repurchases, dividend payment and taxes.
• Cash and Cash Equivalents at the End of Period decreased slightly by 2.7%.

Capital Allocation

The company is committed to returning value to shareholders through share repurchases and dividends. In 2024, the company repurchased $1.8 billion of Zoetis shares and has $5.6 billion remaining under its share repurchase authorization. The company increased its dividend rate by 15% during the year and distributed $786 million in dividends. The company also focuses on investing in strategic acquisitions and organic growth initiatives.

Management Commentary

We delivered an excellent full year results in line with the high end of our November guidance and solid 5% operational revenue growth for our Livestock portfolio.

Double digit volume growth across these major franchises in 2024 that we see entering into 2025.

OA pain franchises, including Librella and Valencia grew revenue 80% operationally in 2024.

We had about $250,000,000 of revenue, in foreign exchange headwinds

Overall Sentiment: Optimistic about continued growth in key franchises and the overall market. Strong emphasis on innovation and commitment to shareholder value.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.