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Zoetis CFO Boosts Third-Party Orders as Pet Owners Drive Sales

By Nina Trentmann 

The finance chief of animal-health company Zoetis Inc. is ramping up orders from third-party manufacturers to meet increased demand as people spend more time with their pets during the pandemic.

Parsippany, N.J.-based Zoetis, which sells vaccines, parasiticides and skin-care products, Thursday reported revenue of $1.79 billion for the quarter ended Sept. 30, up 13% from a year earlier, boosted by a 19% increase in sales from its pet business.

The company generates about half its revenue from pet care and also sells products for treatment of livestock. Net income was $479 million, up 11%.

"Pet owners are at home more with their pet and observing more diseases, " Zoetis Chief Financial Officer Glenn David said. A recent rise in pet adoptions in the U.S. could boost the business further, Mr. David said. Americans have about 150 million pets, and two million to three million a year are being adopted, he said.

"We suspect there's been something of a pandemic pet boom, as many white-collar workers have been working from home," Debbie Wang, an equity analyst at Morningstar Research Services LLC, said in a note to clients, adding that there is no hard data yet from shelters indicating the trend.

Zoetis's increased earnings came despite higher spending on marketing. Selling, general and administrative expenses rose $33 million, or 8%, in the quarter from the year-earlier period.

A significant portion of what Zoetis sells is produced by third-party manufacturers, Mr. David said. "Demand has exceeded expectations," he added. The company expects demand to normalize later this year and next year.

The company is working to bring back some production to its own facilities to support sales growth and new product launches, such as pain medication for cats and dogs, he said. Zoetis plans capital expenditures of about $450 million this year, up from around $400 million last year.

The finance chief said he expects capital spending to remain elevated next year as Zoetis moves to reduce its reliance on outside suppliers. The process should be completed in the next year or two and could help bring down production costs, he added. Zoetis operated 27 manufacturing sites in 13 countries at the end of 2019 and had 147 third-party contract manufacturing organizations, it said in its latest annual report.

Zoetis boosted its inventory levels at the beginning of the pandemic and added about a month's worth of goods to its stockpiles, in addition to the eight to nine months' worth of stock that it usually holds. The company won't start whittling down those excess inventories until some of the uncertainty around future demand has lifted, Mr. David said.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

(END) Dow Jones Newswires

November 05, 2020 19:18 ET (00:18 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.

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