Pet healthcare spending is an essential for owners: Zoetis CFO

Shares of Zoetis (ZTS) are moving higher after the veterinary drugmaker posted its latest quarterly results, beating expectations on the top and bottom line while raising its full-year guidance.

Zoetis CFO Wetteny Joseph joins Market Domination to discuss the pet health company's performance and why, despite consumer concerns with persistent inflation, animal healthcare spending continues to remain strong.

"In animal health, the industry at large is very resilient. And what we've seen is that the consumer — particularly pet owners — see pet health as very essential. If you go back across different economic times, you go back to 2008 [or] 2009, the industry still grew about 3%," Joseph says. "And what's happened since then is the human-animal bond has gotten so much stronger. And it's propelling the entire industry and they see pet health spend as essential."

He affirms that pet owners will "cut back on other things, they may cut back on some of the toys and some of the other, areas, but they see the pet health as being very essential."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Nicholas Jacobino

Video transcript

Shares of veterinary drug makers, the wettest are on the move today higher by 6%.

The animal health company raising its full year guidance after beating across the top and bottom lines in a strong second quarter and the A CFO what Joseph is joining us now to discuss the latest earnings print.

We it's great to see you again.

Thanks for being here, Julie.

It's awesome to be with you again.

Thank you for having me.

So I was looking across where you guys were seeing increases, you saw increases in revenue in the US internationally among pets for livestock as well.

So talk to me about what was really driving demand.

It seems like it was pretty diversified.

Yeah, the demand is broad based and diversified.

As you said, we, we're seeing it across the board.

Really the US grew 12% on the quarter and international grew 10%.

Our companion animal business, uh which is about two thirds of the company uh grew 12% as well operationally and and not only at the top, uh we saw really strong growth at the bottom uh with adjusting that income growth of 18% operation only.

So this is an outstanding quarter and quite frankly, a terrific first half uh for the company and the momentum continues, uh which is why we were able to raise guidance for the second time uh in terms of what we're expecting for 2024.

So, so we're very excited and our colleagues across the world are hard at work uh innovating and delivering for our customers.

And I couldn't be more pleased.

Whitney, you have, I want to get your take on the consumer as well because you have some unique insight there.

How does the consumer uh look to you, Whitney, how healthy, how strong.

So the consumer, very healthy uh and animal health, the industry at large is very resilient.

And what we're seeing is that the consumer, particular pet owners see pet health as very essential.

If you go back uh across, you know, uh different economic times, you go back to 2008, 2009, the industry still grew about 3%.

And what's happened since then is the human animal bond has gotten so much stronger and it's propelling the entire industry and they see pet health spend as essential.

We've, we've done market studies and we asked consumer, if you had a 20% decrease in your budget, what would, what would that do to your spend on your pet health?

And the answer is nothing they would continue to spend because they see that.

And I think our innovation when we're addressing such chronic conditions in osteoarthritis pain or dermatology and so on, uh, is really a strong reason why the consumer, the pet owner, because they see the pet as a member of their family, they don't want to see him suffering from these things.

And so that tends to be very sticky and they see that as an essential part of it, they'll cut back on other things.

They may cut back on some of the toys and some of the other areas.

But they see the pet health as being very essential.

Well, and I'm so it sounds like Whitney, even as you know, as you're aware, we are seeing this turmoil in the market right now.

There is new debate about whether we are entering recession.

Are you seeing any signs in your business?

Any places where folks are, are opting for a cheaper medicine, for example, any kinds of those choices.

Now, look, if you look across the board, Julie, uh our Dermatology franchise posted 18% operational growth on the quarter.

Our sym Perica franchise 22%.

This is parasitic uh protection, uh which is a complete solution that we have triple uh combination product, osteoarthritis pain products, which is the latest innovation from us, uh potentially the next billion dollar franchise for us and that grew 100 and 42% on the quarter.

So everywhere we look, we see the strength and I think if you look at the pet owner.

It there, it's younger you have millennials and gen Z as well as more affluent pet owners that make up the majority of pet ownership in the US.

And you see that follow in terms of what they're, how, how essential they see their pet spend and, and, and what they're spending on them.

So, so we continue to see strength across the board across different markets and geographies as well.

Uh Speaking of the geographies, ri I know China you know, represents a relatively smaller part of the business.

But I I I'm just curious, what are the trends you're seeing there with the Chinese consumer?

Look, we see we've seen came coming into this year, we expect the China to be soft on the back of of consumer backdrop there and that remains the same as we, as we saw it coming in, that hasn't stopped us from delivering 12% operational growth so far on a year to date, we think as we exit the year, particularly some of the comps will get a little bit easier for us.

And so we expect that to normalize in terms of the negative impact that it has.

We factored that into the guidance raise that we gave today.

So no different than what we expected in China, I would say though, speaking of innovation, and if you look at a Dermatology franchise, we've seen really nice strength there.

So there's some green shoots, I would say in some areas, particularly given again, innovation in the area of, of unmet need in that market where again, we're delivering for a pet owner who sees again pet health as essential.

So it's been a drag for us not enough to, to deter uh from the uh outstanding uh start on the year.

Uh and, and we'll see how that looks as we get into next year.

And beyond one more question I wanted to ask you is about pet insurance, which has been a growing trend here.

I'm just looking at some figures from the North American P Pet Health Insurance Association which says uh that we've been seeing this big increase in average what of 17% this year?

Over 2023 or that's been the average growth over time.

So I imagine, is that a tailwind for you too?

And do you think that there's a lot more um sort of growth opportunity because more people are insuring their pets?

Well, pet insurance has been growing rapidly.

It's still relatively small Julie.

If you look across the US, it's around 3% of pets that are under pet insurance.

So the pet owner is definitely looking at optimizing their span in terms of across different channels.

They're using the vet clinic, they're using online, they're using different areas that we see strength uh for us across those, those areas.

And as I mentioned earlier, very resilient span in terms of animal health, because they see it as very essential.

And so pet insurance is a small part of the picture.

If you look at the US, there are part, there are markets outside the US that might get up to as much as 20%.

But overall, it really hasn't been a needle mover for us across the board.

There are some wellness plans that they'll get into that can help manage some of those.

But again, our innovative solutions uh tend to grow regardless of, of that area because of the essential nature of uh pet ownership and, and seeing them as a member of their family, Wendy.

Thanks so much as always for joining the show.

Appreciate your time.

Thanks Josh and Julie.