Zoetis Inc Shares Halted On Profit Warning

Zoetis Inc (NYSE:ZTS) warned Wall Street today that it will miss expectations for next year’s profits. Trading on the drug maker’s stock was halted as it prepared to release the warning during its first ever Investor Day today.

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Zoetis updates financial position

In a press release this afternoon, Zoetis revealed its full year 2015 adjusted earnings per share guidance. Management expects to see between $1.61 and $1.68 per share in profits next year. They project reported earnings of between $1.36 and $1.43 per share for the year. Zoetis expects revenue for the full 2015 fiscal year to be between $4.85 billion and $4.95 billion, which would be a 6.5% to 8.5% operational growth rate.

Analysts had been projecting revenue of $4.96 billion for next year and adjusted earnings of $1.71 per share.

Zoetis’ long term targets

They also said that in the long term, they expect Zoetis’ revenue growth to be in line with or faster than the average 5% to 6% that’s expected in the industry.

They expect “modest” gross margin improvements for now until after 2017, which is when they expect the drug maker’s gross margin to accelerate. After next year, they expect to keep growth in the company’s operating expenses around the same rate as inflation. As a result, they expect Zoetis to increase its adjusted net income by low double digits in the long term, possibly by between 5% and 7% operationally for 2016 and 2017. They project an 11% to 16% operational growth rate for adjusted net income for 2016 and 2017.

Is Zoetis toying with Bill Ackman?

Today Zoetis also announced a $500 million share repurchase program in what appears to be a move in a chess game with activist investor Bill Ackman. Before today’s shareholder-friendly announcement about the share repurchase program, Zoetis announced on Monday that it was implementing a poison pill, a move designed to defend against Ackman and that some may see as being anti-shareholder.

The animal health drug maker has widely been seen as a potential takeover target, and with Ackman’s involvement came speculations that he might want to bring in Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) to make an offer.

Valeant stepped away from its hostile bid for Allergan, Inc. (NYSE:AGN) this week after the company announced that it will be acquired by Actavis plc (NYSE:ACT). If Valeant were to target Zoetis next, its job just got a bit harder this week since the company announced a deal to purchase Abbott Laboratories (NYSE:ABT)’s animal health assets for $255 million. That acquisition makes Zoetis a little bigger and thus a bit harder for a company like Valeant to gobble up.

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