Just because some workers are returning to the office doesn’t mean spending on pets has gone down.
Two out of three American households own a pet, according to the American Pet Products Association (APPA). In addition, the number of pets increases, as does the willingness to spend on animal care. In the United States, spending on pets totaled $123.6 billion in 2021, according to APPA, up from $103.6 billion in 2020, and marked the second straight record year.
Livestock care is also a big business, with emerging markets (such as China and India) increasing their demand for protein. Global meat consumption is expected to reach between 460 and 570 million metric tons per year by 2050, according to Statista.
Zoetis (NYSE: ZTS) and Soft (NYSE:CHWY) are two of the biggest names in animal medicines and pet products respectively. Let’s see how they could benefit from it.
Zoetis shows steady growth
Zoetis operates in more than 100 countries and has more than 12,000 employees who manufacture vaccines, medicines and diagnostic products to treat companion animals and livestock. It markets some 300 products in seven therapeutic areas for eight animal species.
Shares of the company are down more than 46% this year, but to me that just represents a better price to get into a strong company with strong fundamentals. The company has increased revenue and earnings per share (EPS) for six consecutive years.
For the just-reported third quarter, Zoetis posted revenue of $2 billion, up 1% year-over-year. Net income totaled $529 million, flat sequentially but down 4% from the same period last year. Earnings per share (EPS) was also flat sequentially, but down 2.5%.
In the first nine months, the company had revenue of $6.04 billion, up 4% year-over-year. Net income was $1.653 billion, up 2% from the same period of 2021 and EPS of $3.51 increased 3%.
For all of 2022, the company downgraded its previous revenue forecast, saying it now expects revenue of $8 billion to $8.075 billion and EPS of 4.51 to $4.59. That compares to 2021 revenue of $7.8 billion and EPS of $4.27.
While the dividend yield is relatively low – around 0.99% – the company has increased its payout by 225% over the past five years. Zoetis has increased its quarterly dividend by 30% this year to $0.325 per share, the fifth consecutive year it has increased its payout.
Chewy delivered for shareholders
Online retailer Chewy has focused on providing top-notch e-commerce customer service for pet products, including pet food delivery, and it also sells medications on prescription for animals.
The stock is down around 39% so far in 2022, but over the past three years it’s up more than 55% and its recent results look encouraging.
Over the past year, Chewy has increased the number of active customers to 20.5 million. As it grew in size, the company said it found ways to save money on shipping. It has improved its supply chain with an updated inventory system that reduces typical delivery distance, saving money on fuel and improving delivery times.
In the second quarter, Chewy reported revenue of $2.43 billion, up 12.8% year-over-year, with net income of $22.3 million, compared with a loss of 16 .6 million in the same period a year ago. The average active Chewy customer spent $462 in the past 12 months, up 14.4% from the same time last year.
Over the past decade, the company has increased its revenue by 887%. One of Chewy’s keys is its Autoship system, which offers consumers discounts if they set up automatic refills for pet supplies, including medications. This reduces customer turnover. The percentage of sales coming from Autoship increased to 73.1% from 70.3% in the second quarter of 2021.
Two recession-proof companies
Pet healthcare spending, like human healthcare, is somewhat recession-proof. Pets are increasingly seen as essential members of the family, and when Fido or Kitty needs medical attention, it’s not considered optional, even in a recession.
Livestock welfare is also an essential activity for global food production, regardless of the vagaries of the macro-economy.
There’s a lot of competition in the industry, so neither stock enjoys a moat, but they have the edge in market share over the competition – and provide much needed products and services.
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Jim Halley has no position in the stocks mentioned. The Motley Fool fills positions and recommends Chewy, Inc., Lemonade, Inc. and Zoetis. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.