$ZTS - The 10-Q makes me more confident that the current problem is a real operating slowdown, but also more confident that ZTS still has a pretty strong underlying franchise. I'd love to see management defend and run the franchise better without sacrificing margins. First, the US business is losing economics. Revenue is down. Gross margin is down. But international is almost the opposite. Revenue is up. Gross margin is up. That's pretty encouraging but also concerning. The problem is not necessarily the entire portfolio. But US business is the higher-margin business. Like if you lose $100 of US revenue, that'd hurts more than losing $100 international revenue. Second, they are giving up economics as well. Cost of sales as a percentage of revenue increased. It tells me the pressure isn't just about volume. Competition increases, ZTS increases investment and promotions, net price realization declines, gross margin declines, earnings declines. That's more than just the revenue number drops. The cash flow deterioration is real. It's down about ~9% YoY. But looking at inventory and receivables, it doesn't concern me as of right now. They are still investing in its pipeline. R&D efforts are still there. I don't like about their SBC situation this year. SBC number is up 28% YoY. Some of the buyback benefit is offset by this compensation change. Their debt schedule is manageable. And the debt is relatively cheap.. Overall, I feel confident about this. Sadly the price is not as attractive as it was a month ago. Tough spot. Tough decision to make. I am happen with my current position. ideally I'd like to see 60s to add more. Happy national melt-down day!
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