ZTS Zoetis Inc

By Kirk Maltais

Livestock health companies have seen a virulent hog disease take sizable bites of their business -- and the worst may be yet to come.

African swine fever, a virus not harmful to humans but which means near-certain death for pigs, continues to ravage China's hog supply. There is no vaccine for the virus, and companies that provide medicines, vaccines and diagnostic products to livestock producers are seeing sales slip as Chinese pig farmers opt to wait until the epidemic dissipates before restocking their operations.

Last month, Chinese officials warned that domestic pork prices could surge more than 70% this year after about a quarter of the nation's hog population was culled or died from the disease.

However, some U.S. animal health companies think the numbers could continue to climb.

"People I see in China are talking about 50%," said Jack Clifford Bendheim, chairman, president and CEO of Phibro Animal Health Corp. (PAHC), during an earnings call Tuesday. He said he believes China may lose as much as 350 million pigs this year, which is nearly as much as the total 2018 pigs of the European Union and the U.S. combined, according to USDA data.

In its earnings, Philbro reported an 8% drop in the adjusted Ebitda of its animal health division this quarter, partially attributed to how fast African swine fever kills infected pigs.

"The virus is so violent that often pigs don't live past 10 days," Mr. Bendheim told investors.

Zoetis Inc. (ZTS) felt a similar sting in its quarterly earnings, reporting last week a 10% drop in net income for the quarter due to African swine fever curbing the need for vaccines for other pig diseases in China. According to Zoetis CEO Juan Ramon Alaix, the company expects the virus to spread more quickly in the summer due to the warmer weather.

Elanco Animal Health Inc. (ELAN) is scheduled to report its first-quarter earnings on Thursday. In an earnings call in February, Elanco CEO Jeffrey Simmons said African swine fever had no impact on the company's earnings in 2018, but officials were still keeping a close eye on the progress of the disease in China.

Executives expect the global pork market to react strongly to fill the gap left by China -- with U.S. and E.U. producers expanding their operations.

"African swine fever has the potential to impact the global protein industry on a level that we have never experienced, and it is an event that will underscore the power of the Tyson business model," said Tyson Foods Inc. (TSN) CEO Noel White during the company's earnings call Monday.

Mr. White told investors that Tyson would race to supply the deteriorating Chinese market. The company reported profits to all of its meat production but expects that disease-related profits won't impact the company's bottom line until the end of September.

Write to Kirk Maltais at kirk.maltais@wsj.com

(END) Dow Jones Newswires

May 07, 2019 14:25 ET (18:25 GMT)

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