Article: Signals suggest V-shaped recovery occurring in US vet practice sector

This article is taken from our Animal Health platform dated 02/06/20.

US investment bank William Blair said a healthy rebound is occurring in veterinary practice revenues.

Most veterinary clinics in the US have been negatively impacted by the coronavirus pandemic due to stay-at-home orders and office closure. However, William Blair noted data from VetSucess highlighted "a continued rebound" in practice sales, which went up by more than 12% year-on-year as of the week ending May 23.

The following week - ending May 30 - practice sales were up by a slightly slower pace of approximately 9%. The firm suggested this "normalization from the prior week could indicate pent-up demand for care (from previously postponed or canceled visits) is now being cleared".

William Blair analyst Ryan Daniels said: "We are not surprised to see overall practices revenues decline slightly on an aggregate basis and would not be alarmed if they further trend down toward mid-single-digit levels in the near future."

The investment bank used data from VetSuccess' Veterinary Industry Impact Tracker, which follows the performance of vet clinics across 31 US states.

"COVID-19 has drastically altered revenue growth at clinics in all states tracked, with the week of March 22 representing the tipping point for this performance - when clinics in aggregate began to experience year-over-year declines," Mr Daniels stated.

"On a consolidated level, vet practice revenue went from a positive 3% growth the week ending March 21 to an almost 17% decline the following week. Moreover, the trend for invoices also reversed the week ending March 28, with the year-over-year change coming in at roughly negative 19%, versus growth of more than 2% in the week prior."

However, the past few weeks have been more positive with practice-level sales growth rebounding "quite nicely".

Mr Daniels commented: "This continues to support the V-shaped recovery scenario in the vet industry as stay-at-home orders, and other similar restrictions, are lifted across the country."

Previously, IDEXX Laboratories said veterinary practices could experience a stronger V-shaped financial recovery compared to most other markets.

Zoetis: Vet visit recovery strong in US, Germany

Zoetis has also underlined a notable improvement in the amount of veterinary practice visits in certain countries across recent weeks.

At the recent Stifel Virtual Jaws & Paws Conference, the firm's chief executive Kristin Peck said: "We are seeing significant improvements across the US in vet visits. Some geographies are back to normal levels. Some others, maybe down 5% or 10%. But largely getting back to where it was, which is a significant improvement over where we were a month ago."

She said the level of US vet visits are around one or two weeks ahead of the company's expectations. However, she pointed out this trend is "a little more uneven" in international markets. While she pointed out Germany is a few weeks ahead of expectations, other markets such as the UK are "probably a little slower than we expected".

Ms Peck said the return to clinics has been focused on wellness visits that were previously postponed during lockdown. Nevertheless, the chief executive warned a second wave of COVID-19 could reverse this trend.

While most leading animal health companies witnessed a relatively stable first quarter of 2020, the current three-month period will yield much more volatility.

Zoetis suggested the coronavirus-related recession will impact the livestock sector more than the companion animal space and Elanco pointed out many COVID-19-related trends could remain in the veterinary sector after lockdown is eased.

At the beginning of the pandemic, McKinsey suggested the animal health sector would experience a W-shaped recovery from the consequences of COVID-19. This factored in a second wave of the virus and the ensuing financial ramifications.

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.