- Reports Revenue of $1.3 Billion,
Growing 5%, and Net Income of $247 Million, or $0.50 per Diluted
Share, Growing 10% and 11%, respectively, on a Reported Basis for
Second Quarter 2017
- Reports Adjusted Net Income of $261
Million, or Adjusted Diluted EPS of $0.53, for Second Quarter
2017
- Delivers 6% Operational Growth in
Revenue and 11% Operational Growth in Adjusted Net Income,
Excluding Foreign Exchange, for Second Quarter 2017
- Increases Full Year 2017 Revenue
Guidance to $5.150 - $5.250 Billion and Diluted EPS to $2.12 -
$2.21 on a Reported Basis, or $2.30 - $2.37 on an Adjusted
Basis
Zoetis Inc. (NYSE:ZTS) today reported its financial results for
the second quarter of 2017 and increased its full year guidance for
revenue and net income.
The company reported revenue of $1.3 billion for the second
quarter of 2017, an increase of 5% compared with the second quarter
of 2016. Net income for the second quarter of 2017 was $247
million, or $0.50 per diluted share, an increase of 10% and 11%,
respectively, on a reported basis.
Adjusted net income1 for the second quarter of 2017 was $261
million, or $0.53 per diluted share, an increase of 6% and 8%,
respectively, on a reported basis. Adjusted net income for the
second quarter of 2017 excludes the net impact of $14 million for
purchase accounting adjustments, acquisition-related costs and
certain significant items.
On an operational2 basis, revenue for the second quarter of 2017
increased 6%, excluding the impact of foreign currency. Adjusted
net income for the second quarter of 2017 increased 11%
operationally, excluding the impact of foreign currency.
EXECUTIVE COMMENTARY
“As in previous quarters, the consistency of our financial
results is supported by the innovations we bring to the market and
the diversity of our portfolio across geographies, species and
therapeutic areas,” said Juan Ramón Alaix, Chief Executive Officer
at Zoetis. “Zoetis was able to generate an 11% operational increase
in adjusted net income on 6% operational growth in revenue in the
second quarter. Our companion animal business remains the largest
driver of our growth, supported by the continued adoption of
products like Apoquel, Cytopoint and Simparica, while our livestock
portfolio continues to grow based on the breadth of our solutions
and global presence.”
“Based on recent foreign exchange rates and continued confidence
in our performance for the year, we are improving our full year
guidance for revenue and net income,” said Glenn David, Executive
Vice President and Chief Financial Officer at Zoetis. “We will
continue to build on our foundation for sustainable long term
growth, allocating cash and other resources to support new
products, lifecycle innovation, market expansion and business
development opportunities.”
QUARTERLY HIGHLIGHTS
Zoetis organizes and manages its commercial operations across
two regional segments: the United States (U.S.) and International.
Within these segments, the company delivers a diverse portfolio of
products for livestock and companion animals tailored to local
trends and customer needs. In the second quarter of 2017:
- Revenue in the U.S. segment was $623
million, an increase of 5% compared with the second quarter of
2016. Sales of companion animal products grew 7%, driven by
increased sales in our dermatology portfolio, in addition to
several other new product launches. Growth was partially offset by
lower sales of our pain products due to competition and timing of
promotional campaigns. Sales of livestock products grew 3% driven
primarily by increased sales of cattle and poultry products. Growth
was partially offset by lower sales of swine products. In addition,
certain medicated feed additive products for cattle and swine were
negatively impacted by livestock producers’ implementation of the
Veterinary Feed Directive.
- Revenue in the International segment
was $634 million, an increase of 5% on a reported basis and 7%
operationally compared with the second quarter of 2016. Sales of
companion animal products grew 12% on a reported basis and 15%
operationally, resulting primarily from increased sales of
Apoquel®, in addition to new product launches, primarily
Simparica®. Sales of livestock products grew 2% on a reported basis
and 3% on an operational basis, driven primarily by increased sales
of cattle and swine products. In cattle, growth was due to higher
sales in Brazil and other Latin American markets, with increased
demand in Brazil as a result of field force expansion, while swine
was driven by growth in China. Growth was partially offset by
product rationalizations as a result of our operational efficiency
initiative.
Zoetis continues to drive demand and strengthen its diverse
portfolio through the introduction of new products, lifecycle
innovations, business development initiatives, strong customer
relationships and entry into new markets and technologies. In the
second quarter of 2017:
- In a prime example of lifecycle
innovation to keep brand product franchises delivering value to
customers, Zoetis received approval in May from the U.S. Food and
Drug Administration (FDA) for the company’s Clavamox®
Chewable (amoxicillin/clavulanate potassium tablets) for use
in dogs. This leading anti-infective, first approved in the U.S. in
1984, provides a broad spectrum of treatment for skin infections in
dogs and cats, periodontal infections in dogs and urinary tract
infections in cats. Clavamox Chewables join the original
tablet and liquid drop formulations, which Zoetis will continue to
market.
- Zoetis continued to extend its
dermatology portfolio to new markets with approvals of
Apoquel (oclacitinib tablet) in Vietnam and
Cytopoint® (lokivetmab) in New Zealand. Apoquel,
first approved in 2013, is indicated for the control of pruritus
(itching) associated with allergic dermatitis and control of atopic
dermatitis in dogs at least 12 months of age. Monoclonal antibody
therapy Cytopoint, fully licensed in the United States in 2016 and
in Europe and Canada earlier this year, aids in the reduction of
clinical signs associated with atopic dermatitis in dogs. The
company also continued expanding the availability of its oral flea
and tick medication Simparica (sarolaner) Chewables with an
approval in Peru. Simparica received its first approval in 2015. It
delivers fast and persistent protection from fleas and ticks in
dogs, with effectiveness that lasts for a full 35 days, without
losing efficacy at the end of the month.
- On July 31, Zoetis completed the
acquisition of Nexvet Biopharma plc, an innovator in
monoclonal antibody therapies for companion animals in management
of chronic pain and other therapeutic areas. The acquisition
strengthens Zoetis’ R&D pipeline in monoclonal antibodies and
helps sustain the company’s leadership in chronic pain management
for companion animals, an area poised for innovation with new
monoclonal antibody therapies.
FINANCIAL GUIDANCE
Zoetis updated its guidance for the full year 2017, which
includes:
- Revenue between $5.150 billion to
$5.250 billion
- Reported diluted EPS between $2.12 to
$2.21 per share
- Adjusted diluted EPS between $2.30 to
$2.37 per share
This guidance reflects foreign exchange rates as of late July.
Additional guidance on other items such as expenses and tax rate is
included in the financial tables and will be discussed on the
company's conference call this morning.
WEBCAST & CONFERENCE CALL
DETAILS
Zoetis will host a webcast and conference call at 8:30 a.m. (ET)
today, during which company executives will review second quarter
2017 results, discuss financial guidance and respond to questions
from financial analysts. Investors and the public may access the
live webcast by visiting the Zoetis website at
http://investor.zoetis.com/events-presentations. A replay of the
webcast will be archived and made available on August 8, 2017.
About Zoetis
Zoetis (NYSE: ZTS) is the leading animal health company,
dedicated to supporting its customers and their businesses.
Building on more than 60 years of experience in animal health,
Zoetis discovers, develops, manufactures and markets veterinary
vaccines and medicines, complemented by diagnostic products,
genetic tests, biodevices and a range of services. Zoetis serves
veterinarians, livestock producers and people who raise and care
for farm and companion animals with sales of its products in more
than 100 countries. In 2016, the company generated annual revenue
of $4.9 billion with approximately 9,000 employees. For more
information, visit www.zoetis.com.
1 Adjusted net income and its components and adjusted diluted
earnings per share (non-GAAP financial measures) are defined as
reported net income attributable to Zoetis and reported diluted
earnings per share, excluding purchase accounting adjustments,
acquisition-related costs and certain significant items.
2 Operational revenue growth (a non-GAAP financial measure) is
defined as revenue growth excluding the impact of foreign
exchange.
DISCLOSURE NOTICES
Forward-Looking
Statements: This press release contains forward-looking
statements, which reflect the current views of Zoetis with respect
to business plans or prospects, future operating or financial
performance, future guidance, future operating models, expectations
regarding products, future use of cash and dividend payments, tax
rate and tax regimes, changes in the tax regimes and
laws in other jurisdictions, and other future events.
These statements are not guarantees of future performance or
actions. Forward-looking statements are subject to risks and
uncertainties. If one or more of these risks or uncertainties
materialize, or if management's underlying assumptions prove to be
incorrect, actual results may differ materially from those
contemplated by a forward-looking statement. Forward-looking
statements speak only as of the date on which they are made. Zoetis
expressly disclaims any obligation to update or revise any
forward-looking statement, whether as a result of new information,
future events or otherwise. A further list and description of
risks, uncertainties and other matters can be found in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2016,
including in the sections thereof captioned “Forward-Looking
Statements and Factors That May Affect Future Results” and “Item
1A. Risk Factors,” in our Quarterly Reports on Form 10-Q and in our
Current Reports on Form 8-K. These filings and subsequent filings
are available online at www.sec.gov, www.zoetis.com, or
on request from Zoetis.
Use of Non-GAAP Financial Measures:
We use non-GAAP financial measures, such as adjusted net income,
adjusted diluted earnings per share and operational results (which
exclude the impact of foreign exchange), to assess and analyze our
results and trends and to make financial and operational decisions.
We believe these non-GAAP financial measures are also useful to
investors because they provide greater transparency regarding our
operating performance. The non-GAAP financial measures included in
this press release should not be considered alternatives to
measurements required by GAAP, such as net income, operating
income, and earnings per share, and should not be considered
measures of liquidity. These non-GAAP financial measures are
unlikely to be comparable with non-GAAP information provided by
other companies. Reconciliation of non-GAAP financial measures and
GAAP financial measures are included in the tables accompanying
this press release and are posted on our website at
www.zoetis.com.
Internet Posting of Information: We
routinely post information that may be important to investors in
the 'Investors' section of our website at www.zoetis.com, on our
Facebook page at http://www.facebook.com/zoetis and on Twitter
@zoetis. We encourage investors and potential investors to consult
our website regularly and to follow us on Facebook and Twitter for
important information about us.
ZOETIS INC.
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME(a)
(UNAUDITED) (millions of dollars, except per share data)
Second Quarter Six Months 2017
2016 % Change 2017 2016 % Change Revenue $ 1,269 $ 1,208 5 $
2,500 $ 2,370 5 Costs and expenses: Cost of sales(b) 440 399 10 883
788 12 Selling, general and administrative expenses(b) 336 343 (2)
645 658 (2) Research and development expenses(b) 86 88 (2) 176 178
(1) Amortization of intangible assets(c) 23 22 5 45 43 5
Restructuring charges/(reversals) and certain acquisition-related
costs — (21 ) (100) (1 ) (19 ) (95) Interest expense 41 41 — 82 84
(2) Other (income)/deductions–net (2 ) 4 * (12 ) (26 ) (54)
Income before provision for taxes on income 345 332 4 682 664 3
Provision for taxes on income 98 108 (9) 196
236 (17) Net income before allocation to noncontrolling
interests 247 224 10 486 428 14 Less: Net income attributable to
noncontrolling interests — — * 1 — *
Net income attributable to Zoetis $ 247 $ 224 10 $
485 $ 428 13 Earnings per share—basic $ 0.50
$ 0.45 11 $ 0.99 $ 0.86 15
Earnings per share—diluted $ 0.50 $ 0.45 11 $ 0.98
$ 0.86 14 Weighted-average shares used to
calculate earnings per share Basic 490.8 496.3 491.6
496.9 Diluted 494.0 498.8 494.6
499.2 * Calculation not meaningful. (a)
The condensed consolidated statements of
income present the three and six months ended July 2, 2017, and
July 3, 2016. Subsidiaries operating outside the United States are
included for the three and six months ended May 28, 2017 and May
29, 2016.
(b) Exclusive of amortization of intangible assets, except as
discussed in footnote (c) below. (c)
Amortization expense related to
finite-lived acquired intangible assets that contribute to our
ability to sell, manufacture, research, market and distribute
products, compounds and intellectual property is included in
Amortization of intangible assets as these intangible assets
benefit multiple business functions. Amortization expense related
to finite-lived acquired intangible assets that are associated with
a single function is included in Cost of sales, Selling, general
and administrative expenses or Research and development expenses,
as appropriate.
Certain amounts and percentages may reflect rounding
adjustments. ZOETIS INC. RECONCILIATION OF GAAP
REPORTED TO NON-GAAP ADJUSTED INFORMATION CERTAIN LINE ITEMS
(UNAUDITED) (millions of dollars, except per share data)
Quarter ended July 2, 2017
GAAP Reported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 440 $ (1 ) $ — $ (2 ) $ 437 Gross
profit
829 1 — 2 832 Selling, general and administrative
expenses(c)
336 (2 ) — (1 ) 333 Amortization of intangible
assets(d)
23 (18 ) — — 5 Restructuring charges/(reversals)
and certain acquisition-related costs
— — (2 ) 2 — Other
(income)/deductions–net
(2 ) — — 2 — Income before
provision for taxes on income
345
21 2 (1 ) 367 Provision for taxes on income
98 6 1 1 106 Net
income attributable to Zoetis
247 15 1 (2 ) 261 Earnings per
common share attributable to Zoetis–diluted
0.50 0.03 — —
0.53 Quarter ended July 3, 2016
GAAP Reported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 399 $ (8 ) $ — $ (3 ) $ 388 Gross
profit
809 8 — 3 820 Selling, general and administrative
expenses(c)
343 (2 ) — (10 ) 331 Amortization of intangible
assets(d)
22 (18 ) — — 4 Restructuring charges/(reversals)
and certain acquisition-related costs
(21 ) — (2 ) 23
— Other (income)/deductions–net
4 — — (6 ) (2 ) Income
before provision for taxes on income
332 28 2 (4 ) 358
Provision for taxes on income
108 10 1 (7 ) 112 Net income
attributable to Zoetis
224 18 1 3 246 Earnings per common
share attributable to Zoetis–diluted
0.45 0.04 — — 0.49
Six months ended July 2, 2017
GAAP Reported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 883 $ (3 ) $ — $ (5 ) $ 875 Gross
profit
1,617 3 — 5 1,625 Selling, general and administrative
expenses(c)
645 (3 ) — (3 ) 639 Research and development
expenses(c)
176 (1 ) — — 175 Amortization of intangible
assets(d)
45 (36 ) — — 9 Restructuring charges/(reversals)
and certain acquisition-related costs
(1 ) — (2 ) 3 —
Other (income)/deductions–net
(12 ) — — 2 (10 )
Income before provision for taxes on income
682 43 2 3 730
Provision for taxes on income
196 9 1 1 207 Net income
attributable to Zoetis
485 34 1 2 522 Earnings per common
share attributable to Zoetis–diluted
0.98 0.07 — 0.01 1.06
Six months ended July 3, 2016
GAAP Reported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 788 $ (15 ) $ — $ (7 ) $ 766 Gross
profit
1,582 15 — 7 1,604 Selling, general and
administrative expenses(c)
658 (3 ) — (24 ) 631 Research and
development expenses(c)
178 (1 ) — — 177 Amortization of
intangible assets(d)
43 (35 ) — — 8 Restructuring
charges/(reversals) and certain acquisition-related costs
(19 ) — (2 ) 21 — Other (income)/deductions–net
(26 ) — (1 ) 27 — Income before provision for taxes
on income
664 54 3 (17 ) 704 Provision for taxes on income
236 27 (1 ) (43 ) 219 Net income attributable to Zoetis
428 27 4 26 485 Earnings per common share attributable to
Zoetis–diluted
0.86 0.05 0.01 0.05 0.97 (a) The
condensed consolidated statements of income present the three and
six months ended July 2, 2017, and July 3, 2016. Subsidiaries
operating outside the United States are included for the three and
six months ended May 28, 2017 and May 29, 2016. (b) Non-GAAP
adjusted net income and its components and non-GAAP adjusted
diluted EPS are not, and should not be viewed as, substitutes for
U.S. GAAP net income and its components and diluted EPS. Despite
the importance of these measures to management in goal setting and
performance measurement, non-GAAP adjusted net income and its
components and non-GAAP adjusted diluted EPS are non-GAAP financial
measures that have no standardized meaning prescribed by U.S. GAAP
and, therefore, have limits in their usefulness to investors.
Because of the non-standardized definitions, non-GAAP adjusted net
income and its components and non-GAAP adjusted diluted EPS (unlike
U.S. GAAP net income and its components and diluted EPS) may not be
comparable to the calculation of similar measures of other
companies. Non-GAAP adjusted net income and its components, and
non-GAAP adjusted diluted EPS are presented solely to permit
investors to more fully understand how management assesses
performance. (c) Exclusive of amortization of intangible assets,
except as discussed in footnote (d) below. (d)
Amortization expense related to
finite-lived acquired intangible assets that contribute to our
ability to sell, manufacture, research, market and distribute
products, compounds and intellectual property is included in
Amortization of intangible assets as these intangible assets
benefit multiple business functions. Amortization expense related
to finite-lived acquired intangible assets that are associated with
a single function is included in Cost of sales, Selling, general
and administrative expenses or Research and development expenses,
as appropriate.
See Notes to Reconciliation of GAAP Reported to Non-GAAP
Adjusted Information for notes (1) and (2). Certain amounts
may reflect rounding adjustments. ZOETIS INC.
NOTES TO RECONCILIATION OF GAAP REPORTED
TO NON-GAAP ADJUSTED INFORMATION
CERTAIN LINE ITEMS (UNAUDITED) (millions of dollars) (1)
Acquisition-related costs include the following: Second
Quarter Six Months 2017 2016
2017 2016 Integration costs(a) $ 2
$ 2 $ 2 $ 2 Other(b) — —
— 1 Total acquisition-related
costs—pre-tax 2 2 2 3 Income taxes(c) 1 1
1 (1 ) Total acquisition-related
costs—net of tax $ 1 $ 1 $ 1
$ 4 (a)
Integration costs represent external,
incremental costs directly related to integrating acquired
businesses and primarily include expenditures for consulting and
the integration of systems and processes. Included in Restructuring
(benefits)/charges and certain acquisition-related costs.
(b)
Included in Other
(income)/deductions—net.
(c)
Included in Provision for taxes on income.
Income taxes include the tax effect of the associated pre-tax
amounts, calculated by determining the jurisdictional location of
the pre-tax amounts and applying that jurisdiction's applicable tax
rate. The six months ended July 3, 2016, also includes a tax charge
related to the acquisition of certain assets of Abbott Animal
Health.
Certain amounts may reflect rounding adjustments.
(2) Certain significant items include the
following:
Second Quarter Six Months 2017
2016 2017 2016
Operational efficiency initiative(a) $ 6 $ (17 ) $ 5
$ (45 ) Supply network strategy(b) (4 ) 8 (1 ) 11 Other
restructuring charges and cost-reduction/productivity
initiatives(c) — (1 ) — (1 ) Stand-up costs(d) — 5 — 17 Other(e) (3
) 1 (1 ) 1 Total certain
significant items—pre-tax (1 ) (4 ) 3 (17 ) Income taxes(f) 1
(7 ) 1 (43 ) Total
certain significant items—net of tax $ (2 ) $ 3
$ 2 $ 26 (a)
For the three months ended July 2, 2017,
represents consulting fees of $1 million, included in Selling,
general and administrative expenses, restructuring charges of $3
million related to employee termination costs ($2 million) and exit
costs ($1 million), included in Restructuring charges/(reversals),
and a net loss related to sales of certain manufacturing sites and
products of $2 million, included in Other (income)/deductions—net.
For the six months ended July 2, 2017, represents consulting fees
of $1 million, included in Selling, general and administrative
expenses, restructuring charges of $2 million related to employee
termination costs ($1 million) and exit costs ($1 million),
included in Restructuring charges/(reversals), and a net loss
related to sales of certain manufacturing sites and products of $2
million, included in Other (income)/deductions—net.
For the three months ended July 3, 2016,
represents a reversal of previously accrued employee terminations
costs ($30 million), and an increase in exit costs ($2 million),
included in Restructuring charges/(reversals) and certain
acquisition-related costs, accelerated depreciation of $1 million,
and consulting fees of $4 million, included in Selling, general and
administrative expenses, and a $6 million net loss on sales of
certain manufacturing sites and products, included in Other
(income)/deductions—net. For the six months ended July 3, 2016,
represents a reversal of previously accrued employee terminations
costs ($29 million), and an increase in exit costs ($3 million),
included in Restructuring charges/(reversals) and certain
acquisition-related costs, accelerated depreciation of $1 million,
and consulting fees of $7 million, included in Selling, general and
administrative expenses, and a $27 million net gain on sales of
certain manufacturing sites and products, included in Other
(income)/deductions—net.
(b)
For the three months ended July 2, 2017,
represents accelerated depreciation of $1 million, included in Cost
of sales, and a reversal of previously accrued employee
terminations costs of $5 million, included in Restructuring
charges/(reversals). For the six months ended July 2, 2017,
represents accelerated depreciation of $2 million, and consulting
fees of $2 million, included in Cost of sales, and a reversal of
previously accrued employee terminations costs of $5 million,
included in Restructuring charges/(reversals).
For the three months ended July 3, 2016,
represents accelerated depreciation charges of $1 million, and
consulting fees of $1 million, included in Cost of sales, and
restructuring charges of $6 million related to employee termination
costs, included in Restructuring charges/(reversals) and certain
acquisition-related costs. For the six months ended July 3, 2016,
represents accelerated depreciation charges of $2 million, and
consulting fees of $3 million, included in Cost of sales, and
restructuring charges of $6 million related to employee termination
costs, included in Restructuring charges/(reversals) and certain
acquisition-related costs.
(c)
Included in Restructuring
charges/(reversals) and certain acquisition-related costs.
(d)
Represents certain nonrecurring costs
related to becoming an independent public company, such as the
creation of standalone systems and infrastructure, site separation,
new branding (including changes to the manufacturing process for
required new packaging), and certain legal registration and patent
assignment costs. For the three and six months ended July 3, 2016,
included in Cost of sales ($1 million and $2 million, respectively)
and Selling, general and administrative expenses ($4 million and
$15 million, respectively).
(e)
For the three months ended July 2, 2017,
represents costs associated with changes to our operating model of
$1 million, included in Cost of sales, and income of $4 million
related to an insurance recovery from commercial settlements in
Mexico recorded in 2014 and 2016, included in Other
(income)/deductions—net. For the six months ended July 2, 2017,
represents costs associated with changes to our operating model of
$1 million, included in Cost of sales and $2 million, included in
Selling, general and administrative expenses, as well as income of
$4 million related to insurance recovery from commercial
settlements in Mexico recorded in 2014 and 2016, included in Other
(income)/deductions—net. The three and six months ended July 3,
2016, represents costs associated with changes to our operating
model, included in Selling, general and administrative
expenses.
(f)
Included in Provision for taxes on income.
Income taxes include the tax effect of the associated pre-tax
amounts, calculated by determining the jurisdictional location of
the pre-tax amounts and applying that jurisdiction's applicable tax
rate. For the six months ended July 2, 2017, also includes a net
tax charge of approximately $1 million, related to the revaluation
of the company's deferred tax assets and liabilities, using the
rates expected to be in place at the time of the reversal. The
three and six months ended July 3, 2016, also includes a net tax
charge of approximately $3 million and $38 million, respectively,
related to the impact of the European Commission’s negative
decision on the excess profits rulings in Belgium. These net
charges relate to the Belgium government's recovery of prior tax
benefits for the periods 2013 through 2015 offset by the
revaluation of the company’s deferred tax assets and liabilities
using the rates expected to be in place at the time of the
reversal. These net charges do not include any benefits associated
with a successful appeal of the decision.
Certain amounts may reflect rounding adjustments.
ZOETIS INC.
ADJUSTED SELECTED COSTS, EXPENSES AND
INCOME(a)
(UNAUDITED) (millions of dollars) Second Quarter
% Change 2017 2016 Total
ForeignExchange
Operational(b) Adjusted cost of sales $ 437 $ 388 13% 3% 10%
as a percent of revenue 34.4 % 32.1 % NA NA NA Adjusted SG&A
expenses
$
333
$
331
1% —% 1% Adjusted R&D expenses 86 88 (2)% (1)% (1)% Adjusted
net income attributable to Zoetis 261 246 6% (5)% 11% Six
Months % Change 2017 2016 Total
ForeignExchange
Operational(b) Adjusted cost of sales $ 875 $ 766 14% 2% 12% as a
percent of revenue 35.0 % 32.3 % NA NA NA Adjusted SG&A
expenses
$
639
$
631
1% (1)% 2% Adjusted R&D expenses 175 177 (1)% —% (1)% Adjusted
net income attributable to Zoetis 522 485 8% (2)% 10% (a)
Adjusted cost of sales, adjusted selling, general, and
administrative (SG&A) expenses, adjusted research and
development (R&D) expenses, and adjusted net income
attributable to Zoetis (non-GAAP financial measures) are defined as
the corresponding reported U.S. GAAP income statement line items
excluding purchase accounting adjustments, acquisition-related
costs, and certain significant items. Reconciliations of certain
reported to adjusted information for the three and six months ended
July 2, 2017, and July 3, 2016, are provided in the materials
accompanying this report. These adjusted income statement line item
measures are not, and should not be viewed as, substitutes for the
corresponding U.S. GAAP line items. For the corresponding GAAP line
items, see Condensed Consolidated Statements of Operations and
Reconciliation of GAAP Reported to Non-GAAP Adjusted Information.
(b) Operational growth (a non-GAAP financial measure) is defined as
growth excluding the impact of foreign exchange.
ZOETIS INC. 2017 GUIDANCE Selected Line Items
(millions of dollars, except per share amounts)
Full Year
2017 Revenue $5,150 to $5,250 Operational growth(a) 5.5%
to 7.5% Adjusted cost of sales as a percentage of revenue(b)
Approximately 33% Adjusted SG&A expenses(b) $1,285 to
$1,325 Adjusted R&D expenses(b) $365 to $385 Adjusted
interest expense and other (income)/deductions(b)
Approximately $160 Adjusted EBIT margin(b) 34% to 35%
Effective tax rate on adjusted income(b) Approximately 29%
Adjusted diluted EPS(b) $2.30 to $2.37 Adjusted net
income(b) $1,140 to $1,175 Operational growth(a)(c) 17% to
20% Certain significant items(d) and acquisition-related costs
$30 to $50
The guidance reflects foreign exchange rates as of late July
2017.
Reconciliations of 2017 reported guidance to 2017 adjusted
guidance follows:
(millions of dollars, except per share amounts) Reported
Certain significantitems(d)
andacquisition-relatedcosts
Purchaseaccounting
Adjusted(b) Cost of sales as a
percentage of revenue ~ 33.5% (0.5%)
~ 33% SG&A expenses $1,295 to $1,335 ($5)
($5) $1,285 to $1,325 R&D expenses $365 to
$385 $365 to $385 Interest
expense and other (income)/deductions ~ $160
~ $160 EBIT margin 32% to 33%
0.5% to 1% 1.5% 34% to 35% Effective tax rate
~ 29% (0.5%) 0.5% ~ 29% Diluted EPS
$2.12 to $2.21 $0.03 to $0.05 $0.13 $2.30 to
$2.37 Net income attributable to Zoetis $1,050 to $1,095
$15 to $25 $65 $1,140 to $1,175 (a)
Operational growth (a non-GAAP financial measure) excludes the
impact of foreign exchange. (b) Adjusted net income and its
components and adjusted diluted EPS are defined as reported U.S.
GAAP net income and its components and reported diluted EPS
excluding purchase accounting adjustments, acquisition-related
costs and certain significant items. Adjusted cost of sales,
adjusted SG&A expenses, adjusted R&D expenses, adjusted
interest expense, and adjusted other (income)/deductions are income
statement line items prepared on the same basis, and, therefore,
components of the overall adjusted income measure. Adjusted
earnings before interest and taxes (EBIT) is defined as reported
EBIT excluding purchase accounting adjustments, acquisition-related
costs and certain significant items. Despite the importance of
these measures to management in goal setting and performance
measurement, adjusted net income and its components and adjusted
diluted earnings per share (EPS) are non-GAAP financial measures
that have no standardized meaning prescribed by U.S. GAAP and,
therefore, have limits in their usefulness to investors. Because of
the non-standardized definitions, adjusted net income and its
components and adjusted diluted EPS (unlike U.S. GAAP net income
and its components and diluted EPS) may not be comparable to the
calculation of similar measures of other companies. Adjusted net
income and its components and adjusted diluted EPS are presented
solely to permit investors to more fully understand how management
assesses performance. Adjusted net income and its components and
adjusted diluted EPS are not, and should not be viewed as,
substitutes for U.S. GAAP net income and its components and diluted
EPS. (c) We do not provide a reconciliation of forward-looking
non-GAAP adjusted net income operational growth to the most
directly comparable GAAP reported financial measure because we are
unable to calculate with reasonable certainty the foreign exchange
impact of unusual gains and losses, acquisition-related expenses,
potential future asset impairments and other certain significant
items, without unreasonable effort. The foreign exchange impacts of
these items are uncertain, depend on various factors, and could
have a material impact on GAAP reported results for the guidance
period. (d) Primarily includes certain nonrecurring costs related
to restructuring, net gains/losses on sales of assets, and other
charges for the operational efficiency initiative and supply
network strategy. ZOETIS INC.
CONSOLIDATED REVENUE BY SEGMENT(a) AND
SPECIES
(UNAUDITED) (millions of dollars) Second Quarter
% Change 2017 2016 Total
ForeignExchange
Operational(b)
Revenue: Livestock $ 689 $ 673
2% (1)% 3 % Companion Animal 568 523 9% (1)% 10 % Contract
Manufacturing 12 12 —% 3% (3 )%
Total Revenue
$ 1,269 $ 1,208 5%
(1)% 6 % U.S.
Livestock $ 269 $ 262 3% —% 3 % Companion Animal 354 332
7% —% 7 %
Total U.S. Revenue $ 623
$ 594 5% —% 5
% International Livestock $ 420 $ 411 2% (1)%
3 % Companion Animal 214 191 12% (3)% 15 %
Total
International Revenue $ 634 $
602 5% (2)% 7 %
Livestock: Cattle $ 382 $ 366 4% —% 4 % Swine
148 150 (1)% (1)% — % Poultry 122 118 3% (1)% 4 % Fish 19 22 (14)%
(9)% (5 )% Other 18 17 6% (2)% 8 %
Total Livestock
Revenue $ 689 $ 673
2% (1)% 3 % Companion
Animal: Horses $ 35 $ 36 (3)% (1)% (2 )% Dogs and Cats 533
487 9% (1)% 10 %
Total Companion Animal
Revenue $ 568 $ 523
9% (1)% 10 % (a) For a
description of each segment, see Note 18A to Zoetis' consolidated
financial statements included in Zoetis' Form 10-K for the year
ended December 31, 2016. (b) Operational revenue growth (a non-GAAP
financial measure) is defined as revenue growth excluding the
impact of foreign exchange. Certain amounts and percentages
may reflect rounding adjustments. Six Months %
Change 2017 2016 Total
ForeignExchange
Operational(b)
Revenue: Livestock $ 1,392 $
1,356 3% —% 3% Companion Animal 1,085 989 10% —% 10% Contract
Manufacturing 23 25 (8)% (2)% (6)%
Total
Revenue $ 2,500 $ 2,370
5% (1)% 6%
U.S. Livestock $ 551 $ 550 —% —% —% Companion Animal 677
626 8% —% 8%
Total U.S. Revenue $
1,228 $ 1,176 4%
—% 4% International Livestock $ 841 $
806 4% (1)% 5% Companion Animal 408 363 12% (3)% 15%
Total International Revenue $ 1,249
$ 1,169 7% (1)% 8%
Livestock: Cattle $ 768 $ 743 3% —% 3% Swine
308 296 4% —% 4% Poultry 238 240 (1)% (1)% —% Fish 40 39 3% —% 3%
Other 38 38 —% (1)% 1%
Total Livestock Revenue
$ 1,392 $ 1,356 3%
—% 3% Companion Animal: Horses $ 70 $
75 (7)% (1)% (6)% Dogs and Cats 1,015 914 11% (1)%
12%
Total Companion Animal Revenue $ 1,085
$ 989 10% —% 10%
(a) For a description of each segment, see Note 18A to
Zoetis' consolidated financial statements included in Zoetis' Form
10-K for the year ended December 31, 2016. (b) Operational revenue
growth (a non-GAAP financial measure) is defined as revenue growth
excluding the impact of foreign exchange. Certain amounts
and percentages may reflect rounding adjustments.
ZOETIS INC. CONSOLIDATED REVENUE BY KEY INTERNATIONAL MARKETS
(UNAUDITED) (millions of dollars) Second Quarter
% Change 2017 2016 Total
ForeignExchange
Operational(a)
Total International $ 634
$ 602 5% (2)% 7%
Australia 43 42 2% 2% —%
Brazil 73 60 22% 14%
8%
Canada 49 48 2% (3)% 5%
China 45 42 7% (7)% 14%
France 26 25 4% (2)% 6%
Germany 33 32 3% (5)% 8%
Italy 21 22 (5)% (6)% 1%
Japan 36 31 16% (1)% 17%
Mexico 21 20 5% (10)% 15%
Spain 23 23 —% (4)% 4%
United Kingdom 26 27 (4)% (16)% 12%
Other Developed
76 75 1% (1)% 2%
Other Emerging 162 155 5% (1)% 6%
Six Months % Change 2017 2016 Total
ForeignExchange
Operational(a) Total International $ 1,249 $
1,169 7% (1)% 8% Australia 83 77 8% 3% 5%
Brazil 139 106 31% 20% 11% Canada 83 81 2% (1)% 3% China 97 80 21%
(9)% 30% France 55 61 (10)% (4)% (6)% Germany 61 61 —% (4)% 4%
Italy 43 42 2% (4)% 6% Japan 70 62 13% 1% 12% Mexico 39 39 —% (12)%
12% Spain 43 42 2% (5)% 7% United Kingdom 69 77 (10)% (14)% 4%
Other Developed 144 143 1% —% 1% Other Emerging 323 298 8% (2)% 10%
(a) Operational revenue growth (a non-GAAP financial
measure) is defined as revenue growth excluding the impact of
foreign exchange. Certain amounts and percentages may
reflect rounding adjustments. ZOETIS INC.
SEGMENT(a) EARNINGS
(UNAUDITED) (millions of dollars) Second Quarter
% Change 2017 2016 Total
ForeignExchange
Operational(b)
U.S.:
Revenue $ 623 $ 594 5% —% 5% Cost of Sales 134 134 —%
—% —% Gross Profit 489 460 6% —% 6% Gross Margin 78.5 % 77.4 %
Operating Expenses 113 100 13% —% 13% Other (income)/deductions —
— —% —% —%
U.S. Earnings $ 376
$ 360 4% —% 4%
International:
Revenue $ 634 $ 602 5% (2)% 7% Cost of Sales 219 201
9% 1% 8% Gross Profit 415 401 3% (3)% 6% Gross Margin 65.5 % 66.6 %
Operating Expenses 126 124 2% (1)% 3% Other (income)/deductions 2
1 * * *
International Earnings $
287 $ 276 4% (3)% 7%
Total Reportable Segments $ 663
$ 636 4% (2)% 6% Other
business activities(c) (73 ) (74 ) (1)% Reconciling Items:
Corporate(d) (151 ) (171 ) (12)% Purchase accounting adjustments(e)
(21 ) (28 ) (25)% Acquisition-related costs(f) (2 ) (2 ) —% Certain
significant items(g) 1 4 (75)% Other unallocated(h) (72 ) (33 ) *
Total Earnings(i) $ 345 $
332 4% * Calculation not meaningful. (a) For a
description of each segment, see Note 18A to Zoetis' consolidated
financial statements included in Zoetis' Form 10-K for the year
ended December 31, 2016. (b) Operational growth (a non-GAAP
financial measure) is defined as growth excluding the impact of
foreign exchange. (c) Other business activities reflect the
research and development costs managed by our Research and
Development organization as well as our contract manufacturing
business. (d) Corporate includes, among other things,
administration expenses, interest expense, certain compensation
costs, certain procurement costs, and other costs not charged to
our operating segments. (e) Purchase accounting adjustments include
certain charges related to the amortization of fair value
adjustments to inventory, intangible assets and property, plant and
equipment not charged to our operating segments. (f)
Acquisition-related costs can include costs associated with
acquiring and integrating newly acquired businesses, such as
transaction costs and integration costs. (g) Certain significant
items includes substantive, unusual items that, either as a result
of their nature or size, would not be expected to occur as part of
our normal business on a regular basis. Such items primarily
include certain costs related to becoming an independent public
company, restructuring charges and implementation costs associated
with our cost-reduction/productivity initiatives that are not
associated with an acquisition, costs associated with the
operational efficiency initiative and supply network strategy,
certain legal and commercial settlements, and the impact of
divestiture-related gains and losses. (h) Includes overhead
expenses associated with our manufacturing and supply operations
not directly attributable to an operating segment, as well as
certain procurement costs. (i) Defined as income before provision
for taxes on income. Certain amounts and percentages may
reflect rounding adjustments. Six Months %
Change 2017 2016 Total
ForeignExchange
Operational(b)
U.S.:
Revenue $ 1,228 $ 1,176 4% —% 4% Cost of Sales 271 265
2% —% 2% Gross Profit 957 911 5% —% 5% Gross Margin 77.9 %
77.5 % Operating Expenses 209 192 9% —% 9% Other
(income)/deductions — — —% —% —%
U.S. Earnings
$ 748 $ 719 4% —%
4%
International:
Revenue $ 1,249 $ 1,169 7% (1)% 8% Cost of Sales 432 397
9% 1% 8% Gross Profit 817 772 6% (1)% 7% Gross Margin 65.4 %
66.0 % Operating Expenses 240 233 3% (1)% 4% Other
(income)/deductions (1 ) 3 * * *
International
Earnings $ 578 $ 536 8%
(2)% 10% Total Reportable Segments
$ 1,326 $ 1,255 6% (1)%
7% Other business activities(c) (147 ) (148 ) (1)%
Reconciling Items: Corporate(d) (294 ) (340 ) (14)% Purchase
accounting adjustments(e) (43 ) (54 ) (20)% Acquisition-related
costs(f) (2 ) (3 ) (33)% Certain significant items(g) (3 ) 17 *
Other unallocated(h) (155 ) (63 ) *
Total Earnings(i)
$ 682 $ 664 3% *
Calculation not meaningful. (a) For a description of each
segment, see Note 18A to Zoetis' consolidated financial statements
included in Zoetis' Form 10-K for the year ended December 31, 2016.
(b) Operational growth (a non-GAAP financial measure) is defined as
growth excluding the impact of foreign exchange. (c) Other business
activities reflect the research and development costs managed by
our Research and Development organization as well as our contract
manufacturing business. (d) Corporate includes, among other things,
administration expenses, interest expense, certain compensation
costs, certain procurement costs, and other costs not charged to
our operating segments. (e) Purchase accounting adjustments include
certain charges related to the amortization of fair value
adjustments to inventory, intangible assets and property, plant and
equipment not charged to our operating segments. (f)
Acquisition-related costs can include costs associated with
acquiring and integrating newly acquired businesses, such as
transaction costs and integration costs. (g) Certain significant
items includes substantive, unusual items that, either as a result
of their nature or size, would not be expected to occur as part of
our normal business on a regular basis. Such items primarily
include certain costs related to becoming an independent public
company, restructuring charges and implementation costs associated
with our cost-reduction/productivity initiatives that are not
associated with an acquisition, costs associated with the
operational efficiency initiative and supply network strategy,
certain legal and commercial settlements, and the impact of
divestiture-related gains and losses. (h) Includes overhead
expenses associated with our manufacturing and supply operations
not directly attributable to an operating segment, as well as
certain procurement costs. (i) Defined as income before provision
for taxes on income. Certain amounts and percentages may
reflect rounding adjustments.
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version on businesswire.com: http://www.businesswire.com/news/home/20170808005711/en/
Zoetis Inc.Media:Bill Price, 1-973-443-2742
(o)william.price@zoetis.comorElinore White, 1-973-443-2835
(o)elinore.y.white@zoetis.comorInvestors:Steve
Frank, 1-973-822-7141 (o)steve.frank@zoetis.com
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