- Second Quarter 2014 Revenue of $1.2
Billion Increased 4%, Compared to Second Quarter 2013
- Second Quarter 2014 Reported Net
Income of $136 Million, or Diluted EPS of $0.27, Increased 6% and
4%, respectively, Compared to Second Quarter 2013
- Second Quarter 2014 Adjusted Net
Income of $189 Million, or Adjusted Diluted EPS1 of
$0.38, Increased 6% Compared to Second Quarter 2013
- Company Narrows Full-Year 2014
Adjusted Diluted EPS1 Guidance to $1.50 -
$1.54
Zoetis Inc. (NYSE:ZTS) today reported its financial results for
the second quarter of 2014. The company reported revenue of $1.2
billion for the second quarter of 2014, an increase of 4% from the
second quarter of 2013. Revenue reflected an operational2 increase
of 6%, with foreign currency having a negative impact of 2
percentage points.
Net income for the second quarter of 2014 was $136 million, or
$0.27 per diluted share, an increase of 6% and 4%, respectively,
compared to the second quarter of 2013. Adjusted net income1 for
the second quarter of 2014 was $189 million, or $0.38 per diluted
share, an increase of 6% compared to the second quarter of 2013.
Adjusted net income for the second quarter of 2014 excludes the net
impact of $53 million, or $0.11 per diluted share, for purchase
accounting adjustments, acquisition-related costs and certain
significant items. On an operational2 basis, adjusted net income
for the second quarter of 2014 increased 11%, with foreign currency
having a negative impact of 5 percentage points.
EXECUTIVE COMMENTARY
"In the second quarter, we generated 6% operational growth in
revenue, based on the strong performance of our livestock
products,” said Zoetis Chief Executive Officer Juan Ramón Alaix.
“We benefited from positive economic conditions for livestock
producers versus the year-ago quarter, especially in the U.S.,
Canada and Brazil. This performance helped offset the impact of the
PED virus in swine and slower growth in companion animal products.
Sales of Apoquel, which continues to have limited supply,
contributed to our growth in companion animal revenue and were
somewhat offset by increased competition in other product
areas.”
“We also saw operational growth in revenue across all our
geographical segments in the quarter, reflecting the strength and
balance of our diverse portfolio," Alaix said. “Our continued focus
on building strong customer relationships, bringing new products to
market while managing product lifecycles, and producing
high-quality products with reliable supply, all remain fundamental
strengths of our business model.”
“In the second quarter, we grew adjusted earnings faster than
sales, while facing higher expense growth driven primarily by the
ramp-up of our corporate functions and timing of our promotional
activities,” said Glenn David, Senior Vice President of Finance
Operations and Acting Chief Financial Officer of Zoetis. “We
continue making progress on establishing our Zoetis systems and
infrastructure as we complete our stand-up programs. We remain
confident in our business model and outlook, and we are increasing
the lower end of the guidance range for revenue and adjusted EPS
for the full year 2014.”
QUARTERLY HIGHLIGHTS
Zoetis organizes and manages its business across four regional
operating segments: the United States (U.S.); Europe/Africa/Middle
East (EuAfME); Canada/Latin America (CLAR); and Asia/Pacific
(APAC). Within each of these regional 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 2014:
- Revenue in the U.S. was $459 million,
an increase of 5% compared to the second quarter of 2013. Sales of
livestock products grew 10% with contributions across cattle,
poultry and swine. Cattle products showed a significant increase
based on improved market conditions from the year-ago quarter.
Poultry product sales grew, benefiting from new vaccines and growth
in medicated feed additives. Swine products benefited from
continued growth in new products, tempered by the effect of Porcine
Epidemic Diarrhea virus (PEDv). Sales of companion animal products
grew 1% driven by APOQUEL®, but this was partially offset by
declines due to increased competition in vaccines and for
RIMADYL®.
- Revenue in EuAfME was $284 million, an
increase of 4% operationally compared to the second quarter of
2013. Sales of livestock products increased 5% operationally as the
region experienced more positive results in Germany, the UK and
Spain, but this was slightly offset by declines in France. The
livestock growth was primarily driven by increased sales in poultry
and cattle products, which were slightly offset by a decline in
swine products for the quarter. Sales of companion animal products
increased 2% operationally, primarily driven by sales of APOQUEL®
in the UK and Germany and growth in emerging markets; this growth
was somewhat offset by declines in France and southern Europe due
to increased competition in parasiticides.
- Revenue in CLAR was $214 million, an
increase of 11% operationally compared to the second quarter of
2013. Overall for the segment, sales of livestock products grew 13%
operationally and sales of companion animal products grew 6%
operationally. The CLAR segment results were largely driven by
growth in its two largest markets, Brazil and Canada, as well as
Venezuela and Argentina. In Brazil, there was significant growth
driven primarily by sales of cattle and poultry products as well as
companion animal products. Meanwhile, the company generated
increased sales of cattle products in Canada, as higher prices for
cattle led to increased treatments. Canada also saw an increase in
sales of swine products such as anti-infectives and vaccines, while
it posted a slight decline in poultry products. Finally, Venezuela
and Argentina grew sales of livestock products, reflecting price
increases in these high inflationary markets.
- Revenue in APAC was $185 million, an
increase of 5% operationally compared to the second quarter of
2013. Sales of livestock products grew 7% operationally, driven
primarily by sales of cattle products in New Zealand and Australia;
growth of swine products in China; and growth of poultry products
in Australia and India. This livestock growth was offset by
declines in Japan and Korea. Meanwhile, sales of companion animal
products increased 1% operationally largely due to an increase in
equine products in Australia, which was offset by declines in
companion animal products in Japan.
Zoetis continues to drive demand and strengthen its diverse
portfolio of products through product lifecycle development, strong
customer relationships and access to new markets and technologies.
The company is focused on improving the performance and delivery of
its current product lines; expanding product indications across
species; pursuing approvals in new geographies; and developing
innovative medicines, treatments and solutions for emerging
diseases and unmet customer needs.
One example of a new product introduction in the quarter was for
ACTOGAIN™ (ractopamine hydrochloride). The company launched
ACTOGAIN in the U.S. after receiving regulatory approvals to use it
in combination with other products. ACTOGAIN is the company’s
second branded generic ractopamine product and adds to its strong
portfolio for cattle. Ractopamine is an active ingredient in feed
additive products that help cattle and pigs direct their food
energy toward producing high-quality lean meat rather than fat.
FINANCIAL GUIDANCE AND
COMMENTARY
Zoetis's guidance for full-year 2014 reflects the company's
confidence in the diversity of its portfolio, the strength of its
business model, and its view of the evolving market conditions for
animal health products this year.
Zoetis narrowed its revenue and adjusted earnings guidance for
full year 2014, raising the lower end of previous ranges for both
items. The company also revised its reported diluted EPS guidance
to account for a one-time charge related to a commercial settlement
with customers in Mexico that impacted this quarter. Full-year 2014
guidance includes:
- Revenue of between $4.675 billion to
$4.750 billion
- Reported diluted EPS for the full year
of between $1.16 to $1.20 per share
- Adjusted diluted EPS1 for the full year
between $1.50 to $1.54 per share
Additional guidance on other items such as expenses and
effective 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.
(EDT) today, during which company executives will review second
quarter financial results and respond to questions from financial
analysts. Investors and the public may access the live webcast by
visiting the Zoetis website at
http://www.zoetis.com/events-and-presentations. A replay of the
webcast will be archived and made available on Aug. 5, 2014.
About Zoetis
Zoetis (zô-EH-tis) 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 and
genetic tests and supported by a range of services. In 2013, the
company generated annual revenue of $4.6 billion. With
approximately 9,800 employees worldwide at the beginning of 2014,
Zoetis has a local presence in approximately 70 countries,
including 27 manufacturing facilities in 10 countries. Its products
serve veterinarians, livestock producers and people who raise and
care for farm and companion animals in 120 countries. For
more information, visit www.zoetis.com.
1 Adjusted net income 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 growth is defined as 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, expectations
regarding products, future use of cash and dividend payments, 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, 2013, including in the sections thereof captioned
“Forward-Looking Information 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 and
adjusted diluted earnings per share, to assess and analyze our
operational 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 web site 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 2014 2013
% Change 2014 2013 % Change
Revenue $ 1,158 $ 1,114 4 $ 2,255 $ 2,204 2 Costs and
expenses: Cost of sales(b) 413 416 (1 ) 792 818 (3 ) Selling,
general and administrative expenses(b) 396 399 (1 ) 752 756 (1 )
Research and development expenses(b) 92 95 (3 ) 179 185 (3 )
Amortization of intangible assets(c) 15 15 — 30 30 — Restructuring
charges and certain acquisition-related costs 5 (20 ) * 8 (13 ) *
Interest expense 29 32 (9 ) 58 54 7 Other (income)/deductions–net 8
(10 ) * 9 (5 ) * Income before provision for taxes on
income 200 187 7 427 379 13 Provision for taxes on income 61
59 3 133 111 20 Net income before allocation
to noncontrolling interests 139 128 9 294 268 10 Less: Net income
attributable to noncontrolling interests 3 — * 3
— * Net income attributable to Zoetis $ 136 $
128 6 $ 291 $ 268 9 Earnings per
share—basic $ 0.27 $ 0.26 4 $ 0.58 $ 0.54
7 Earnings per share—diluted $ 0.27 $ 0.26
4 $ 0.58 $ 0.54 7 Weighted-average
shares used to calculate earnings per share (in thousands) Basic
500,975 500,000 500,603 500,000 Diluted
501,684 500,217 501,193 500,164
*Calculation not meaningful
(a)
The condensed consolidated statements of
income present the three and six months ended June 29, 2014 and
June 30, 2013. Subsidiaries operating outside the United States are
included for the three and six months ended May 25, 2014 and May
26, 2013.
(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 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 June 29, 2014 Purchase
Acquisition- Certain
GAAP
Accounting Related Significant Non-GAAP
Reported(1)
Adjustments
Costs(2)
Items(3)
Adjusted(a)
Revenue
$ 1,158 $ — $ — $ — $ 1,158 Cost of sales(b)
413 — — (8 ) 405 Gross profit
745 — — 8 753 Selling,
general and administrative expenses(b)
396 (1 ) — (31 ) 364
Research and development expenses(b)
92 (1 ) — — 91
Amortization of intangible assets(c)
15 (11 ) — — 4
Restructuring charges and certain acquisition-related costs
5 — (2 ) (3 ) — Interest expense
29 — — — 29 Other
(income)/deductions–net
8 — — (11 ) (3 ) Income before
provision for taxes on income
200 13 2 53 268 Provision for
taxes on income
61 5 — 10 76 Income from continuing
operations
139 8 2 43 192 Net income attributable to
noncontrolling interests
3 — — — 3 Net income attributable
to Zoetis
136 8 2 43 189 Earnings per common share
attributable to Zoetis–diluted(d)
0.27 0.02 — 0.09 0.38
Quarter ended June 30, 2013
Purchase Acquisition- Certain
GAAP Accounting Related Significant Non-GAAP
Reported(1)
Adjustments
Costs(2)
Items(3)
Adjusted(a)
Revenue
$ 1,114 $ — $ — $ — $ 1,114 Cost of sales(b)
416 (1 ) (2 ) (13 ) 400 Gross profit
698 1 2 13 714
Selling, general and administrative expenses(b)
399 — — (60
) 339 Research and development expenses(b)
95 — — (4 ) 91
Amortization of intangible assets(c)
15 (12 ) — — 3
Restructuring charges and certain acquisition-related costs
(20 ) — (7 ) 27 — Interest expense
32 — — — 32
Other (income)/deductions–net
(10 ) — — 7 (3 ) Income
before provision for taxes on income
187 13 9 43 252
Provision for taxes on income
59 4 3 8 74 Net income
attributable to Zoetis
128 9 6 35 178 Earnings per common
share attributable to Zoetis–diluted(d)
0.26 0.02 0.01 0.07
0.36
(a)
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.
(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 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.
(d)
EPS amounts may not add due to
rounding.
See Notes to Reconciliation of GAAP Reported to Non-GAAP
Adjusted Information for notes (1), (2) and (3). Certain
amounts 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)
Six Months ended June 29, 2014 Purchase
Acquisition- Certain
GAAP
Accounting Related Significant Non-GAAP
Reported(1)
Adjustments
Costs(2)
Items(3)
Adjusted(a)
Revenue
$ 2,255 $ — $ — $ — $ 2,255 Cost of sales(b)
792 (1 ) — (11 ) 780 Gross profit
1,463 1 — 11 1,475
Selling, general and administrative expenses(b)
752 — — (61
) 691 Research and development expenses(b)
179 (1 ) — — 178
Amortization of intangible assets(c)
30 (23 ) — — 7
Restructuring charges and certain acquisition-related costs
8 — (4 ) (4 ) — Interest expense
58 — — — 58 Other
(income)/deductions–net
9 — — (13 ) (4 ) Income before
provision for taxes on income
427 25 4 89 545 Provision for
taxes on income
133 9 1 19 162 Income from continuing
operations
294 16 3 70 383 Net income attributable to
noncontrolling interests
3 — — — 3 Net income attributable
to Zoetis
291 16 3 70 380 Earnings per common share
attributable to Zoetis–diluted(d)
0.58 0.03 0.01 0.14 0.76
Six Months ended June 30, 2013
Purchase Acquisition- Certain
GAAP Accounting Related Significant Non-GAAP
Reported(1)
Adjustments
Costs(2)
Items(3)
Adjusted(a)
Revenue
$ 2,204 $ — $ — $ — $ 2,204 Cost of sales(b)
818 (2 ) (2 ) (16 ) 798 Gross profit
1,386 2 2 16
1,406 Selling, general and administrative expenses(b)
756 —
— (95 ) 661 Research and development expenses(b)
185 — — (4
) 181 Amortization of intangible assets(c)
30 (23 ) — — 7
Restructuring charges and certain acquisition-related costs
(13 ) — (13 ) 26 — Interest expense
54 — — —
54 Other (income)/deductions–net
(5 ) — — 4 (1 )
Income before provision for taxes on income
379 25 15 85 504
Provision for taxes on income
111 8 5 23 147 Net income
attributable to Zoetis
268 17 10 62 357 Earnings per common
share attributable to Zoetis–diluted(d)
0.54 0.03 0.02 0.12
0.71
(a)
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.
(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 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.
(d)
EPS amounts may not add due to
rounding.
See Notes to Reconciliation of GAAP Reported to Non-GAAP
Adjusted Information for notes (1), (2) and (3). Certain
amounts may reflect rounding adjustments.
ZOETIS INC.NOTES TO RECONCILIATION OF GAAP
REPORTED TO NON-GAAP ADJUSTED INFORMATIONCERTAIN LINE
ITEMS(UNAUDITED)(millions of dollars)
(1)
The condensed consolidated statements of
income present the three and six months ended June 29, 2014 and
June 30, 2013. Subsidiaries operating outside the United States are
included for the three and six months ended May 25, 2014 and May
26, 2013.
(2)
Acquisition-related costs include the
following:
Second Quarter Six Months 2014
2013 2014 2013
Integration costs(a) $ 2 $ 10 $ 4 $ 14 Restructuring
charges(b) — (1 ) — 1 Total acquisition-related
costs—pre-tax 2 9 4 15 Income taxes(c) — 3 1 5
Total acquisition-related costs—net of tax $ 2 $ 6 $
3 $ 10
(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
charges and certain acquisition-related costs for the three and six
months ended June 29, 2014. Included in Cost of sales ($2 million
and $2 million) and Restructuring charges and certain
acquisition-related costs ($8 million and $12 million) for the
three and six months ended June 30, 2013, respectively.
(b)
Restructuring charges are associated with
employees, assets and activities that will not continue with the
company. Included in Restructuring charges and certain
acquisition-related costs.
(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.
(3)
Certain significant items include the
following:
Second Quarter Six Months 2014
2013 2014 2013
Restructuring charges(a) $ 3 $ (27 ) $ 3 $ (26 )
Implementation costs and additional depreciation—asset
restructuring(b) — 1 1 3 Certain asset impairment charges(c) — — —
1 Net gain on sale of assets(d) (3 ) (6 ) (3 ) (6 ) Stand-up
costs(e) 41 77 74 111 Other(f) 12 (2 ) 14 2
Total certain significant items—pre-tax 53 43 89 85 Income taxes(g)
10 8 19 23 Total certain significant
items—net of tax $ 43 $ 35 $ 70 $ 62
(a)
Represents restructuring charges incurred
for our cost-reduction/productivity initiatives. For the three and
six months ended June 30, 2013, includes a decrease in employee
termination expenses relating to the reversal of a previously
established termination reserve related to our operations in
Europe. Included in Restructuring charges and certain
acquisition-related costs.
(b)
Related to our cost-reduction/productivity
initiatives. Included in Restructuring charges and certain
acquisition-related costs for the six months ended June 29, 2014.
Included in Cost of sales for the three months ended June 30, 2013.
Included in Cost of sales ($1 million) and Selling, general and
administrative expenses ($2 million) for the six months ended June
30, 2013.
(c)
Included in Other
(income)/deductions—net.
(d)
For the three and six months ended June
29, 2014, represents the Zoetis portion of a net gain on the sale
of land in our Taiwan joint venture. For the three and six months
ended June 30, 2013, represents the net gain on the
government-mandated sale of certain product rights in Brazil that
were acquired with the FDAH acquisition in 2009. Included in Other
(income)/deductions—net.
(e)
Represents certain nonrecurring costs
related to becoming an independent public company, such as new
branding (including changes to the manufacturing process for
required new packaging), the creation of standalone systems and
infrastructure, site separation, and certain legal registration and
patent assignment costs, as well as, restructuring, certain legal
and commercial settlements, and other charges. Included in Cost of
sales ($8 million and $11 million), Selling, general and
administrative expenses ($31 million and $61 million), and Other
(income)/deductions—net ($2 million and $2 million) for the three
and six months ended June 29, 2014, respectively. Included in Cost
of sales ($13 million and $15 million), Selling, general and
administrative expenses ($60 million and $92 million), and Research
and development expenses ($4 million and $4 million) for the three
and six months ended June 30, 2013, respectively.
(f)
For the three and six months ended June
29, 2014, primarily includes a reserve associated with a commercial
settlement in Mexico ($13 million). The six months ended June 29,
2014 also includes a pension plan settlement charge related to the
divestiture of a manufacturing plant ($4 million), partially offset
by an insurance recovery of litigation related charges ($2 million
income).
(g)
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.
ZOETIS INC.
ADJUSTED SELECTED COSTS, EXPENSES AND
INCOME (a)
(UNAUDITED)
(millions of dollars)
% Change Second Quarter (Favorable)/Unfavorable 2014
2013 Total Foreign
Exchange Operational Adjusted cost of sales $ 405 $
400 1 % (3 )% 4 % as a percent of revenue 35.0 % 35.9 % NA NA NA
Adjusted SG&A expenses 364 339 7 % (2 )% 9 % Adjusted R&D
expenses 91 91 — % (1
)%
1 % Adjusted net income attributable to Zoetis 189 178 6 % (5 )% 11
% % Change Six Months (Favorable)/Unfavorable 2014
2013 Total Foreign Exchange Operational
Adjusted cost of sales $ 780 $ 798 (2
)%
(3 )% 1 % as a percent of revenue 34.6 % 36.2 % NA NA NA Adjusted
SG&A expenses 691 661 5 % (2 )% 7 % Adjusted R&D expenses
178 181 (2 )% (2 )% — % Adjusted net income attributable to Zoetis
380 357 6 % (4 )% 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 are
defined as the corresponding reported U.S. generally accepted
accounting principles (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 June 29,
2014 and June 30, 2013 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.
ZOETIS INC.
2014 GUIDANCE
Selected Line Items Revenue $4,675 to $4,750 million
Adjusted cost of sales as a percentage of revenue(a) Approximately
35.5% Adjusted SG&A expenses(a) $1,440 to $1,480 million
Adjusted R&D expenses(a) $390 to $405 million Adjusted interest
expense and other (income)/deductions(a) Approximately $105 million
Effective tax rate on adjusted income(a) Approximately 29% Adjusted
diluted EPS(a) $1.50 to $1.54 Certain significant items(b) and
acquisition-related costs $175 to $195 million Reported diluted EPS
$1.16 to $1.20
In updating our guidance for full-year 2014, we have considered
current exchange rates and other factors.
A reconciliation of 2014 adjusted net income and adjusted
diluted EPS guidance to 2014 reported net income attributable to
Zoetis and reported diluted EPS attributable to Zoetis common
shareholders guidance follows:
Full-Year 2014 Guidance (millions of dollars,
except per share amounts) Net Income Diluted EPS
Adjusted net income/diluted EPS(a) guidance ~$750 - $770 ~$1.50 -
$1.54 Purchase accounting adjustments ~(30) ~(0.06) Certain
significant items(b) and acquisition-related costs ~(130 - 145)
~(0.26 - 0.29) Reported net income attributable to Zoetis/diluted
EPS guidance ~$580 - $600 ~$1.16 - $1.20
(a)
Adjusted net income and its components and
adjusted diluted EPS are defined as reported U.S. generally
accepted accounting principles (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 selling, general and administrative
(SG&A) expenses, adjusted research and development (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. Despite the importance of these measures to
management in goal setting and performance measurement, adjusted
net income and its components and 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, 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.
(b)
Primarily includes certain nonrecurring
costs related to becoming an independent public company, such as
new branding (including changes to the manufacturing process for
required new packaging), the creation of standalone systems and
infrastructure, site separation, certain legal registration and
patent assignment costs, as well as, restructuring, certain legal
and commercial settlements, and other charges.
ZOETIS INC.
CONSOLIDATED REVENUE BY SEGMENT(a) AND
SPECIES
(UNAUDITED)
(millions of dollars)
Second Quarter % Change 2014 2013
Total Foreign Exchange
Operational
Revenue: Livestock $ 703 $ 667 5 % (4 )%
9 % Companion Animal 439 435 1 % (1 )% 2 % Contract Manufacturing
16 12 33 % 6 % 27 %
Total Revenue $
1,158 $ 1,114 4 %
(2 )% 6 % U.S. Livestock
$ 224 $ 204 10 % — % 10 % Companion Animal 235 233 1
% — % 1 %
Total U.S. Revenue $ 459
$ 437 5 % — %
5 % EuAfME Livestock $ 193 $ 181 7 % 2
% 5 % Companion Animal 91 85 7 % 5 % 2 %
Total
EuAfME Revenue $ 284 $ 266
7 % 3 % 4 %
CLAR Livestock $ 156 $ 153 2 % (11 )% 13 % Companion Animal
58 60 (3 )% (9 )% 6 %
Total CLAR Revenue
$ 214 $ 213 —
% (11 )% 11 % APAC
Livestock $ 130 $ 129 1 % (6 )% 7 % Companion Animal 55 57
(4 )% (5 )% 1 %
Total APAC Revenue $
185 $ 186 (1 )%
(6 )% 5 % Livestock:
Cattle $ 379 $ 355 7 % (3 )% 10 % Swine 157 154 2 % (3 )% 5 %
Poultry 146 137 7 % (4 )% 11 % Other 21 21 — % — % —
%
Total Livestock Revenue $ 703
$ 667 5 % (4 )%
9 % Companion Animal: Horses $ 46 $ 45
2 % — % 2 % Dogs and Cats 393 390 1 % (1 )% 2 %
Total Companion Animal Revenue $ 439
$ 435 1 % (1 )%
2 %
(a)
For a description of each segment, see
Note 18A to Zoetis's consolidated and combined financial statements
included in Zoetis's Form 10-K for the year ended December 31,
2013. Beginning in the first quarter of 2014, contract
manufacturing is presented separately and we have revised our
segment results for the comparable 2013 period.
Certain amounts and percentages may reflect rounding
adjustments.
ZOETIS INC.
CONSOLIDATED REVENUE BY SEGMENT(a) AND
SPECIES
(UNAUDITED)
(millions of dollars)
Six Months % Change 2014 2013
Total Foreign Exchange
Operational
Revenue: Livestock $ 1,409 $ 1,370 3 % (3
)% 6 % Companion Animal 819 811 1 % (1 )% 2 % Contract
Manufacturing 27 23 17 % 7 % 10 %
Total
Revenue $ 2,255 $ 2,204
2 % (3 )% 5 %
U.S. Livestock $ 487 $ 449 8 % — % 8 % Companion
Animal 451 442 2 % — % 2 %
Total U.S. Revenue
$ 938 $ 891 5
% — % 5 % EuAfME
Livestock $ 374 $ 373 — % 1 % (1 )% Companion Animal 180 172
5 % 4 % 1 %
Total EuAfME Revenue $ 554
$ 545 2 % 2
% — % CLAR Livestock $ 291 $ 292
— % (11 )% 11 % Companion Animal 91 92 (1 )% (10 )% 9
%
Total CLAR Revenue $ 382 $
384 (1 )% (11 )%
10 % APAC Livestock $ 257 $ 256 — % (7
)% 7 % Companion Animal 97 105 (8 )% (7 )% (1 )%
Total APAC Revenue $ 354 $
361 (2 )% (7 )% 5
% Livestock: Cattle $ 770 $ 745 3 % (3 )% 6 %
Swine 317 314 1 % (3 )% 4 % Poultry 281 270 4 % (5 )% 9 % Other 41
41 — % (4 )% 4 %
Total Livestock Revenue
$ 1,409 $ 1,370 3
% (3 )% 6 % Companion
Animal: Horses $ 89 $ 87 2 % (3 )% 5 % Dogs and Cats 730
724 1 % (1 )% 2 %
Total Companion Animal Revenue
$ 819 $ 811 1
% (1 )% 2 %
(a)
For a description of each segment, see
Note 18A to Zoetis's consolidated and combined financial statements
included in Zoetis's Form 10-K for the year ended December 31,
2013. Beginning in the first quarter of 2014, contract
manufacturing is presented separately and we have revised our
segment results for the comparable 2013 period.
Certain amounts and percentages may reflect rounding
adjustments.
ZOETIS INC.
SEGMENT EARNINGS(a)
(UNAUDITED)
(millions of dollars)
Second Quarter % Change 2014 2013
Total Foreign Exchange
Operational U.S. $ 258 $ 254 2 % — % 2 % EuAfME 103 93 11 % 2 % 9 %
CLAR 88 78 13 % (3 )% 16 % APAC 72 71 1 % (10 )% 11 %
Total Reportable Segments 521 496 5 % (2 )% 7 % Other
business activities(b) (74 ) (76 ) (3 )% Reconciling Items:
Corporate(c) (128 ) (137 ) (7 )% Purchase accounting adjustments(d)
(13 ) (13 ) — % Acquisition-related costs(e) (2 ) (9 ) (78 )%
Certain significant items(f) (53 ) (43 ) 23 % Other unallocated(g)
(51 ) (31 ) 65 %
Total Earnings(h) $
200 $ 187 7 %
Six Months % Change 2014 2013 Total Foreign
Exchange Operational U.S. $ 536 $ 488 10 % — % 10 % EuAfME 215 207
4 % 1 % 3 % CLAR 152 130 17 % 3 % 14 % APAC 138 146
(5 )% (9 )% 4 % Total Reportable Segments 1,041 971 7 % (1 )% 8 %
Other business activities(b) (146 ) (147 ) (1 )% Reconciling
Items: Corporate(c) (253 ) (253 ) — % Purchase accounting
adjustments(d) (25 ) (25 ) — % Acquisition-related costs(e) (4 )
(15 ) (73 )% Certain significant items(f) (89 ) (85 ) 5 % Other
unallocated(g) (97 ) (67 ) 45 %
Total Earnings(h)
$ 427 $ 379 13
%
(a)
For a description of each segment, see
Note 18A to Zoetis's consolidated and combined financial statements
included in Zoetis's Form 10-K for the year ended December 31,
2013. Beginning in the first quarter of 2014, contract
manufacturing is included in other business activities and we have
revised our segment results for the comparable 2013 period.
(b)
Other business activities reflect the
research and development costs managed by our Research and
Development organization as well as our contract manufacturing
business.
(c)
Corporate includes, among other things,
administration expenses, interest expense, certain compensation and
other costs not charged to our operating segments.
(d)
Purchase accounting adjustments include
certain charges related to intangible assets and property, plant
and equipment not charged to our operating segments.
(e)
Acquisition-related costs can include
costs associated with acquiring, integrating and restructuring
newly acquired businesses, such as transaction costs, integration
costs, restructuring charges and additional depreciation associated
with asset restructuring.
(f)
Certain significant items are 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, certain legal and commercial settlements, and
the impact of divestiture-related gains and losses.
(g)
Includes overhead expenses associated with
our manufacturing operations not directly attributable to an
operating segment.
(h)
Defined as income before provision for
taxes on income.
Certain amounts and percentages may reflect rounding
adjustments.
Zoetis Inc.Media:Bill Price,
1-973-443-2742 (o)william.price@zoetis.comElinore White,
1-973-443-2835 (o)elinore.y.white@zoetis.comorInvestors:John O'Connor, 1-973-822-7088 (o)
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