- Third Quarter 2014 Revenue of $1.2
Billion Increased 10%, Compared to Third Quarter 2013
- Third Quarter 2014 Reported Net
Income of $166 Million, or Diluted EPS of $0.33, Increased 27%,
Compared to Third Quarter 2013
- Third Quarter 2014 Adjusted Net
Income of $207 Million, or Adjusted Diluted EPS1 of
$0.41, Increased 20% and 21%, Respectively, Compared to Third
Quarter 2013
- Company Reaffirms Full-Year 2014
Adjusted Diluted EPS1 Guidance of $1.50 -
$1.54
Zoetis Inc. (NYSE:ZTS) today reported its financial results for
the third quarter of 2014. The company reported revenue of $1.2
billion for the third quarter of 2014, an increase of 10% from the
third quarter of 2013. Revenue reflected an operational2 increase
of 10%, with foreign currency having no material impact on revenue
growth this quarter.
Net income for the third quarter of 2014 was $166 million, or
$0.33 per diluted share, an increase of 27%, compared to the third
quarter of 2013. Adjusted net income1 for the third quarter of 2014
was $207 million, or $0.41 per diluted share, an increase of 20%
and 21%, respectively, compared to the third quarter of 2013.
Adjusted net income for the third quarter of 2014 excludes the net
impact of $41 million, or $0.08 per diluted share, for purchase
accounting adjustments, acquisition-related costs and certain
significant items. On an operational2 basis, adjusted net income
for the third quarter of 2014 increased 21%, with foreign currency
having a negative impact of 1 percentage point.
EXECUTIVE COMMENTARY
"In the third quarter, we generated 10% operational growth in
revenue and 21% in adjusted net income, continuing to demonstrate
our long-term value proposition of growing adjusted earnings faster
than sales,” said Zoetis Chief Executive Officer Juan Ramón Alaix.
“This quarter’s performance was driven largely by 13% operational
revenue growth in our livestock products and continued discipline
around our operating expenses.”
“All of our geographical segments benefited from the strong
sales of livestock products in the quarter. We saw an increase in
the use of our premium cattle products in key markets, as well as
continued acceptance of new products in our swine and poultry
portfolios," said Alaix. “Our overall companion animal product
sales grew 5% operationally, reflecting strong sales of Apoquel in
the U.S. and certain European markets. Meanwhile, we experienced
increased competition and weaker performance in other companion
animal products in the U.S., which somewhat offset double-digit
operational growth for companion animal products in the CLAR and
EuAfME segments.”
“Year to date, we have grown revenue at 6% and adjusted net
income at 13% on an operational basis, and we are tracking in line
with our full-year expectations,” said Paul Herendeen, Executive
Vice President and Chief Financial Officer of Zoetis. “We didn’t
see a material impact from foreign currency in our third quarter
results, but we do expect to see a negative impact from foreign
currency in the fourth quarter and into 2015, given the recent
strengthening of the dollar against most major currencies. We
remain confident about the remainder of 2014, despite the currency
trends, and we are reaffirming our full-year guidance for adjusted
earnings per share and narrowing our revenue guidance toward the
high end of the range.”
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 third quarter of 2014:
- Revenue in the U.S. was $532 million,
an increase of 7% compared to the third quarter of 2013. Sales of
livestock products grew 12%, with cattle and swine being the main
contributors. Growth in cattle products benefited from higher
demand for our premium products as producers continued to see
strong market conditions. Swine product sales were driven primarily
by the successful launch of new products, which was slightly offset
by the continued impact of Porcine Epidemic Diarrhea virus (PEDv).
Sales of companion animal products grew 2% driven by APOQUEL® and
other key brands, but this growth was offset by increased
competition in vaccines, pain products and parasiticides.
- Revenue in EuAfME was $293 million, an
increase of 12% operationally compared to the third quarter of
2013. Sales of livestock products increased 13% operationally as
the region delivered positive results in France and the UK as well
as emerging markets. The livestock growth was driven by increased
sales across all species, with particular advances coming from
cattle and poultry products. Sales of companion animal products
increased 11% operationally, driven by sales of APOQUEL® in Germany
and the UK, as well as growth in parasiticides.
- Revenue in CLAR was $194 million, an
increase of 17% operationally compared to the third quarter of
2013. Overall for the segment, sales of livestock products grew 16%
operationally and sales of companion animal products grew 19%
operationally. The CLAR segment results were largely driven by
growth in Venezuela, Brazil, Argentina and Canada. Sales in
Venezuela and Argentina grew significantly across all species. In
Brazil, there was significant growth driven primarily by sales of
cattle products and companion animal products. Meanwhile, growth in
Canada was primarily driven by sales of companion animal products
as well as cattle and swine products.
- Revenue in APAC was $179 million, an
increase of 7% operationally compared to the third quarter of 2013.
Sales of livestock products grew 9% operationally, driven primarily
by growth of swine products in Southeast Asia and sales of cattle
products in Australia. Sales of companion animal products were
flat operationally due to an inventory buyback related to the
termination of a distributor agreement in Japan. Excluding this
event, operational growth for companion animal products would have
been 8%, driven by sales of parasiticides across the region, equine
vaccines in Australia, and increased sales of vaccines in
China.
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. Some recent highlights
include:
Continuous innovation -- Zoetis
continues to advance animal health science through innovations that
address unmet market needs or improve veterinarians’ approach to
treatment.
- In the third quarter, the U.S.
Department of Agriculture (USDA) granted Zoetis a conditional
license for a vaccine to help fight porcine epidemic diarrhea
virus (PEDv) in pigs. The two-dose, inactivated vaccine is
designed to help healthy pregnant female pigs develop antibodies
that can be transferred to their newborn piglets. Zoetis began
supplying the vaccine to veterinarians and pig farmers in
September.3
- Zoetis also received a full license
from the USDA for its POULVAC® Bron GA 08 vaccine for
poultry, the first commercially available vaccine to help reduce
disease caused by the Georgia 2008 Type infectious bronchitis
virus. The vaccine had been conditionally licensed last fall, and
advanced to full licensure in August.
- The company also received approval of
Versican® Plus across the European Union. This
combination vaccine for dogs contains nine vaccine antigens helping
to protect against ten key canine diseases in one vaccine dose.
Based upon its combination of antigens and adjuvant, Versican® Plus
will help provide comprehensive protection for dogs in Europe and
be a more convenient option for veterinarians than the currently
available products. Versican® Plus is expected to be launched in
the European Union in 2015.
Expanding the portfolio’s reach –
Zoetis continues to receive approvals that help expand its key
products into new markets or with new formulations.
- DRAXXIN® 25, an injectable
anti-infective, which was first approved in the U.S. in November
2013 and has tapped an important market for swine, has now been
approved in Canada and across the European Union. DRAXXIN 25 offers
a convenient tool to fight swine respiratory disease (SRD) in
nursery pigs by providing a lower concentration of DRAXXIN, making
it optimized for use in small pigs to treat and control SRD.
- EXCENEL® RTU EZ, a reformulated
anti-infective that is easier to use and first approved in the U.S.
in July 2013, has now been approved in Canada.
- The POULVAC® E. coli vaccine for
poultry, which was the first E. coli vaccine in Europe and first
approved in May 2012, continues to perform well and was recently
approved for use in the Ukraine.
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 reaffirmed its adjusted earnings per share guidance for
full year 2014 and narrowed its revenue guidance toward the higher
end of the range. Full-year 2014 guidance includes:
- Revenue of between $4.70 billion to
$4.75 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.
(EST) today, during which company executives will review third
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 Nov. 4, 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.
3 This product license is conditional. Efficacy and potency
studies are in progress.
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)
Third Quarter Nine Months 2014 2013
% Change 2014 2013 % Change Revenue $
1,210 $ 1,103 10 $ 3,465 $ 3,307 5 Costs and
expenses: Cost of sales(b) 434 385 13 1,226 1,203 2 Selling,
general and administrative expenses(b) 394 399
(1)
1,146 1,155
(1)
Research and development expenses(b) 93 93 — 272 278
(2)
Amortization of intangible assets(c) 16 15 7 46 45 2 Restructuring
charges and certain acquisition-related costs 2 3
(33)
10 (10 ) * Interest expense 29 29 — 87 83 5 Other
(income)/deductions–net 4 (6 ) * 13 (11 ) * Income
before provision for taxes on income 238 185 29 665 564 18
Provision for taxes on income 71 54 31 204 165
24 Net income before allocation to noncontrolling interests
167 131 27 461 399 16 Less: Net income attributable to
noncontrolling interests 1 — * 4 —
*
Net income attributable to Zoetis $ 166 $ 131 27 $
457 $ 399 15 Earnings per share—basic $
0.33
$ 0.26 27 $ 0.91 $ 0.80 14
Earnings per share—diluted $ 0.33 $ 0.26 27 $ 0.91
$ 0.80
14
Weighted-average shares used to calculate earnings per share
(in thousands) Basic 501,453 500,000 500,887
500,000 Diluted 502,445 500,354 501,610
500,227 *Calculation not meaningful (a) The condensed
consolidated statements of income present the three and nine months
ended September 28, 2014 and September 29, 2013. Subsidiaries
operating outside the United States are included for the three and
nine months ended August 24, 2014 and August 25, 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 September 28, 2014
GAAP
Reported(1)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(2)
CertainSignificantItems(3)
Non-GAAPAdjusted(a)
Revenue
$ 1,210 $ — $ — $ — $ 1,210 Cost of sales(b)
434 (2 ) — (3 ) 429 Gross profit
776 2 — 3 781
Selling, general and administrative expenses(b)
394 1 — (29
) 366 Research and development expenses(b)
93 — — — 93
Amortization of intangible assets(c)
16 (12 ) — — 4
Restructuring charges and certain acquisition-related costs
2 — (1 ) (1 ) — Interest expense
29 — — — 29 Other
(income)/deductions–net
4 — — (5 ) (1 ) Income before
provision for taxes on income
238 13 1 38 290 Provision for
taxes on income
71 4 1 6 82 Income from continuing
operations
167 9 — 32 208 Net income attributable to
noncontrolling interests
1 — — — 1 Net income attributable
to Zoetis
166 9 — 32 207 Earnings per common share
attributable to Zoetis–diluted(d)
0.33 0.02 — 0.06 0.41
Quarter
ended September 29, 2013
GAAPReported(1)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(2)
CertainSignificantItems(3)
Non-GAAPAdjusted(a)
Revenue
$ 1,103 $ — $ — $ — $ 1,103 Cost of sales(b)
385 — 2 (4 ) 383 Gross profit
718 — (2 ) 4 720
Selling, general and administrative expenses(b)
399 — — (40
) 359 Research and development expenses(b)
93 (1 ) — (1 ) 91
Amortization of intangible assets(c)
15 (11 ) — — 4
Restructuring charges and certain acquisition-related costs
3 — (3 ) — — Interest expense
29 — — — 29 Other
(income)/deductions–net
(6 ) — — (1 ) (7 ) Income
before provision for taxes on income
185 12 1 46 244
Provision for taxes on income
54 4 1 13 72 Net income
attributable to Zoetis
131 8 — 33 172 Earnings per common
share attributable to Zoetis–diluted(d)
0.26 0.02 — 0.06
0.34 (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)
Nine Months ended September 28, 2014
GAAPReported(1)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(2)
CertainSignificantItems(3)
Non-GAAPAdjusted(a)
Revenue
$ 3,465 $ — $ — $ — $ 3,465 Cost of sales(b)
1,226 (3 ) — (14 ) 1,209 Gross profit
2,239 3 — 14
2,256 Selling, general and administrative expenses(b)
1,146
1 — (90 ) 1,057 Research and development expenses(b)
272 (1
) — — 271 Amortization of intangible assets(c)
46 (35 ) — —
11 Restructuring charges and certain acquisition-related costs
10 — (5 ) (5 ) — Interest expense
87 — — — 87 Other
(income)/deductions–net
13 — — (18 ) (5 ) Income before
provision for taxes on income
665 38 5 127 835 Provision for
taxes on income
204 13 2 25 244 Income from continuing
operations
461 25 3 102 591 Net income attributable to
noncontrolling interests
4 — — — 4 Net income attributable
to Zoetis
457 25 3 102 587 Earnings per common share
attributable to Zoetis–diluted(d)
0.91 0.05 0.01 0.20 1.17
Nine Months
ended September 29, 2013
GAAPReported(1)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(2)
CertainSignificantItems(3)
Non-GAAPAdjusted(a)
Revenue
$ 3,307 $ — $ — $ — $ 3,307 Cost of sales(b)
1,203 (2 ) — (20 ) 1,181 Gross profit
2,104 2 — 20
2,126 Selling, general and administrative expenses(b)
1,155
— — (135 ) 1,020 Research and development expenses(b)
278 (1
) — (5 ) 272 Amortization of intangible assets(c)
45 (34 ) —
— 11 Restructuring charges and certain acquisition-related costs
(10 ) — (17 ) 27 — Interest expense
83 — — —
83 Other (income)/deductions–net
(11 ) — — 3 (8 )
Income before provision for taxes on income
564 37 17 130
748 Provision for taxes on income
165 12 6 36 219 Net income
attributable to Zoetis
399 25 11 94 529 Earnings per common
share attributable to Zoetis–diluted(d)
0.80 0.05 0.02 0.19
1.06 (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 INFORMATION
CERTAIN LINE ITEMS
(UNAUDITED)
(millions of dollars)
(1) The condensed consolidated statements of income present the
three and nine months ended September 28, 2014 and September 29,
2013. Subsidiaries operating outside the United States are included
for the three and nine months ended August 24, 2014 and August 25,
2013. (2) Acquisition-related costs include the following:
Third Quarter Nine Months 2014
2013 2014 2013 Integration costs(a) $ 1 $ 1 $
5 $ 16 Restructuring charges(b) — — — 1 Total
acquisition-related costs—pre-tax 1 1 5 17 Income taxes(c) 1
1 2 6 Total acquisition-related costs—net of tax $ —
$ — $ 3 $ 11 (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 nine months ended September 28, 2014.
Included in Cost of sales ($2 million income) and Restructuring
charges and certain acquisition-related costs ($3 million) for the
three months ended September 29, 2013. Included in Restructuring
charges and certain acquisition-related costs for the nine months
ended September 29, 2013. (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:
Third Quarter Nine Months 2014
2013 2014 2013
Restructuring charges(a) $ 1 $ — $ 4 $ (27 ) Implementation costs
and additional depreciation—asset restructuring(b) — — 1 3 Certain
asset impairment charges(c) 6 — 6 1 Net gain on sale of assets(d) —
— (3 ) (6 ) Stand-up costs(e) 32 41 106 152 Other(f) (1 ) 5
13 7 Total certain significant items—pre-tax 38 46
127 130 Income taxes(g) 6 13 25 36
Total certain significant items—net of tax $ 32 $ 33
$ 102 $ 94 (a) Represents restructuring
charges incurred for our cost-reduction/productivity initiatives.
For the three and nine months ended September 28, 2014, represents
employee severance costs in Europe. For the nine months ended
September 29, 2013, primarily represents 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 nine months
ended September 28, 2014. Included in Cost of sales ($1 million)
and Selling, general and administrative expenses ($2 million) for
the nine months ended September 29, 2013. (c) Included in Other
(income)/deductions—net. For the three and nine months ended
September 28, 2014, represents an impairment charge related to an
IPR&D project acquired with the FDAH acquisition in 2009. (d)
Included in Other (income)/deductions—net. For the nine months
ended September 28, 2014, represents the Zoetis portion of a net
gain on the sale of land by our Taiwan joint venture. For the nine
months ended September 29, 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. (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. Included in Cost of
sales ($3 million and $14 million), Selling, general and
administrative expenses ($29 million and $90 million), and Other
(income)/deductions—net ($0 million and $2 million) for the three
and nine months ended September 28, 2014, respectively. Included in
Cost of sales ($3 million and $18 million), Selling, general and
administrative expenses ($38 million and $129 million), and
Research and development expenses ($0 million and $5 million) for
the three and nine months ended September 29, 2013, respectively.
(f)
For the nine months ended September 28,
2014, primarily includes a charge associated with a commercial
settlement in Mexico ($13 million), partially offset by the
insurance recovery ($1 million income). The nine months ended
September 28, 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). For the three and nine months ended
September 29, 2013, primarily includes litigation-related charges
($5 million) and charges related to transitional manufacturing
purchase agreements associated with divestitures ($1 million).
(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 Third Quarter (Favorable)/Unfavorable 2014
2013 Total
ForeignExchange
Operational Adjusted cost of sales $ 429 $ 383 12 % (1 )% 13
% as a percent of revenue 35.5 % 34.7 % NA NA NA Adjusted SG&A
expenses 366 359 2 % — % 2 % Adjusted R&D expenses 93 91 2 % 2
% — % Adjusted net income attributable to Zoetis 207 172 20 % (1 )%
21 % % Change Nine Months (Favorable)/Unfavorable
2014 2013 Total
ForeignExchange
Operational Adjusted cost of sales $ 1,209 $ 1,181 2 % (3 )% 5 % as
a percent of revenue 34.9 % 35.7 % NA NA NA Adjusted SG&A
expenses 1,057 1,020 4 % (1 )% 5 % Adjusted R&D expenses 271
272 — % — % — % Adjusted net income attributable to Zoetis 587 529
11 % (2 )% 13 % (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 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 nine months ended September 28, 2014 and
September 29, 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 $4,700 to $4,750 million
Adjusted cost of sales as a percentage of revenue(a) Approximately
35.5% Adjusted SG&A expenses(a) $1,460 to $1,480 million
Adjusted R&D expenses(a) $385 to $395 million Adjusted interest
expense and other (income)/deductions(a) Approximately $110 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 $180 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 ~(135 - 145)
~(0.27 - 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)
Third Quarter % Change 2014 2013 Total
ForeignExchange
Operational
Revenue: Livestock $ 790 $ 702 13
% — % 13 % Companion Animal 408 387 5 % — % 5 % Contract
Manufacturing 12 14 (14 )%
(3
)%
(11 )%
Total Revenue $ 1,210 $
1,103 10 % —
%
10 % U.S. Livestock $ 308 $ 275
12 % — % 12 % Companion Animal 224 220 2 % — % 2 %
Total U.S. Revenue $ 532 $
495 7 % — % 7
% EuAfME Livestock $ 199 $ 174 14 % 1 % 13 %
Companion Animal 94 82 15 % 4 % 11 %
Total EuAfME
Revenue $ 293 $ 256
14 % 2 % 12 %
CLAR Livestock $ 146 $ 129 13 %
(3
)%
16 % Companion Animal 48 42 14 %
(5
)%
19 %
Total CLAR Revenue $ 194 $
171 13 %
(4
)%
17 % APAC Livestock $ 137 $ 124 10 % 1
% 9 % Companion Animal 42 43 (2 )%
(2
)%
— %
Total APAC Revenue $ 179 $
167 7 % — % 7
% Livestock: Cattle $ 437 $ 387 13 % —
% 13 % Swine 179 154 16 %
(1
)%
17 % Poultry 147 137 7 % — % 7 % Other 27 24 13 % — %
13 %
Total Livestock Revenue $ 790
$ 702 13 % — %
13 % Companion Animal: Horses $ 38 $ 37
3 % 1 % 2 % Dogs and Cats 370 350 6 % — % 6 %
Total Companion Animal Revenue $ 408
$ 387 5 % — %
5 % (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)
Nine Months % Change 2014 2013 Total
ForeignExchange
Operational
Revenue: Livestock $ 2,199 $ 2,072
6 % (2 )% 8 % Companion Animal 1,227 1,198 2 % (1 )% 3 % Contract
Manufacturing 39 37 5 % 3 % 2 %
Total Revenue
$ 3,465 $ 3,307 5
% (1 )% 6 %
U.S. Livestock $ 795 $ 724 10 % —
%
10 % Companion Animal 675 662 2 % — % 2 %
Total
U.S. Revenue $ 1,470 $ 1,386
6 % — % 6 %
EuAfME Livestock $ 573 $ 547 5 % 1 % 4 % Companion Animal
274 254 8 % 4 % 4 %
Total EuAfME Revenue
$ 847 $ 801 6
% 2 % 4 % CLAR
Livestock $ 437 $ 421 4 % (9 )% 13 % Companion Animal 139
134 4 % (8 )% 12 %
Total CLAR Revenue $
576 $ 555 4 %
(8 )% 12 % APAC Livestock
$ 394 $ 380 4 % (3 )% 7 % Companion Animal 139 148 (6
)% (5 )% (1 )%
Total APAC Revenue $ 533
$ 528 1 % (4 )%
5 % Livestock: Cattle $ 1,207 $
1,132 7 % (2 )% 9 % Swine 496 463 7 % (2 )% 9 % Poultry 428 412 4 %
(3 )% 7 % Other 68 65 5 % (2 )% 7 %
Total
Livestock Revenue $ 2,199 $
2,072 6 % (2 )% 8
% Companion Animal: Horses $ 127 $ 124 2 % (2
)% 4 % Dogs and Cats 1,100 1,074 2 % (1 )% 3 %
Total Companion Animal Revenue $ 1,227
$ 1,198 2 % (1 )%
3 % (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)
Third Quarter % Change 2014 2013 Total
ForeignExchange
Operational U.S. $ 313 $ 285 10 % — % 10 % EuAfME 116 90 29
% 1 % 28 % CLAR 68 56 21 % 2 % 19 % APAC 71 57 25 % 1
% 24 % Total Reportable Segments 568 488 16 % — % 16 % Other
business activities(b) (75 ) (78 ) (4 )% Reconciling Items:
Corporate(c) (145 ) (139 ) 4 % Purchase accounting adjustments(d)
(13 ) (12 ) 8 % Acquisition-related costs(e) (1 ) (1 ) — % Certain
significant items(f) (38 ) (46 ) (17 )% Other unallocated(g) (58 )
(27 ) *
Total Earnings(h) $ 238
$ 185 29 % Nine Months % Change 2014
2013 Total
ForeignExchange
Operational U.S. $ 849 $ 773 10 % — % 10 % EuAfME 331 297 11 % — %
11 % CLAR 220 186 18 % 3 % 15 % APAC 209 203 3 % (7
)% 10 % Total Reportable Segments 1,609 1,459 10 % (1 )% 11 %
Other business activities(b) (221 ) (225 ) (2 )% Reconciling
Items: Corporate(c) (398 ) (392 ) 2 % Purchase accounting
adjustments(d) (38 ) (37 ) 3 % Acquisition-related costs(e) (5 )
(17 ) (71 )% Certain significant items(f) (127 ) (130 ) (2 )% Other
unallocated(g) (155 ) (94 ) 65 %
Total Earnings(h)
$ 665 $ 564 18 %
*Calculation not meaningful (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.
Media Contacts:Bill Price,
973-443-2742william.price@zoetis.comorElinore White,
973-443-2835elinore.y.white@zoetis.comorInvestor
Contact:John O'Connor, 973-822-7088
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