- First Quarter 2015 Revenue of $1.1
Billion Was Flat Compared to First Quarter 2014; an Increase of 6%
Excluding Foreign Exchange
- First Quarter 2015 Reported Net
Income of $165 Million, or $0.33 per Diluted Share, Increased
6%
- First Quarter 2015 Adjusted Net
Income1 of $207 Million, or Adjusted Diluted
EPS1 of $0.41, Increased 8%; an Increase of 14%
Excluding Foreign Exchange
- Announces Comprehensive Initiative
to Simplify Operations, Improve Cost Structure, and Better Allocate
Resources to Generate Cost Savings of Approximately $300 Million by
2017
- Updates Full Year 2015 Revenue
Guidance to $4.675 - $4.775 Billion and Reaffirms Full Year 2015
Adjusted Diluted EPS1 Guidance of $1.61 -
$1.68
Zoetis Inc. (NYSE:ZTS) today reported its financial results for
the first quarter of 2015 and announced a comprehensive operational
efficiency initiative to enhance its long-term competitive position
and profitability. The company also updated its guidance for full
year 2015 and provided additional details on its outlook for 2016
and 2017 to reflect the impact of the operational efficiency plans
and other factors.
The company reported revenue of $1.1 billion for the first
quarter of 2015, which was flat compared to the first quarter of
2014; revenue reflected an operational2 increase of 6%, excluding
the impact of foreign currency.
Net income for the first quarter of 2015 was $165 million, or
$0.33 per diluted share, an increase of 6% compared to the first
quarter of 2014. Adjusted net income1 for the first quarter of 2015
was $207 million, or $0.41 per diluted share, an increase of 8%.
Adjusted net income for the first quarter of 2015 excludes the net
impact of $42 million, or $0.08 per diluted share, for purchase
accounting adjustments, acquisition-related costs and certain
significant items. On an operational basis, adjusted net income for
the first quarter of 2015 increased 14%, with foreign currency
having a negative impact of 6 percentage points.
EXECUTIVE COMMENTARY
“For the first quarter, we continued our solid financial
performance from last year,” said Zoetis Chief Executive Officer
Juan Ramón Alaix. “Our first quarter revenue grew 6% operationally,
based on strength in the U.S. and Latin American markets, and our
adjusted net income grew 14% operationally, in line with our
objective to grow adjusted net income faster than sales.”
“Our business model – based on direct customer interaction,
R&D and manufacturing capabilities – along with excellence in
execution and a singular focus on animal health are key elements of
our success,” said Alaix. “As we look ahead, we intend
to build on that formula and perform even better.”
“For the past two years, our focus has been on delivering our
operating and financial targets, while successfully establishing
Zoetis as a standalone company,” continued Alaix. “Now having
entered the final stage of our stand-up projects and building on
the strong momentum in our business, we are announcing plans to
further improve our operations and better position Zoetis to drive
long-term profitable growth. The implementation of our
plans will allow us to become more competitive by
being more focused and cost-efficient, while taking full advantage
of our scale and business model.”
Paul Herendeen, Executive Vice President and Chief Financial
Officer of Zoetis, said, “This initiative is a natural next step in
the evolution of our company. We took a comprehensive look across
our business and identified opportunities to generate higher
quality, profitable growth, while preserving and enhancing our
competitive advantages – our customer-facing sales approach,
research and development of innovative products, and high-quality
manufacturing and supply.”
“The operational efficiency initiative we announced today will
result in a company that will generate more profit from a slightly
smaller, more focused revenue base. We expect to generate cost
savings of approximately $300 million in 2017 and to improve our
adjusted operating margin from 25% in 2014 to approximately 34% in
2017,” said Herendeen. “By 2017, we will be a company that can grow
our re-based organic revenue in line with or faster than the
mid-single digit growth of our markets, while holding growth in our
leaned-out operating expenses to the inflation rate, thereby
delivering long-term profit growth greater than our revenue growth.
We will also be better positioned to create value from potential
business development opportunities,” concluded Herendeen.
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 first quarter of 2015:
- Revenue in the U.S. was $521 million,
an increase of 9% compared to the first quarter of 2014. Sales of
livestock products grew 14%, led by growth in cattle products due
to the strength of our portfolio and continued favorable market
conditions. Increases in the sales of swine products were driven by
a higher population of pigs as well as sales of the PEDv vaccine.
Sales of poultry products grew primarily due to the re-introduction
of ZOAMIX®, a medicated feed additive. Companion animal product
sales grew 3% driven by the performance of key brands such as
PROHEART® and REVOLUTION®, the addition of products from Abbott
Animal Health, promotional programs, improved weather conditions,
and new product launches in diagnostics. This growth was partially
offset by competitive challenges to RIMADYL® and sedation products,
as well as declines in equine products.
- Revenue in EuAfME was $237 million,
operationally flat compared to the first quarter of 2014. Sales of
anti-infectives declined in both livestock and companion animal
products due to the implementation of new legislation in France.
Livestock sales declined 2% operationally due to the French
legislation and declines in Russia, but were somewhat offset by
growth in other emerging markets. Companion animal products grew 4%
operationally, led by broad growth in key brands such as CERENIA®
and STRONGHOLD®, as well as improved product availability in equine
products.
- Revenue in CLAR was $173 million, an
increase of 13% operationally compared to the first quarter of
2014, with strong growth in both livestock and companion animal
products. Sales of livestock products grew 13% operationally, as
favorable cattle and swine market dynamics across the region drove
growth of premium brands, particularly in Brazil and Venezuela.
Poultry product sales declined due primarily to timing of customer
product rotations in several countries. Sales of companion animal
products grew 14% operationally, driven by sales in Venezuela and
performance of key brands in Brazil.
- Revenue in APAC was $161 million, an
increase of 1% compared to the first quarter of 2014. Growth in
emerging markets was offset by declines in developed markets. Sales
of livestock products grew 1% operationally, primarily based on
strong swine product sales in Southeast Asia. Swine sales in China
declined as weaker market conditions led to softer demand for
premium products. Poultry sales experienced a slight decline due to
weaker market conditions in South Korea and the Philippines. Cattle
sales declined in the quarter due to prolonged drought conditions
in Australia and New Zealand, partially offset by emerging market
growth, particularly in China and India. Sales of companion animal
products were operationally flat in the quarter, mainly due to
declines in Australia and the prior termination of a distributor
agreement in Japan.
Zoetis continues to drive demand and strengthen its diverse
portfolio of products through product lifecycle developments,
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 highlights of the company’s product lifecycle development
this quarter include expanding the reach of key products into new
markets and with new indications. For example, the BOVI-SHIELD
GOLD® FP line of vaccines for certain bovine respiratory and
reproductive diseases received approval for additional claims in
the U.S. to help prevent fetal infections caused by bovine viral
diarrhea (BVD) virus Types 1 and 2; this product line was first
approved in the U.S. in 2009. FOSTERA™ PCV MH, a vaccine
that helps prevent certain diseases in swine, expanded into new
markets such as Thailand and Russia in the first quarter; it was
first approved in the U.S. in 2013. And, CERENIA®, an
antiemetic to treat and prevent acute vomiting in dogs and cats,
was approved for cats in Japan; it was first approved in Europe in
2006.
OVERVIEW OF COMPREHENSIVE OPERATIONAL
EFFICIENCY INITIATIVE
Zoetis also announced a company-wide operational efficiency
initiative designed to reduce complexity in its global operations
and optimize its resource allocation and efficiency. All plans are
subject to consultations with works councils and unions in certain
markets.
The main actions in the program will be:
- Reducing complexity in the company’s
product portfolio and structure
- Increasing focus on key products, key
markets and strategic manufacturing sites
- Improving profitability and enhancing
the reliability and efficiency of the supply network by eliminating
approximately 5,000 lower-revenue, lower-margin product SKUs
- Continuing to re-shape the company’s
supply network, including plans to sell or exit 10 manufacturing
sites over the long term
- Changing its selling approach in
approximately 30 markets by shifting to indirect sales or reducing
its presence in certain countries
- Consolidating from a four-region
structure to a two-region structure -- U.S. and International --
resulting in a more cost-efficient infrastructure and more
standardized processes. The U.S Region will be led by Kristin Peck,
and the International Region will be led by Clint Lewis; both are
current members of the Zoetis executive team
- Optimizing resource allocation and
efficiency
- Streamlining corporate functions and
significantly reducing general and administrative (G&A) costs
by improving execution and efficiency
- Focusing resources closer to customers
and reducing the allocation of resources to non-customer facing
commercial activities
- Reducing management layers, increasing
spans of control and operating more efficiently as a result of less
internal complexity and more standardization of processes
- Enhancing R&D focus to support a
smaller portfolio of products and better prioritize R&D
projects with the highest returns
The implementation of this initiative increases the company’s
outlook for 2017 operating profit by $200 million, driven by $300
million in expected cost savings, which is expected to more than
offset a reduction of revenue and gross profit of $280 million and
$100 million, respectively.
The operational efficiency initiative is incremental to the
Supply Network Strategy that was previously announced and that is
expected to add an additional 200 basis points to gross margin by
2020.
Separately, the company has decided to reduce its business in
Venezuela. The impact of this change will reduce the company-wide
outlook for 2017 revenue, gross profit, and operating profit by
approximately $90 million, $65 million, and $55 million,
respectively.
As a result of the operational efficiency initiative and supply
network strategy, Zoetis expects to record restructuring charges
and other one-time cash charges of $400-500 million, primarily by
the end of 2016. Additional, primarily non-cash charges related to
the company’s long-term supply network strategy will occur as the
specific plans for each manufacturing site are finalized in the
coming years.
FINANCIAL GUIDANCE
Zoetis is updating its financial guidance for full year 2015 to
reflect the impact of the operational efficiency program, a
reduction of its presence in Venezuela, and changes in foreign
exchange rates:
- Revenue of between $4.675 billion to
$4.775 billion
- Reported diluted EPS of between $0.79
to $1.02 per share
- Adjusted diluted EPS1 between $1.61 to
$1.68 per share
The company also provided updates to its long-term outlook for
2017:
- Revenue of $4.850 billion to $5.050
billion
- Reported diluted EPS of between $1.98
to $2.16 per share
- Adjusted cost of sales1 as a percentage
of revenue of approximately 32% to 33%
- Adjusted EBIT margin1 of approximately
34%
- Adjusted diluted EPS of $2.18 to
$2.32
Additional guidance on other items for 2015, 2016 and 2017 such
as expenses and tax rate are 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 first
quarter financial results, discuss 2015 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://www.zoetis.com/events-and-presentations. A replay of the
webcast will be archived and made available on May 5, 2015.
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 2014, the
company generated annual revenue of $4.8 billion. With
approximately 10,000 employees worldwide at the beginning of 2015,
Zoetis serves veterinarians, livestock producers and people who
raise and care for farm and companion animals with sales of
its products in 120 countries. For more information, visit
www.zoetis.com.
1 Adjusted net income and its components, adjusted diluted
earnings per share, and adjusted earnings before interest and taxes
(EBIT) (non-GAAP financial measures) are defined as reported net
income attributable to Zoetis, reported diluted earnings per share
and reported EBIT, excluding purchase accounting adjustments,
acquisition-related costs and certain significant items.
2 Operational revenue growth 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, 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, 2014, 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 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)
First Quarter 2015 2014 % Change
Revenue $ 1,102 $ 1,097 — Costs and expenses: Cost of
sales(b) 394 379 4 Selling, general and administrative expenses(b)
354 356 (1) Research and development expenses(b) 80 87 (8)
Amortization of intangible assets(c) 15 15 — Restructuring charges
and certain acquisition-related costs 1 3 (67) Interest expense 28
29 (3) Other (income)/deductions–net — 1 (100) Income
before provision for taxes on income 230 227 1 Provision for taxes
on income 65 72 (10) Net income before allocation to
noncontrolling interests 165 155 6 Less: Net income attributable to
noncontrolling interests — — — Net income
attributable to Zoetis $ 165 $ 155 6 Earnings
per share—basic $ 0.33 $ 0.31 6 Earnings per
share—diluted $ 0.33 $ 0.31 6 Weighted-average
shares used to calculate earnings per share (in thousands) Basic
501,146 500,231 Diluted 503,224 500,702
(a)
The condensed consolidated statements of
income present the three months ended March 29, 2015 and March 30,
2014. Subsidiaries operating outside the United States are included
for the three months ended February 22, 2015 and February 23,
2014.
(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 March 29, 2015 Purchase
Acquisition- Certain
GAAP
Accounting Related Significant Non-GAAP
Reported(a)
Adjustments
Costs(1)
Items(2)
Adjusted(b)
Revenue
$ 1,102 $ — $ — $ — $ 1,102 Cost of sales(c)
394 (2 ) — (7 ) 385 Gross profit
708 2 — 7 717
Selling, general and administrative expenses(c)
354 — — (34
) 320 Research and development expenses(c)
80 — — — 80
Amortization of intangible assets(d)
15 (11 ) — — 4
Restructuring charges and certain acquisition-related costs
1 — (1 ) — — Interest expense
28 — — — 28 Other
(income)/deductions–net
— — — — — Income before provision
for taxes on income
230 13 1 41 285 Provision for taxes on
income
65 7 (2 ) 8 78 Net income attributable to Zoetis
165 6 3 33 207 Earnings per common share attributable to
Zoetis–diluted(e)
0.33 0.01 0.01 0.06 0.41
Quarter ended March 30, 2014 Purchase Acquisition- Certain
GAAP Accounting Related Significant Non-GAAP
Reported(a)
Adjustments
Costs(1)
Items(2)
Adjusted(b)
Revenue
$ 1,097 $ — $ — $ — $ 1,097 Cost of sales(c)
379 (1 ) — (3 ) 375 Gross profit
718 1 — 3 722
Selling, general and administrative expenses(c)
356 1 — (30
) 327 Research and development expenses(c)
87 — — — 87
Amortization of intangible assets(d)
15 (12 ) — — 3
Restructuring charges and certain acquisition-related costs
3 — (2 ) (1 ) — Interest expense
29 — — — 29 Other
(income)/deductions–net
1 — — (2 ) (1 ) Income before
provision for taxes on income
227 12 2 36 277 Provision for
taxes on income
72 4 1 9 86 Net income attributable to
Zoetis
155 8 1 27 191 Earnings per common share attributable
to Zoetis–diluted(e)
0.31 0.02 — 0.05 0.38
(a)
The condensed consolidated statements of
income present the three months ended March 29, 2015 and March 30,
2014. Subsidiaries operating outside the United States are included
for the three months ended February 22, 2015 and February 23,
2014.
(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 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.
(e)
EPS amounts may not add due to
rounding.
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:
First Quarter 2015 2014 Integration
costs(a) $ 1 $ 2 Total acquisition-related costs—pre-tax 1 2
Income taxes(b) (2 ) 1 Total acquisition-related costs—net of tax $
3 $ 1
(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.
(b)
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, as well as a tax charge related to the acquisition of certain
assets of Abbott Animal Health.
(2) Certain significant items include the
following:
First Quarter 2015 2014 Restructuring
charges(a) $ — $ 1 Stand-up costs(b) 23 33 Operational
efficiency initiative(c) 15 — Other(d) 3 2 Total certain
significant items—pre-tax 41 36 Income taxes(e) 8 9 Total
certain significant items—net of tax $ 33 $ 27
(a)
Related to our cost-reduction/productivity
initiatives. Included in Restructuring charges and certain
acquisition-related costs.
(b)
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 ($2 million and
$3 million) and Selling, general and administrative expenses ($21
million and $30 million) for the three months ended March 29, 2015
and March 30, 2014, respectively.
(c)
Represents consulting fees related to our
operational efficiency initiative. Included in Cost of sales ($5
million) and Selling, general and administrative expenses ($10
million).
(d)
For the three months ended March 29, 2015,
represents charges due to unusual investor-related activities,
included in Selling, general and administrative expenses. For the
three months ended March 30, 2014, represents 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), both included in
Other (income)/deductions.
(e)
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 First Quarter (Favorable)/Unfavorable
Foreign 2015 2014 Total
Exchange Operational Adjusted cost of sales $ 385 $ 375 3% (6)% 9%
as a percent of revenue 34.9 % 34.2 % NA NA NA Adjusted SG&A
expenses 320 327 (2)% (5)% 3% Adjusted R&D expenses 80 87 (8)%
(2)% (6)% Adjusted net income attributable to Zoetis 207 191 8%
(6)% 14%
(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 months ended March 29, 2015 and March 30, 2014 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.
2015 GUIDANCE
Selected Line
Items
(millions of dollars, except per share
amounts)
As provided on
February 11, 2015
Foreign exchange(a)
Venezuela business(b) Operational
efficiency initiative Updated Full Year
2015 Revenue $4,800 to $4,900 ($75) ($50) $4,675 to $4,775
Operational growth 6.5% to 8.5%
5.5% to
7.5% Adjusted cost of sales as a percentage of revenue(c)
35.5% to 36.0%
35.5% to 36.0% Adjusted SG&A
expenses(c) $1,420 to $1,470 ($20)
($5) ($40) $1,355 to
$1,405 Adjusted R&D expenses(c) $385 to $405
($5)
$380 to $400 Adjusted interest expense and other
(income)/deductions(c) Approximately $110
Approximately $110 Effective tax rate on adjusted income(c)
Approximately 29%
Approximately 29%
Adjusted diluted EPS(c) $1.61 to $1.68
($0.01) ($0.05) $0.06
$1.61 to $1.68 Adjusted net income(c) $810 to $845 ($5) ($25) $30
$810 to $845 Operational growth 11% to 16%
12% to 17% Certain significant items(d) and
acquisition-related costs $140 to $160
$270 to $330
$410 to $490 Reported diluted EPS $1.32 to
$1.39 ($0.01) ($0.05)
($0.34 to $0.46) $0.79 to $1.02
A reconciliation of 2015 adjusted net income and adjusted
diluted EPS guidance to 2015 reported net income attributable to
Zoetis and reported diluted EPS attributable to Zoetis common
shareholders guidance follows:
Full-Year 2015 Guidance
(millions of dollars, except per share amounts) Net Income
Diluted EPS Adjusted net income/diluted EPS(c) guidance
~$810 - $845 ~$1.61 - $1.68 Purchase accounting adjustments ~(40)
~(0.08) Certain significant items(d) and acquisition-related costs
~(290 - 370) ~(0.58 - 0.74) Reported
net income attributable to Zoetis/diluted EPS guidance
~$400 - $515 ~$0.79 - $1.02
(a)
Reflects the impact of changes to foreign
exchange rates underlying prior guidance and current foreign
exchange rates.
(b)
Reflects the expected impact of our
business reduction in Venezuela.
(c)
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.
(d)
Primarily includes certain nonrecurring
costs related to restructuring and other charges for the
operational efficiency initiative, 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.
ZOETIS INC.
2016-2017 GUIDANCE
Selected
Line Items
(millions of dollars, except per share
amounts)
2016 2017 Revenue $4,650
to $4,800 $4,850 to $5,050 Operational growth (1)% to
2% 3% to 7% Adjusted cost of sales as a percentage of
revenue(a) 33% to 34% 32% to 33%
Adjusted SG&A expenses(a) $1,270 to $1,340
$1,240 to $1,330 Adjusted R&D expenses(a)
$380 to $400 $380 to $400 Adjusted interest expense
and other (income)/deductions(a) Approximately $110
Approximately $110 Adjusted EBIT margin(a)
Approximately 31% Approximately 34% Effective
tax rate on adjusted income(a) Approximately 30%
Approximately 29% Adjusted diluted EPS(a)
$1.81 to $1.93 $2.18 to $2.32 Adjusted net
income(a) $910 to $970 $1,095 to $1,165 Operational growth
12% to 19% 17% to 24% Certain significant
items(b) and acquisition-related costs $130 to $180
$50 to $80 Reported diluted EPS $1.45
to $1.65 $1.98 to $2.16
A reconciliation of 2016 and 2017 adjusted net income and
adjusted diluted EPS guidance to 2016 and 2017 reported net income
attributable to Zoetis and reported diluted EPS attributable to
Zoetis common shareholders guidance follows:
Full-Year 2016 Guidance
(millions of dollars, except per share amounts) Net Income
Diluted EPS Adjusted net income/diluted EPS(a) guidance
~$910 - $970 ~$1.81 - $1.93 Purchase accounting adjustments ~(40)
~(0.08) Certain significant items(b) and acquisition-related costs
~(100 - 140) ~(0.20 - 0.28) Reported
net income attributable to Zoetis/diluted EPS guidance
~$730 - $830 ~$1.45 - $1.65
Full-Year 2017 Guidance
(millions of dollars, except per share amounts) Net Income
Diluted EPS Adjusted net income/diluted EPS(a) guidance
~$1,095 - $1,165 ~$2.18 - $2.32 Purchase accounting adjustments
~(40) ~(0.08) Certain significant items(b) and acquisition-related
costs ~(40 - 60) ~(0.08 - 0.12)
Reported net income attributable to Zoetis/diluted EPS guidance
~$995 - $1,085 ~$1.98 - $2.16
(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, 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 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 restructuring and other charges for the
operational efficiency initiative, 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.
ZOETIS INC.
CONSOLIDATED REVENUE BY SEGMENT(a) AND
SPECIES
(UNAUDITED)
(millions of dollars)
First Quarter % Change
Foreign 2015 2014 Total Exchange
Operational
Revenue: Livestock $ 715 $ 706 1 % (6 )% 7 %
Companion Animal 377 380 (1 )% (5 )% 4 % Contract Manufacturing 10
11 (9 )% 3 % (12 )%
Total Revenue $
1,102 $ 1,097 — %
(6 )% 6 %
U.S. Livestock $ 299 $ 263 14 % — % 14 % Companion Animal
222 216 3 % — % 3 %
Total U.S. Revenue
$ 521 $ 479 9
% — % 9 % EuAfME
Livestock $ 156 $ 181 (14 )% (12 )% (2 )% Companion Animal 81
89 (9 )% (13 )% 4 %
Total EuAfME Revenue
$ 237 $ 270 (12
)% (12 )% — % CLAR
Livestock $ 138 $ 135 2 % (11 )% 13 % Companion Animal 35 33
6 % (8 )% 14 %
Total CLAR Revenue $ 173
$ 168 3 % (10
)% 13 % APAC Livestock $ 122 $
127 (4 )% (5 )% 1 % Companion Animal 39 42 (7 )% (7
)% — %
Total APAC Revenue $ 161
$ 169 (5 )% (6 )%
1 % Livestock: Cattle $
397 $ 391 2 % (5 )% 7 % Swine 170 160 6 % (7 )% 13 % Poultry 129
135 (4 )% (5 )% 1 % Other 19 20 (5 )% (9 )% 4 %
Total Livestock Revenue $ 715 $
706 1 % (6 )% 7
% Companion Animal: Horses $ 40 $ 43 (7 )% (3
)% (4 )% Dogs and Cats 337 337 — % (5 )% 5 %
Total
Companion Animal Revenue $ 377 $
380 (1 )% (5 )% 4
%
(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,
2014.
Certain amounts and percentages may reflect rounding
adjustments.
ZOETIS INC.
SEGMENT EARNINGS(a)
(UNAUDITED)
(millions of dollars)
First Quarter % Change Foreign
2015 2014 Total Exchange
Operational U.S. $ 315 $ 278 13 % — % 13 % EuAfME 102 112 (9 )% (12
)% 3 % CLAR 66 64 3 % (23 )% 26 % APAC 62 66 (6 )% (4
)% (2 )% Total Reportable Segments 545 520 5 % (6 )% 11 %
Other business activities(b) (67 ) (72 ) (7 )% Reconciling Items:
Corporate(c) (133 ) (125 ) 6 % Purchase accounting adjustments(d)
(13 ) (12 ) 8 % Acquisition-related costs(e) (1 ) (2 ) (50 )%
Certain significant items(f) (41 ) (36 ) 14 % Other unallocated(g)
(60 ) (46 ) 30 %
Total Earnings(h) $
230 $ 227 1 %
(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,
2014.
(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, costs associated with corporate strategy
reviews, 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)john.oconnor@zoetis.comSteve Frank, 1-973-822-7141
(o)steve.frank@zoetis.com
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