- Delivers 11% Operational Revenue
Growth and 20% Operational Growth in Adjusted Net Income, Excluding
Foreign Exchange
- Records $263 Million in Charges
Related to Comprehensive Operational Efficiency Initiative,
Resulting in Net Loss of $37 Million, or Net Loss per Diluted Share
of $0.07
- Second Quarter 2015 Revenue of $1.2
Billion Increased 1%
- Second Quarter 2015 Adjusted Net
Income1 of $216 Million, or Adjusted Diluted
EPS1 of $0.43, Increased 14% and 13%,
Respectively
- Updates Full Year 2015 Revenue
Guidance to $4.700 - $4.775 Billion
- Updates Full Year 2015 Adjusted
Diluted EPS1 Guidance to $1.63 - $1.68
Zoetis Inc. (NYSE:ZTS) today reported its financial results for
the second quarter of 2015 and updated its full year 2015
guidance.
The company reported revenue of $1.2 billion for the second
quarter of 2015, which increased 1% compared to the second quarter
of 2014. Revenue reflected an operational2 increase of 11%,
excluding the impact of foreign exchange.
The net loss for the second quarter of 2015 was $37 million, or
$0.07 per diluted share, which includes $263 million in pre-tax
charges related to the company’s previously announced comprehensive
operational efficiency initiative. Adjusted net income1 for the
second quarter of 2015 was $216 million, or $0.43 per diluted
share, an increase of 14% and 13%, respectively. Adjusted net
income for the second quarter of 2015 excludes the net impact of
$253 million, or $0.50 per diluted share, for purchase accounting
adjustments, acquisition-related costs and certain significant
items. On an operational basis, adjusted net income for the second
quarter of 2015 increased 20%, with foreign currency having a
negative impact of 6 percentage points.
EXECUTIVE COMMENTARY
“In the second quarter, we generated operational revenue growth
of 11% based on the strength and diversity of our business. Our
adjusted net income grew 20% operationally, and we continue
delivering our long-term value proposition to shareholders --
growing adjusted net income faster than sales,” said Zoetis Chief
Executive Officer Juan Ramón Alaix. “The growth this quarter
was driven by the positive performance of our portfolio in both
companion animal and livestock products, the addition of Abbott
Animal Health products, the growth of APOQUEL® and other new
products, and the continued discipline on operating expenses.”
“Our broad portfolio, proven business model and dedicated Zoetis
colleagues enabled us to deliver these results as we began
implementing significant changes to become more competitive and
profitable,” said Alaix. “We remain committed to maintaining our
commercial, R&D and manufacturing strengths, while reducing
complexity in our business and achieving our efficiency goals.”
“With our operational efficiency initiative, we have begun the
process to re-shape our business around the key products, markets
and manufacturing sites that will make us an even stronger and more
profitable leader in animal health. Execution of these plans is
underway,” said Zoetis Chief Financial Officer Paul Herendeen. “We
are pleased to see continued efficiency and expense control in this
quarter’s results, along with excellent sales growth, and we are
updating our full year guidance for 2015 and reaffirming our
long-term goals for 2016 and 2017.”
QUARTERLY HIGHLIGHTS
Zoetis organizes and manages its business across two regional
operating segments: the United States (U.S.) and International.
Within these segments, the company delivers a diverse portfolio of
products for livestock and companion animals tailored to local
trends and customer needs.
In the second quarter of 2015:
- Revenue in the U.S. segment was
$539 million, an increase of 17% compared to the second quarter of
2014. Sales of livestock products grew 14% with balanced growth
across cattle, swine and poultry. Favorable market conditions drove
growth in cattle across multiple categories, including premium
brands, as well as vaccines and reproductive products. Cattle also
benefited from new product growth, primarily ACTOGAIN®. Sales of
swine products delivered broad growth due to the continued recovery
in the pig population following the PEDv outbreak, as well as new
product introductions. Growth in sales of poultry products was
driven by the re-introduction of ZOAMIX® and increased volumes in
other medicated feed additives. Companion animal product sales grew
20%, driven by the addition of products acquired from Abbott Animal
Health, as well as significant growth of APOQUEL®.
- Revenue in the International
segment was $622 million, an increase of 6% operationally
compared to the second quarter of 2014. Growth was driven by
performance in livestock, which increased 6% operationally, with
higher sales of cattle and swine products offset by lower sales of
poultry products. Continued favorable market conditions and new
product launches in Brazil drove growth of the cattle portfolio.
The performance of our portfolio in China and other Asian markets
helped drive increased sales of swine products, which are also
benefiting from better market conditions. Companion animal products
grew 8% operationally, primarily from sales of APOQUEL®, as well as
sales of parasiticide products in key markets in Western Europe,
Australia, Canada and China. Performance was also supported by
strong vaccine sales in China.
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 recent highlights include:
New Product Innovations – Zoetis
continues to advance animal health science through innovations that
address unmet market needs or improve veterinarians’ approach to
prevention and treatment. The U.S. Department of Agriculture (USDA)
granted Zoetis a conditional license for a first-of-its-kind
antibody therapy that targets interleukin-31 (IL-31) to help reduce
clinical signs associated with atopic dermatitis in dogs. It
represents another major breakthrough to emerge from the
proprietary research and development platform Zoetis has built
based on new scientific insights into the pathway of allergic skin
conditions.
Portfolio Lifecycle Development –
As part of enhancing the lifecycle of its products, Zoetis
continues to receive approvals for new indications and formulations
of key products. The company has also expanded major products into
new markets. In the second quarter, for example:
- Zoetis received approval of new label
claims in the U.S. and European Union (EU) for
CERENIA® (maropitant citrate), an antiemetic to treat
and prevent acute vomiting in dogs and cats. In the U.S., the
revised label now allows for once-daily tablet administration until
resolution of acute vomiting for dogs seven months of age and
older. In the EU, the injectable form of CERENIA has been approved
for intravenous use in dogs and cats. Both approvals offer
veterinarians greater latitude to treat each patient
individually.
- The company is also expanding the
breadth of its FOSTERA® swine vaccine franchise. In
Canada, Zoetis gained label claims for its FOSTERA porcine
reproductive and respiratory (PRRS) vaccine for swine, with
reproductive protection and one-day-of-age administration. The
company continued to bring its FOSTERA PCV MH vaccine to Latin
American countries with approval in Ecuador. The combination
vaccine helps protect swine from porcine circovirus-associated
disease and enzootic pneumonia caused by Mycoplasma
hyopneumoniae.
- DRAXXIN® 25, an
injectable anti-infective, which has tapped an important market for
swine, was launched in Spain, Italy, Portugal and Greece. DRAXXIN
25 offers a convenient tool to fight swine respiratory disease
(SRD) in nursery pigs by providing a lower concentration, making it
optimized for use in small pigs.
FINANCIAL GUIDANCE
Zoetis narrowed its revenue and earnings per share guidance for
full year 2015 toward the higher end of its previous ranges to
reflect its year-to-date performance and outlook for the remainder
of 2015.
Full year 2015 guidance includes:
- Revenue of between $4.700 billion to
$4.775 billion
- Reported diluted EPS of between $0.81
to $1.02 per share
- Adjusted diluted EPS1 of between $1.63
to $1.68 per share
The company also reaffirmed its long-term outlook for 2016 and
2017. 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 second
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 Aug. 4, 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 and adjusted diluted
earnings per share (non-GAAP financial measures) are defined as
reported net income attributable to Zoetis and reported diluted
earnings per share, excluding purchase accounting adjustments,
acquisition-related costs and certain significant items.
2 Operational revenue growth 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
OPERATIONS(a)
(UNAUDITED) (millions of dollars, except per share data)
Second Quarter Six Months 2015
2014 % Change 2015
2014 % Change Revenue $ 1,175 $
1,158 1 $ 2,277 $ 2,255 1 Costs
and expenses: Cost of sales(b) 427 413 3 821 792 4 Selling, general
and administrative expenses(b) 379 396 (4) 733 752 (3) Research and
development expenses(b) 84 92 (9) 164 179 (8) Amortization of
intangible assets(c) 15 15 — 30 30 — Restructuring charges and
certain acquisition-related costs 266 5 * 267 8 * Interest expense
29 29 — 57 58 (2) Other (income)/deductions–net 2 8
(75) 2 9 (78) (Loss)/income before provision for
taxes on income (27 ) 200 * 203 427 (52) Provision for taxes on
income 9 61 (85) 74 133 (44) Net
(loss)/income before allocation to noncontrolling interests (36 )
139 * 129 294 (56) Less: Net income attributable to noncontrolling
interests 1 3 (67) 1 3 (67) Net
(loss)/income attributable to Zoetis $ (37 ) $
136 * $ 128 $ 291
(56) (Loss)/earnings per share—basic $
(0.07 ) $ 0.27 * $ 0.26 $
0.58 (55) (Loss)/earnings per
share—diluted $ (0.07 ) $ 0.27 *
$ 0.25 $ 0.58 (57)
Weighted-average shares used to calculate earnings per share (in
thousands) Basic 500,173 500,975 500,660
500,603 Diluted 500,173 501,684 502,893
501,193 * Calculation not meaningful.
(a)
The condensed consolidated statements of
operations present the three and six months ended June 28, 2015 and
June 29, 2014. Subsidiaries operating outside the United States are
included for the three and six months ended May 24, 2015 and May
25, 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 June 28, 2015
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Revenue
$ 1,175 $ — $ — $
— $ 1,175 Cost of sales(c)
427 (3 ) —
(18 ) 406 Gross profit
748 3 — 18 769 Selling, general and
administrative expenses(c)
379 — — (36 ) 343 Research and
development expenses(c)
84 (1 ) — — 83 Amortization of
intangible assets(d)
15 (11 ) — — 4 Restructuring charges
and certain acquisition-related costs
266 — (3 ) (263 ) —
Interest expense
29 — — — 29 Other (income)/deductions–net
2 — (1 ) (2 ) (1 ) (Loss)/income before provision for taxes
on income
(27 ) 15 4 319 311 Provision for taxes on
income
9 3 — 82 94 (Loss)/income from continuing operations
(36 ) 12 4 237 217 Net income attributable to
noncontrolling interests
1 — — — 1 Net (loss)/income
attributable to Zoetis
(37 ) 12 4 237 216
(Loss)/earnings per common share attributable to Zoetis–diluted(e)
(0.07 ) 0.02 0.01 0.47 0.43 Quarter ended June
29, 2014
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Revenue
$ 1,158 $ — $ — $ — $ 1,158 Cost of sales(c)
413 — — (8 ) 405 Gross profit
745 — — 8 753 Selling,
general and administrative expenses(c)
396 (1 ) — (31 ) 364
Research and development expenses(c)
92 (1 ) — — 91
Amortization of intangible assets(d)
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(e)
0.27 0.02 — 0.09 0.38
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 28, 2015
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Revenue
$ 2,277 $ — $ — $
— $ 2,277 Cost of sales(c)
821 (5 ) —
(25 ) 791 Gross profit
1,456 5 — 25 1,486 Selling, general
and administrative expenses(c)
733 — — (70 ) 663 Research
and development expenses(c)
164 (1 ) — — 163 Amortization of
intangible assets(d)
30 (22 ) — — 8 Restructuring charges
and certain acquisition-related costs
267 — (4 ) (263 ) —
Interest expense
57 — — — 57 Other (income)/deductions–net
2 — (1 ) (2 ) (1 ) Income before provision for taxes on
income
203 28 5 360 596 Provision for taxes on income
74 10 (2 ) 90 172 Income from continuing operations
129 18 7 270 424 Net income attributable to noncontrolling
interests
1 — — — 1 Net income attributable to Zoetis
128 18 7 270 423 Earnings per common share attributable to
Zoetis–diluted(e)
0.25 0.04 0.01 0.54 0.84 Six Months
ended June 29, 2014
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Revenue
$ 2,255 $ — $ — $ — $ 2,255 Cost of sales(c)
792 (1 ) — (11 ) 780 Gross profit
1,463 1 — 11 1,475
Selling, general and administrative expenses(c)
752 — — (61
) 691 Research and development expenses(c)
179 (1 ) — — 178
Amortization of intangible assets(d)
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(e)
0.58 0.03 0.01 0.14 0.76
(a) The condensed consolidated statements of
operations present the three and six months ended June 28, 2015 and
June 29, 2014. Subsidiaries operating outside the United States are
included for the three and six months ended May 24, 2015 and May
25, 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. For the quarter
ended June 28, 2015, weighted-average diluted shares used to
calculate non-GAAP adjusted net income per share were 502,563
thousand.
See Notes to Reconciliation of GAAP
Reported to Non-GAAP Adjusted Information for notes (1) and
(2).
Certain amounts may reflect rounding adjustments.
ZOETIS INC.
NOTES TO RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED
INFORMATION CERTAIN LINE ITEMS (UNAUDITED) (millions of dollars)
(1) Acquisition-related costs
include the following:
Second Quarter
Six Months 2015 2014 2015
2014 Integration costs(a) $
3 $
2 $ 4 $
4
Other(b) 1 — 1 — Total
acquisition-related costs—pre-tax 4 2 5 4 Income taxes(c) —
— (2 ) 1 Total acquisition-related costs—net of tax $
4 $
2 $ 7 $
3
(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 Other
(income)/deductions—net.
(c)
Included in Provision for taxes on income.
Income taxes include the tax effect of the associated pre-tax
amounts, calculated by determining the jurisdictional location of
the pre-tax amounts and applying that jurisdiction's applicable tax
rate, as well as a tax charge related to the acquisition of certain
assets of Abbott Animal Health.
Certain amounts may reflect rounding adjustments.
(2) Certain significant items
include the following:
Second Quarter
Six Months 2015 2014 2015
2014 Operational efficiency
initiative(a) $ 263 $
— $ 273 $ —
Supply network strategy(b) 15 — 20 — Other restructuring charges
and cost-reduction/productivity initiatives(c) — 3 — 4 Stand-up
costs(d) 39 41 62 74 Net gain on sale of assets(e) — (3 ) — (3 )
Other(f) 2 12 5 14 Total certain
significant items—pre-tax 319 53 360 89 Income taxes(g) 82
10 90 19 Total certain significant items—net
of tax $ 237 $ 43
$ 270 $ 70
(a)
Includes restructuring charges of $253
million related to employee termination costs ($228 million) and
asset impairments ($25 million) for both the three and six months
ended June 28, 2015, included in Restructuring charges and certain
acquisition-related costs. Also includes other charges of $10
million and $20 million primarily related to consulting fees for
the three and six months ended June 28, 2015, respectively,
included in Selling, general and administrative expenses.
(b)
Includes restructuring charges of $10
million related to employee termination costs ($9 million) and
asset impairments ($1 million) for both the three and six months
ended June 28, 2015, included in Restructuring charges and certain
acquisition-related costs. Also includes other charges of $5
million and $10 million primarily related to consulting fees for
the three and six months ended June 28, 2015, respectively,
included in Cost of sales.
(c)
Related to our cost-reduction/productivity
initiatives and included in Restructuring charges and certain
acquisition-related costs.
(d)
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 ($12 million and
$14 million) and Selling, general and administrative expenses ($27
million and $48 million) for the three and six months ended June
28, 2015, respectively. Included in Cost of sales ($8 million and
$11 million) and 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.
(e) 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. (f)
The three and six months ended June 28,
2015, includes an impairment of IPR&D assets related to the
termination of a canine oncology project ($2 million) in Other
(income)/deductions. The six months ended June 28, 2015 also
includes charges due to unusual investor-related activities in
Selling, general and administrative expenses ($3 million). For the
three and six months ended June 29, 2014, primarily includes a
reserve associated with a commercial settlement in Mexico ($13
million) in Other (income)/deductions. 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), both in Other (income)/deductions.
(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.
Certain amounts may reflect rounding adjustments.
ZOETIS INC.
ADJUSTED SELECTED COSTS, EXPENSES AND
INCOME (a)
(UNAUDITED) (millions of dollars)
Second Quarter % Change
2015 2014 Total
ForeignExchange
Operational Adjusted cost of sales $
406 $ 405
— %
(12)%
12 %
as a percent of revenue
34.6 % 35.0 % NA NA NA Adjusted SG&A expenses 343 364 (6 )%
(9)%
3 % Adjusted R&D expenses 83 91 (9 )%
(5)%
(4)%
Adjusted net income attributable to Zoetis 216 189 14 %
(6)%
20 % Six Months % Change 2015
2014 Total
ForeignExchange
Operational Adjusted cost of sales $ 791 $ 780 1 %
(10)%
11 % as a percent of revenue 34.7 % 34.6 % NA NA NA Adjusted
SG&A expenses 663 691 (4 )%
(7)%
3 % Adjusted R&D expenses 163 178 (8 )%
(3)%
(5)%
Adjusted net income attributable to Zoetis 423 380 11 %
(6)%
17 % (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 six months ended June 28, 2015 and June 29, 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)
Full Year 2015 Revenue
$4,700 to $4,775 Operational growth
6.0% to 7.5% Adjusted cost of sales as a
percentage of revenue(a) 35.5% to 36.0%
Adjusted SG&A expenses(a) $1,355 to
$1,405 Adjusted R&D expenses(a)
$380 to $400 Adjusted interest expense and other
(income)/deductions(a) Approximately
$110 Adjusted EBIT margin(a)
Approximately 27% Effective tax rate on adjusted income(a)
Approximately 29% Adjusted diluted EPS(a)
$1.63 to $1.68 Adjusted net income(a)
$820 to $845 Operational growth
13% to 17% Certain significant items(b) and
acquisition-related costs $410 to $490
Reported diluted EPS $0.81 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(a)
guidance ~$820 - $845 ~$1.63 - $1.68 Purchase
accounting adjustments ~(40) ~(0.08) Certain significant items(b)
and acquisition-related costs ~(290 -
370) ~(0.58 - 0.74) Reported net income
attributable to Zoetis/diluted EPS guidance
~$410 - $515 ~$0.81 - $1.02 (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. 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. 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)
Second Quarter % Change
2015 2014
Total
ForeignExchange
Operational
Revenue:
Livestock $ 690 $
703 (2 )% (10 )% 8 % Companion Animal 471 439 7 % (8
)% 15 % Contract Manufacturing 14 16 (13 )% (16 )% 3
%
Total Revenue $ 1,175
$ 1,158 1
% (10 )% 11 %
U.S. Livestock $ 256 $ 224 14 % — % 14 % Companion
Animal 283 235 20 % — % 20 %
Total U.S.
Revenue $ 539
$ 459 17 %
— % 17 % International
Livestock $ 434 $ 479 (9 )% (15 )% 6 % Companion Animal 188
204 (8 )% (16 )% 8 %
Total International Revenue
$ 622 $
683 (9 )% (15
)% 6 % Livestock:
Cattle $ 372 $ 379 (2 )% (11 )% 9 % Swine 162 157 3 % (11 )% 14 %
Poultry 138 146 (5 )% (6 )% 1 % Other 18 21 (14 )%
(19 )% 5 %
Total Livestock Revenue $
690 $ 703
(2 )% (10 )% 8 %
Companion Animal: Horses $ 42 $ 46 (9 )% (8 )% (1 )%
Dogs and Cats 429 393 9 % (8 )% 17 %
Total
Companion Animal Revenue $
471 $ 439
7 % (8 )% 15 % (a)
Beginning in the second quarter of 2015, we changed our
segment reporting structure. The prior period presentation has been
revised to reflect the new segment reporting structure.
Certain amounts and percentages may reflect rounding adjustments.
ZOETIS INC.
CONSOLIDATED REVENUE BY SEGMENT(a) AND
SPECIES
(UNAUDITED) (millions of dollars)
Six Months % Change
2015 2014
Total
ForeignExchange
Operational
Revenue:
Livestock $
1,405 $ 1,409 — % (8 )% 8 % Companion
Animal 848 819 4 % (6 )% 10 % Contract Manufacturing 24 27
(11 )% (8 )% (3 )%
Total Revenue $
2,277 $
2,255 1 % (7 )% 8
% U.S. Livestock $ 555 $ 487 14
% — % 14 % Companion Animal 505 451 12 % — % 12 %
Total U.S. Revenue $
1,060 $ 938
13 % — % 13 %
International Livestock $ 850 $ 922 (8 )% (12 )% 4 %
Companion Animal 343 368 (7 )% (14 )% 7 %
Total
International Revenue $
1,193 $ 1,290
(8 )% (13 )% 5 %
Livestock: Cattle $ 769 $ 770 — % (8 )%
8 % Swine 332 317 5 % (8 )% 13 % Poultry 267 281 (5 )% (6 )% 1 %
Other 37 41 (10 )% (14 )% 4 %
Total Livestock
Revenue $ 1,405
$ 1,409 — %
(8 )% 8 % Companion
Animal: Horses $ 82 $ 89 (8 )% (5 )% (3 )% Dogs and Cats 766
730 5 % (6 )% 11 %
Total Companion Animal
Revenue $ 848
$ 819 4 %
(6 )% 10 % (a) Beginning
in the second quarter of 2015, we changed our segment reporting
structure. The prior period presentation has been revised to
reflect the new segment reporting structure. Certain amounts
and percentages may reflect rounding adjustments.
ZOETIS INC. CONSOLIDATED REVENUE BY KEY INTERNATIONAL
MARKETS (UNAUDITED) (millions of dollars)
Second Quarter
% Change 2015 2014
Total
ForeignExchange
Operational
Total International
$ 622
$ 683
(9 )% (15 )%
6 %
Australia 41 45
(9 )% (15 )% 6 %
Brazil 67 83 (19 )% (28 )% 9 %
Canada 49 55 (11 )%
(11 )% — %
China 29 23 26 % — % 26 %
France 27 34 (21
)% (22 )% 1 %
Germany 31 40 (23 )% (19 )% (4 )%
Italy
20 24 (17 )% (23 )% 6 %
Japan 26 32 (19 )% (15 )% (4 )%
Mexico 18 21 (14 )% (16 )% 2 %
Spain 20 23 (13 )% (23
)% 10 %
United Kingdom 37 36 3 % (9 )% 12 %
Other
Developed 78 87 (10 )% (14 )% 4 %
Other Emerging 179 180
(1 )% (11 )% 10 %
Six Months % Change
2015 2014 Total
ForeignExchange
Operational
Total International
$ 1,193 $
1,290
(8 )% (13 )%
5 %
Australia 69 78 (12 )% (14 )% 2 %
Brazil
131 147 (11 )% (22 )% 11 %
Canada 82 91 (10 )% (11 )% 1 %
China 64 56 14 % (1 )% 15 %
France 53 74 (28 )% (15
)% (13 )%
Germany 59 73 (19 )% (16 )% (3 )%
Italy 45
51 (12 )% (18 )% 6 %
Japan 52 61 (15 )% (13 )% (2 )%
Mexico 36 42 (14 )% (13 )% (1 )%
Spain 39 44 (11 )%
(18 )% 7 %
United Kingdom 79 79 — % (8 )% 8 %
Other
Developed 143 158 (9 )% (12 )% 3 %
Other Emerging 341
336 1 % (10 )% 11 % Certain amounts and percentages may
reflect rounding adjustments.
ZOETIS INC.
SEGMENT(a) EARNINGS
(UNAUDITED) (millions of dollars)
Second Quarter % Change
2015 2014
Total
ForeignExchange
Operational
U.S.:
Revenue $
539 $ 459 17 % — % 17 % Cost of Sales
127 106 20 % — % 20 % Gross Profit 412 353 17 % — %
17 % Gross Margin 76.4 % 76.9 % Operating Expenses 93 95 (2 )% — %
(2 )% Other (income)/deductions — — — — % — %
U.S.
Earnings $ 319 $ 258 24
% — % 24 %
International:
Revenue $ 622 $ 683 (9 )% (15 )% 6 % Cost of Sales 225 243
(7 )% (11 )% 4 % Gross Profit 397 440 (10 )% (17 )% 7 %
Gross Margin 63.8 % 64.4 % Operating Expenses 151 175 (14 )% (16 )%
2 % Other (income)/deductions 4 2 100 % * *
International Earnings $ 242 $
263 (8 )% (18 )% 10
% Total Reportable Segments $
561 $ 521 8 % (9
)% 17 % Other business activities(b)
(67 ) (75 ) (11 )% Reconciling Items: Corporate(c) (123 ) (125 ) (2
)% Purchase accounting adjustments(d) (15 ) (13 ) 15 %
Acquisition-related costs(e) (4 ) (2 ) 100 % Certain significant
items(f) (319 ) (53 ) * Other unallocated(g) (60 ) (53 ) 13 %
Total (Loss)/Earnings(h) $
(27 ) $ 200
* (a) Beginning in the second quarter of 2015,
we changed our segment reporting structure and recategorized
certain costs that are not allocated to our operating segments. The
prior period presentation has been revised to reflect the new
segment reporting structure. (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 the operational
efficiency initiative, certain legal and commercial settlements,
and the impact of divestiture-related gains and losses. (g)
Includes overhead expenses associated with our manufacturing and
supply operations not directly attributable to an operating
segment, as well as procurement costs. (h) Defined as
income/(loss) before provision for taxes on income. Certain
amounts and percentages may reflect rounding adjustments.
ZOETIS INC.
SEGMENT(a) EARNINGS
(UNAUDITED) (millions of dollars)
Six Months % Change 2015
2014 Total
ForeignExchange
Operational
U.S.:
Revenue $
1,060 $ 938 13 % — % 13 % Cost of Sales
252 217 16 % — % 16 % Gross Profit 808 721 12 % — %
12 % Gross Margin 76.2 % 76.9 % Operating Expenses 174 185 (6 )% —
% (6 )% Other (income)/deductions — — — % — % — %
U.S. Earnings $ 634 $ 536
18 % — % 18 %
International:
Revenue $ 1,193 $ 1,290 (8 )% (13 )% 5 % Cost of Sales 429
460 (7 )% (10 )% 3 % Gross Profit 764 830 (8 )% (15 )% 7 %
Gross Margin 64.0 % 64.3 % Operating Expenses 286 322 (11 )% (13 )%
2 % Other (income)/deductions 6 3 100 % * *
International Earnings $ 472 $
505 (7 )% (16 )% 9
% Total Reportable Segments $
1,106 $ 1,041 6 % (8
)% 14 % Other business activities(b)
(135 ) (148 ) (9 )% Reconciling Items: Corporate(c) (254 ) (247 ) 3
% Purchase accounting adjustments(d) (28 ) (25 ) 12 %
Acquisition-related costs(e) (5 ) (4 ) 25 % Certain significant
items(f) (360 ) (89 ) * Other unallocated(g) (121 ) (101 ) 20 %
Total Earnings(h) $
203 $ 427
(52 )% (a) Beginning in the second quarter of 2015,
we changed our segment reporting structure and recategorized
certain costs that are not allocated to our operating segments. The
prior period presentation has been revised to reflect the new
segment reporting structure. (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 the operational
efficiency initiative, certain legal and commercial settlements,
and the impact of divestiture-related gains and losses. (g)
Includes overhead expenses associated with our manufacturing and
supply operations not directly attributable to an operating
segment, as well as procurement costs. (h) Defined as
income/(loss) before provision for taxes on income.
Certain amounts and percentages may
reflect rounding adjustments.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150804005881/en/
Zoetis Inc.Media:Bill Price, 1-973-443-2742
(o)william.price@zoetis.comorElinore White, 1-973-443-2835
(o)elinore.y.white@zoetis.comorInvestor:John O'Connor,
1-973-822-7088 (o)john.oconnor@zoetis.comorSteve Frank,
1-973-822-7141 (o)steve.frank@zoetis.com
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