- Delivers 9% Operational Growth in
Revenue and 31% Operational Growth in Adjusted Net Income,
Excluding Foreign Exchange
- Third Quarter 2015 Reported Revenue
of $1.2 Billion Was Flat Compared to Third Quarter 2014
- Third Quarter 2015 Reported Net
Income of $189 Million, or $0.38 Per Diluted Share, Increased 14%
and 15%, Respectively, Compared to Third Quarter 2014
- Third Quarter 2015 Adjusted Net
Income1 of $252 Million, or Adjusted Diluted
EPS1 of $0.50, Increased 22% Compared to Third
Quarter 2014
- Updates Full Year 2015 Revenue
Guidance to $4.700 - $4.750 Billion and Full Year 2015 Adjusted
Diluted EPS1 Guidance to $1.70 - $1.74
- Updates Financial Outlook for Full
Year 2016 and 2017
Zoetis Inc. (NYSE:ZTS) today reported its financial results for
the third quarter of 2015, and updated its full year 2015 guidance,
as well as its financial outlook for full year 2016 and 2017.
The company reported revenue of $1.2 billion for the third
quarter of 2015, which was flat compared to the third quarter of
2014. Revenue reflected an operational2 increase of 9%, excluding
the impact of foreign exchange.
Net income for the third quarter of 2015 was $189 million, or
$0.38 per diluted share, an increase of 14% and 15%, respectively,
compared to the third quarter of 2014. Adjusted net income1 for the
third quarter of 2015 was $252 million, or $0.50 per diluted share,
an increase of 22% compared to the third quarter of 2014. Adjusted
net income for the third quarter of 2015 excludes the net impact of
$63 million, or $0.12 per diluted share, for purchase accounting
adjustments, acquisition-related costs and certain significant
items. On an operational basis, adjusted net income for the third
quarter of 2015 increased 31% compared to the third quarter of
2014, with foreign currency having a negative impact of 9%.
EXECUTIVE COMMENTARY
“We continued to deliver strong revenue and adjusted net income
growth this quarter, based on our diverse portfolio of high-quality
products and our continued discipline on costs and expenses,” said
Zoetis Chief Executive Officer Juan Ramón Alaix. “We generated
operational growth of 9% in revenue and 31% in adjusted net income,
delivering adjusted diluted EPS of 50 cents per share. This
quarter’s growth was largely due to the performance of our
livestock business in the U.S., the integration of Abbott Animal
Health products into our business, and the growth of recent product
launches, led by APOQUEL."
“Despite some global economic challenges, the animal health
industry remains resilient based on the strong fundamental drivers
for improved protein production and healthier pets,” said Alaix.
“Our growth strategies and resources are aligned against these
drivers to expand our market leadership in the industry. The
recently announced acquisition of PHARMAQ, a market-leading company
in aquatic health, is an example of this growth strategy and will
bring us another platform and pipeline to strengthen our core
livestock business.”
“The financial highlights of the quarter were once again
operational revenue growth across our portfolio and cost discipline
that drove significant growth in adjusted net income,” said Zoetis
Chief Financial Officer Paul Herendeen. “The productivity of our
R&D engine and performance in the U.S. and key emerging markets
like Brazil and China give us confidence in our future prospects.
With this view, we are updating our guidance for full year 2015 and
our outlook for full year 2016 and 2017, while managing the
expected headwinds of foreign exchange.”
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 third quarter of 2015:
- Revenue in the U.S. segment was
$632 million, an increase of 19% compared to the third quarter of
2014. Sales of companion animal products grew 27%, led by the
addition of Abbott Animal Health products and the performance of
key brands including APOQUEL®, as well as REVOLUTION®, CERENIA®,
PROHEART® and CONVENIA®. Sales of livestock products grew 13%,
driven by sales of cattle and swine products, due primarily to the
timing of seasonal buying patterns. Sales of poultry products
declined slightly.
- Revenue in the International
segment was $569 million, an increase of 2% on an operational
basis compared to the third quarter of 2014. In companion animal,
sales grew 7% operationally, primarily driven by sales of APOQUEL
and the addition of Abbott products. Sales in Japan grew
significantly due to the termination of a distributor agreement
that resulted in a product buyback in the prior year. Competitive
pressures on REVOLUTION in certain key markets partially offset
growth in companion animal products. In livestock, sales were flat
operationally despite revenue growth in Brazil, Australia and
China. Livestock growth in Brazil was driven by cattle due to
favorable market conditions and recent product launches, as well as
growth in poultry. In Australia, growth was driven by increased
feedlot activity in the cattle market, while an improving pork
market in China drove growth across the swine portfolio. This
growth was offset by our business reduction in Venezuela and lower
sales in France, which were compared to higher sales in the prior
year related to changes in anti-infective legislation.
Zoetis continues to drive demand and strengthen its diverse
portfolio of products through 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:
- Yesterday, Zoetis announced an
agreement to purchase PHARMAQ, the global leader in vaccines and
innovation for health products in aquaculture. Acquiring PHARMAQ,
the market leader in vaccines for farmed fish, strengthens Zoetis’
core livestock business, giving the company an increased presence
in the fastest growing segment of the animal health industry.
- In the third quarter, Zoetis received a
positive opinion from the European Medicines Agency's Committee for
Medicinal Products for Veterinary Use (CVMP), recommending the
granting of a marketing authorization for SIMPARICATM, a
once-monthly chewable medication for the treatment of flea, tick
and mange mite infestations in dogs beginning at age eight weeks.
The active substance of SIMPARICA is sarolaner, a new
ectoparasiticide belonging to the isoxazoline group.
- Zoetis strengthened its commitment to
innovation in China with the opening of a new research and
development center near Beijing last week. The site will serve as
home to a team of scientists who will initially focus on
accelerating the development of quality vaccines tailored to the
strains of illnesses that affect livestock in China. In addition,
Zoetis opened a new global manufacturing and supply facility in
Suzhou, China, replacing its original Suzhou manufacturing facility
that opened in 1995. The site will house the manufacture of pre-mix
and soluble powder medicines that will help keep farm animals
healthy and set a strong foundation for future growth in
China.
FINANCIAL GUIDANCE
Zoetis is updating its financial guidance for full year 2015 to
reflect its most recent expectations for the fourth quarter and
recent changes in foreign exchange rates:
- Revenue of between $4.700 billion to
$4.750 billion
- Reported diluted EPS of between $0.82
to $0.89 per share
- Adjusted diluted EPS1 of between $1.70
to $1.74 per share
The company also provided updates to its long-term outlook
for:
Full Year 2016
- Revenue of $4.750 billion to $4.875
billion
- Reported diluted EPS of between $1.50
to $1.68 per share3
- Adjusted cost of sales1 as a percentage
of revenue of approximately 33% to 34%
- Adjusted EBIT margin1 of approximately
31%
- Adjusted diluted EPS of $1.84 to
$1.94
Full Year 2017
- Revenue of $5.025 billion to $5.225
billion
- Reported diluted EPS of between $2.04
to $2.22 per share3
- Adjusted cost of sales1 as a percentage
of revenue of approximately 32% to 33%
- Adjusted EBIT margin1 of approximately
34%
- Adjusted diluted EPS of $2.24 to
$2.38
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.
(EST) today, during which company executives will review third
quarter financial results, discuss 2015 financial guidance, talk
about the acquisition of PHARMAQ, 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.
3, 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.
3 Includes preliminary estimate of purchase price allocation for
PHARMAQ.
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)
Third Quarter Nine Months 2015 2014 % Change 2015
2014 % Change Revenue $ 1,214 $ 1,210 — $ 3,491 $ 3,465 1 Costs and
expenses: Cost of sales(b) 421 434 (3) 1,242 1,226 1 Selling,
general and administrative expenses(b) 374 394 (5) 1,107 1,146 (3)
Research and development expenses(b) 91 93 (2) 255 272 (6)
Amortization of intangible assets(c) 15 16 (6) 45 46 (2)
Restructuring charges and certain acquisition-related costs 13 2 *
280 10 * Interest expense 29 29 — 86 87 (1) Other
(income)/deductions–net (2 ) 4 * — 13 (100)
Income before provision for taxes on income 273 238 15 476 665 (28)
Provision for taxes on income 83 71 17 157 204
(23) Net income before allocation to noncontrolling
interests 190 167 14 319 461 (31) Less: Net income attributable to
noncontrolling interests 1 1 — 2 4 (50)
Net income attributable to Zoetis $ 189 $ 166 14 $
317 $ 457 (31) Earnings per share—basic $ 0.38
$ 0.33 15 $ 0.63 $ 0.91 (31)
Earnings per share—diluted $ 0.38 $ 0.33 15 $ 0.63
$ 0.91 (31) Weighted-average shares used to
calculate earnings per share (in thousands) Basic 499,239
501,453 500,186 500,887 Diluted 501,653
502,445 502,480 501,610 * Calculation not
meaningful. (a) The condensed consolidated statements
of income present the three and nine months ended September 27,
2015 and September 28, 2014. Subsidiaries operating outside the
United States are included for the three and nine months ended
August 23, 2015 and August 24, 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 September 27, 2015
GAAP Reported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Revenue
$ 1,214 $ — $ — $ — $ 1,214 Cost of sales(c)
421 (2 ) — (10 ) 409 Gross profit
793 2 — 10 805
Selling, general and administrative expenses(c)
374 — — (28
) 346 Research and development expenses(c)
91 — — — 91
Amortization of intangible assets(d)
15 (11 ) — — 4
Restructuring charges and certain acquisition-related costs
13 — (5 ) (8 ) — Interest expense
29 — — — 29 Other
(income)/deductions–net
(2 ) — (1 ) — (3 ) Income
before provision for taxes on income
273 13 6 46 338
Provision for taxes on income
83 4 — (2 ) 85 Income from
continuing operations
190 9 6 48 253 Net income attributable
to noncontrolling interests
1 — — — 1 Net income
attributable to Zoetis
189 9 6 48 252 Earnings per common
share attributable to Zoetis–diluted(e)
0.38 0.02 0.01 0.09
0.50 Quarter ended September 28, 2014
GAAP Reported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Revenue
$ 1,210 $ — $ — $ — $ 1,210 Cost of sales(c)
434 (2 ) — (3 ) 429 Gross profit
776 2 — 3 781
Selling, general and administrative expenses(c)
394 1 — (29
) 366 Research and development expenses(c)
93 — — — 93
Amortization of intangible assets(d)
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(e)
0.33 0.02 — 0.06 0.41
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 27, 2015
GAAP Reported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Revenue
$ 3,491 $ — $ — $ — $ 3,491 Cost of sales(c)
1,242 (7 ) — (35 ) 1,200 Gross profit
2,249 7 — 35
2,291 Selling, general and administrative expenses(c)
1,107
— — (98 ) 1,009 Research and development expenses(c)
255 (1
) — — 254 Amortization of intangible assets(d)
45 (33 ) — —
12 Restructuring charges and certain acquisition-related costs
280 — (9 )
(271 ) — Interest expense
86 — — — 86 Other
(income)/deductions–net
— — (2 ) (2 ) (4 ) Income before
provision for taxes on income
476 41 11 406 934 Provision
for taxes on income
157 14 (2 ) 88 257 Income from
continuing operations
319 27 13 318 677 Net income
attributable to noncontrolling interests
2 — — — 2 Net
income attributable to Zoetis
317 27 13 318 675 Earnings per
common share attributable to Zoetis–diluted(e)
0.63 0.05
0.03 0.63 1.34 Nine Months ended September 28, 2014
GAAP Reported (a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Revenue
$ 3,465 $ — $ — $ — $ 3,465 Cost of sales(c)
1,226 (3 ) — (14 ) 1,209 Gross profit
2,239 3 — 14
2,256 Selling, general and administrative expenses(c)
1,146
1 — (90 ) 1,057 Research and development expenses(c)
272 (1
) — — 271 Amortization of intangible assets(d)
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(e)
0.91 0.05 0.01 0.20 1.17
(a) The condensed consolidated statements of income present
the three and nine months ended September 27, 2015 and September
28, 2014. Subsidiaries operating outside the United States are
included for the three and nine months ended August 30, 2015 and
August 31, 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:
Third Quarter Nine Months 2015 2014
2015 2014 Integration costs(a) $ 5 $ 1 $ 9 $ 5
Other(b) 1 — 2 — Total acquisition-related
costs—pre-tax 6 1 11 5 Income taxes(c) — 1 (2 ) 2
Total acquisition-related costs—net of tax $ 6 $ — $
13 $ 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:
Third Quarter Nine Months 2015 2014 2015 2014
Operational efficiency initiative(a) $ 21 $ — $ 294 $ — Supply
network strategy(b) 3 — 23 — Other restructuring charges and
cost-reduction/productivity initiatives(c) — 1 — 5 Certain asset
impairment charges(d) — 6 2 6 Stand-up costs(e) 22 32 84 106 Net
gain on sale of assets(f) — — — (3 ) Other(g) — (1 ) 3
13 Total certain significant items—pre-tax 46 38 406
127 Income taxes(h) (2 ) 6 88 25 Total certain
significant items—net of tax $ 48 $ 32 $ 318 $
102 (a)
Includes restructuring charges of $8
million related to asset impairments for the three months ended
September 27, 2015 and restructuring charges of $261 million
related to employee termination costs ($228 million) and asset
impairments ($33 million) for the nine months ended September 27,
2015, included in Restructuring charges and certain
acquisition-related costs. Also includes inventory write-offs of $5
million for the three and nine months ended September 27, 2015,
included in Cost of sales, and $8 million and $28 million primarily
related to consulting fees for the three and nine months ended
September 27, 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 the nine months ended September
27, 2015, included in Restructuring charges and certain
acquisition-related costs. Also includes charges of $3 million and
$13 million primarily related to consulting fees for the three and
nine months ended September 27, 2015, respectively, included in
Cost of sales.
(c)
Amounts related to our
cost-reduction/productivity initiatives and were included in
Restructuring charges and certain acquisition-related costs.
(d)
Included in Other (income)/deductions—net.
For the nine months ended September 27, 2015, represents an
impairment of IPR&D assets related to the termination of a
canine oncology project. 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.
(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 ($2 million and
$16 million) and Selling, general and administrative expenses ($20
million and $68 million) for the three and nine months ended
September 27, 2015, respectively. Included in Cost of sales ($3
million and $14 million) and 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.
(f)
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, included in Other
(income)/deductions—net.
(g)
The nine months ended September 27, 2015,
includes charges due to unusual investor-related activities in
Selling, general and administrative expenses ($3 million). The nine
months ended September 28, 2014, primarily includes a reserve
associated with a commercial settlement in Mexico ($13 million),
partially offset by the insurance recovery ($1 million income), and
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), in
Other (income)/deductions—net.
(h)
Included in Provision for taxes on income.
Income taxes include the tax effect of the associated pre-tax
amounts, calculated by determining the jurisdictional location of
the pre-tax amounts and applying that jurisdiction's applicable tax
rate. The nine months ended September 27, 2015 also includes a net
tax benefit related to the revaluation of deferred taxes and other
deferred tax adjustments.
Certain amounts may reflect rounding adjustments.
ZOETIS INC.
ADJUSTED SELECTED COSTS, EXPENSES AND
INCOME (a)
(UNAUDITED) (millions of dollars) Third Quarter % Change
2015 2014 Total
ForeignExchange
Operational Adjusted cost of sales $ 409 $ 429 (5 )% (12 )%
7 % as a percent of revenue 33.7 % 35.5 % NA NA
NA
Adjusted SG&A expenses 346 366 (5 )% (8 )% 3 % Adjusted R&D
expenses 91 93 (2 )% (5 )% 3 % Adjusted net income attributable to
Zoetis 252 207 22 % (9 )% 31 % Nine Months
% Change
2015 2014 Total
ForeignExchange
Operational Adjusted cost of sales $ 1,200 $ 1,209 (1 )% (10 )% 9 %
as a percent of revenue 34.4 % 34.9 % NA NA NA Adjusted SG&A
expenses 1,009 1,057 (5 )% (8 )% 3 % Adjusted R&D expenses 254
271 (6 )% (3 )% (3 )% Adjusted net income attributable to Zoetis
675 587 15 % (7 )% 22 % (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 27, 2015 and
September 28, 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 $4,750 Operational growth
6.5% to 7.5% Adjusted cost of sales as a percentage of revenue(a)
Approximately 35% Adjusted SG&A
expenses(a) $1,375 to $1,405 Adjusted R&D
expenses(a) $350 to $370 Adjusted interest
expense and other (income)/deductions(a)
Approximately $110 Adjusted EBIT margin(a)
Approximately 28% Effective tax rate on adjusted income(a)
Approximately 28% Adjusted diluted EPS(a)
$1.70 to $1.74 Adjusted net income(a)
$855 to $875 Operational growth 16% to
19% Certain significant items(b) and acquisition-related costs
$470 to $490 Reported diluted EPS
$0.82 to $0.89
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 ~$855 - $875 ~$1.70 - $1.74 Purchase accounting
adjustments ~(40) ~(0.08) Certain significant items(b) and
acquisition-related costs ~(385 - 400) ~(0.77 - 0.80)
Reported net income attributable to Zoetis/diluted EPS guidance
~$415 - $450 ~$0.82 - $0.89 (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 and supply network strategy,
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
$4,750 to $4,875 $5,025 to $5,225 Operational
growth 3% to 5% 4% to 9% Adjusted cost
of sales as a percentage of revenue(a) 33% to
34% 32% to 33% Adjusted SG&A expenses(a)
$1,310 to $1,360 $1,270 to $1,360 Adjusted R&D
expenses(a) $360 to $380 $360 to $380
Adjusted interest expense and other (income)/deductions(a)
Approximately $150 Approximately $150 Adjusted
EBIT margin(a) Approximately 31%
Approximately 34% Effective tax rate on adjusted income(a)
Approximately 28% Approximately 28% Adjusted
diluted EPS(a) $1.84 to $1.94 $2.24 to
$2.38 Adjusted net income(a) $925 to $975
$1,125 to $1,195 Operational growth 14%
to 20% 18% to 26% Certain significant items(b) and
acquisition-related costs $130 to $180
$50 to $80 Reported diluted EPS(c) $1.50 to
$1.68 $2.04 to $2.22
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 ~$925 - $975 ~$1.84 - $1.94 Purchase accounting
adjustments ~(45) ~(0.09) Certain significant items(b) and
acquisition-related costs ~(85 - 125)
~(0.17 - 0.25) Reported net income attributable to Zoetis/diluted
EPS guidance(c) ~$755 - $845 ~$1.50 -
$1.68 Full-Year 2017
Guidance (millions of dollars, except per share amounts) Net Income
Diluted EPS Adjusted net income/diluted EPS(a) guidance
~$1,125 - $1,195
~$2.24 - $2.38 Purchase accounting adjustments ~(45) ~(0.09)
Certain significant items(b) and acquisition-related costs
~(35 - 55) ~(0.07 - 0.11) Reported net income
attributable to Zoetis/diluted EPS guidance(c)
~$1,025 - $1,115 ~$2.04 - $2.22 (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 and supply network strategy,
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. (c) Includes preliminary estimate of
purchase price allocation for PHARMAQ.
ZOETIS INC.
CONSOLIDATED REVENUE BY SEGMENT(a) AND
SPECIES
(UNAUDITED) (millions of dollars) Third Quarter % Change
2015 2014 Total Foreign Exchange Operational
Revenue: Livestock $ 750 $ 790 (5 )% (10 )% 5 % Companion
Animal 451 408 11 % (7 )% 18 % Contract Manufacturing 13 12
8 % (5 )% 13 %
Total Revenue $ 1,214
$ 1,210 —
%
(9 )% 9 %
U.S. Livestock $ 348 $ 308 13 % — % 13 % Companion Animal
284 224 27 % — % 27 %
Total U.S. Revenue
$ 632 $ 532 19
% — % 19 %
International Livestock $ 402 $ 482 (17 )% (17 )% — %
Companion Animal 167 184 (9 )% (16 )% 7 %
Total
International Revenue $ 569 $
666 (15 )% (17 )%
2 % Livestock: Cattle $
432 $ 437 (1 )% (9 )% 8 % Swine 163 179 (9 )% (10 )% 1 % Poultry
132 147 (10 )% (10 )% — % Other 23 27 (15 )% (15 )% —
%
Total Livestock Revenue $ 750
$ 790 (5 )% (10 )%
5 % Companion Animal: Horses $ 35 $ 38
(8 )% (10 )% 2 % Dogs and Cats 416 370 12 % (8 )% 20
%
Total Companion Animal Revenue $ 451
$ 408 11 % (7 )%
18 % (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) Nine Months % Change 2015
2014 Total Foreign Exchange Operational
Revenue: Livestock $ 2,155 $ 2,199 (2 )% (9 )% 7 % Companion
Animal 1,299 1,227 6 % (6 )% 12 % Contract Manufacturing 37
39 (5 )% (7 )% 2 %
Total Revenue $
3,491 $ 3,465 1 %
(8 )% 9 %
U.S. Livestock $ 903 $ 795 14 % — % 14 % Companion Animal
789 675 17 % — % 17 %
Total U.S. Revenue
$ 1,692 $ 1,470 15
% — % 15 %
International Livestock $ 1,252 $ 1,404 (11 )% (14 )% 3 %
Companion Animal 510 552 (8 )% (15 )% 7 %
Total
International Revenue $ 1,762 $
1,956 (10 )% (14 )%
4 % Livestock: Cattle $
1,201 $ 1,207 — % (8 )% 8 % Swine 495 496 — % (9 )% 9 % Poultry 399
428 (7 )% (8 )% 1 % Other 60 68 (12 )% (15 )% 3 %
Total Livestock Revenue $ 2,155
$ 2,199 (2 )% (9
)% 7 % Companion Animal: Horses
$ 117 $ 127 (8 )% (7 )% (1 )% Dogs and Cats 1,182 1,100
7 % (7 )% 14 %
Total Companion Animal Revenue
$ 1,299 $ 1,227 6
% (6 )% 12 % (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)
Third Quarter % Change 2015 2014
Total
ForeignExchange
Operational
Total International
$ 569 $ 666 (15 )% (17 )% 2 %
Australia 40 47 (15 )% (20 )% 5 %
Brazil 54 71
(24 )% (36 )% 12 %
Canada 35 39 (10 )% (15 )% 5 %
China 30 24 25 % 1 % 24 %
France 24 40 (40 )% (13 )%
(27 )%
Germany 27 34 (21 )% (19 )% (2 )%
Italy 21 26
(19 )% (17 )% (2 )%
Japan 23 17 35 % (21 )% 56 %
Mexico 19 20 (5 )% (16 )% 11 %
Spain 21 23 (9 )% (19
)% 10 %
United Kingdom 43 42 2 % (10 )% 12 %
Other
Developed 68 84 (19 )% (17 )% (2 )%
Other Emerging 164
199 (18 )% (12 )% (6 )%
Nine Months % Change 2015
2014 Total
ForeignExchange
Operational
Total International $ 1,762
$ 1,956 (10 )% (14 )% 4 %
Australia 109 125 (13 )% (16 )% 3 %
Brazil 185 218
(15 )% (27 )% 12 %
Canada 117 130 (10 )% (12 )% 2 %
China 94 80 18 % — % 18 %
France 77 114 (32 )% (14 )%
(18 )%
Germany 86 107 (20 )% (17 )% (3 )%
Italy 66 77
(14 )% (17 )% 3 %
Japan 75 78 (4 )% (14 )% 10 %
Mexico 55 62 (11 )% (14 )% 3 %
Spain 60 67 (10 )% (18
)% 8 %
United Kingdom 122 121 1 % (9 )% 10 %
Other
Developed 211 242 (13 )% (14 )% 1 %
Other Emerging 505
535 (6 )% (11 )% 5 % Certain amounts and percentages may reflect
rounding adjustments.
ZOETIS INC.
SEGMENT(a) EARNINGS
(UNAUDITED) (millions of dollars) Third Quarter % Change
2015 2014 Total
ForeignExchange
Operational
U.S.:
Revenue $ 632 $ 532 19 % —
%
19 % Cost of Sales 147 126 17 % — % 17 % Gross Profit
485 406 19 % — % 19 % Gross Margin 76.7 % 76.3 % Operating Expenses
100 93 8 % — % 8 % Other (income)/deductions (1 ) — * — % *
U.S. Earnings $ 386 $ 313
23 % — % 23 %
International:
Revenue $ 569 $ 666 (15 )% (17 )% 2 % Cost of Sales 209 241
(13 )% (13 )% — % Gross Profit 360 425 (15 )% (18 )% 3 %
Gross Margin 63.3 % 63.8 % Operating Expenses 137 168 (18 )% (16 )%
(2 )% Other (income)/deductions 4 2 100 % * *
International Earnings $ 219 $
255 (14 )% (21 )% 7
% Total Reportable Segments $
605 $ 568 7 % (9
)% 16 % Other business activities(b)
(73 ) (76 ) (4 )% Reconciling Items: Corporate(c) (138 ) (142 ) (3
)% Purchase accounting adjustments(d) (13 ) (13 ) — %
Acquisition-related costs(e) (6 ) (1 ) * Certain significant
items(f) (46 ) (38 ) 21 % Other unallocated(g) (56 ) (60 ) (7 )%
Total Earnings(h) $ 273 $
238 15 % * Calculation not meaningful. (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 includes substantive, unusual items that,
either as a result of their nature or size, would not be expected
to occur as part of our normal business on a regular basis. Such
items primarily include certain costs related to becoming an
independent public company, restructuring charges and
implementation costs associated with our
cost-reduction/productivity initiatives that are not associated
with an acquisition, costs associated with the operational
efficiency initiative, 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
before provision for taxes on income. Certain amounts and
percentages may reflect rounding adjustments.
ZOETIS INC.
SEGMENT(a) EARNINGS
(UNAUDITED) (millions of dollars) Nine Months % Change 2015
2014 Total Foreign Exchange Operational
U.S.:
Revenue $ 1,692 $ 1,470 15 % — % 15 % Cost of Sales 399 343
16 % — % 16 % Gross Profit 1,293 1,127 15 % — % 15 % Gross
Margin 76.4 % 76.7 % Operating Expenses 274 278 (1 )% — % (1 )%
Other (income)/deductions (1 ) — * — % *
U.S.
Earnings $ 1,020 $ 849 20
% — % 20 %
International:
Revenue $ 1,762 $ 1,956 (10 )% (14 )% 4 % Cost of Sales 638
701 (9 )% (11 )% 2 % Gross Profit 1,124 1,255 (10 )% (15 )%
5 % Gross Margin 63.8 % 64.2 % Operating Expenses 423 490 (14 )%
(14 )% — % Other (income)/deductions 10 5 100 % 60 %
40 %
International Earnings $ 691 $
760 (9 )% (17 )% 8
% Total Reportable Segments $
1,711 $ 1,609 6 % (8
)% 14 % Other business activities(b)
(208 ) (224 ) (7 )% Reconciling Items: Corporate(c) (392 ) (389 ) 1
% Purchase accounting adjustments(d) (41 ) (38 ) 8 %
Acquisition-related costs(e) (11 ) (5 ) * Certain significant
items(f) (406 ) (127 ) * Other unallocated(g) (177 ) (161 ) 10 %
Total Earnings(h) $ 476 $
665 (28 )% * Calculation not meaningful. (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 includes substantive, unusual items that,
either as a result of their nature or size, would not be expected
to occur as part of our normal business on a regular basis. Such
items primarily include certain costs related to becoming an
independent public company, restructuring charges and
implementation costs associated with our
cost-reduction/productivity initiatives that are not associated
with an acquisition, costs associated with the operational
efficiency initiative, 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
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/20151103005924/en/
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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