- For Second Quarter 2016, Zoetis
Reports Revenue of $1.2 Billion, Growing 3%, and Net Income of $224
Million, or $0.45 per Diluted Share, on a Reported Basis
- Zoetis Reports Adjusted Net Income
of $246 Million, or Adjusted Diluted EPS of $0.49, for Second
Quarter 2016
- Zoetis Delivers 6% Operational
Growth in Revenue and 22% Operational Growth in Adjusted Net
Income, Excluding Foreign Exchange, for Second Quarter
2016
- Zoetis Increases Full Year 2016
Revenue Guidance to $4.800 - $4.900 Billion and Diluted EPS to
$1.52 - $1.63 on a Reported Basis, or $1.86 - $1.93 on an Adjusted
Basis
Zoetis Inc. (NYSE:ZTS) today reported its financial results for
the second quarter of 2016 and increased its revenue and adjusted
net income guidance for full year 2016.
The company reported revenue of $1.2 billion for the second
quarter of 2016, an increase of 3% compared with the second quarter
of 2015. Net income for the second quarter of 2016 was $224
million, or $0.45 per diluted share, compared with a net loss of
$37 million for the second quarter of 2015, on a reported
basis.
Adjusted net income1 for the second quarter of 2016 was $246
million, or $0.49 per diluted share, an increase of 14%. Adjusted
net income for the second quarter of 2016 excludes the net impact
of $22 million for purchase accounting adjustments,
acquisition-related costs and certain significant items.
On an operational2 basis, revenue for the second quarter of 2016
increased 6%, excluding the impact of foreign currency. Adjusted
net income for the second quarter of 2016 increased 22%
operationally, excluding the impact of foreign currency.
EXECUTIVE COMMENTARY
“We have continued our positive momentum through the first half
of the year based on the strengths of our diverse portfolio and
dedicated Zoetis colleagues,” said Zoetis Chief Executive Officer
Juan Ramón Alaix. “In the second quarter, we delivered 6%
operational revenue growth, driven by strong sales of our companion
animal products and the positive performance of the U.S. cattle
business. We also grew adjusted net income significantly faster
than revenue – 22% operationally – as cost controls and efficiency
improvements are progressing.
“We also continue to reap the benefits of a productive,
world-class R&D organization focused on new discoveries like
APOQUEL and SIMPARICA, as well as lifecycle innovations across our
approximately 300 product lines,” said Alaix. “Our investments in
internal R&D and external business development opportunities
have us well-positioned as the world leader in animal health today
and into the future.”
“We’ve made a number of operational efficiency changes over the
last year that have and will negatively impact our reported revenue
growth in 2016. However, our go-forward product portfolio and
revised international footprint delivered strong revenue growth in
the second quarter and over the first half of 2016,” said Paul
Herendeen, Executive Vice President and Chief Financial Officer of
Zoetis. “These efficiency improvements and our execution of new
product launches have us on track to achieve our updated financial
guidance for 2016 and improve our profitability for the long
term.”
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 2016:
- Revenue in the U.S. segment was
$594 million, an increase of 10% compared with the second quarter
of 2015. Sales of companion animal products grew 17%, due primarily
to increased sales of APOQUEL® and several new product launches,
including SIMPARICA™. Livestock revenue grew 2%, driven by
increased sales of our cattle products as a result of improving
market conditions and expanding herd sizes. Livestock revenue
growth was partially offset by product rationalizations as part of
the company’s operational efficiency initiative that impacted
poultry and swine; swine also declined due to increased
competition.
- Revenue in the International
segment was $602 million, a decrease of 3% on a reported basis
and an increase of 2% operationally compared with the second
quarter of 2015. Sales of companion animal products grew 2% on a
reported basis and 6% operationally, driven primarily by sales of
APOQUEL across a variety of markets and growth in China, primarily
from the company’s vaccines portfolio. Growth in companion animal
products was partially offset by product rationalizations as a
result of the company’s operational efficiency initiative and
business reductions in Venezuela. Sales of livestock products
decreased 5% on a reported basis and grew 1% operationally,
primarily from the addition of revenue from PHARMAQ and growth in
China due to favorable market conditions in the swine market.
Poultry and cattle products declined primarily due to business
reductions in Venezuela and India, in addition to product
rationalizations as a result of the company’s operational
efficiency initiative.
Zoetis continues to drive demand and strengthen its diverse
portfolio of products through lifecycle innovations, 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 and
marketing innovative medicines, treatments and solutions for
emerging diseases and unmet customer needs. Some recent highlights
include:
- On the companion animal side, Zoetis
strengthened its vaccine portfolio, expanding its
VERSICAN® Plus and VANGUARD®
vaccine franchises with new approvals in Europe and Canada.
- VERSICAN Plus, a combination
vaccine for dogs containing nine vaccine antigens that help protect
against ten canine diseases, was first approved in the European
Union in 2014, and this quarter received additional approvals in
the United Kingdom, Denmark, Sweden and the Netherlands for smaller
combinations of the vaccine. These smaller combinations provide
veterinarians with further flexibility to tailor their vaccination
programs to meet the needs of their patients. Additionally,
VERSICAN Plus Rabies gained approval for a new claim – three
years duration of immunity – in the European Union.
- VANGUARD® B Oral
and VANGUARD® crLyme vaccines were approved in
Canada. These vaccines, which were granted United States Department
of Agriculture (USDA) licensure in December 2015, help protect
against Bordetella bronchiseptica, a common pathogen in canine
infectious respiratory disease, and Borrelia burgdorferi, the
causative agent of Lyme disease in dogs.
- Zoetis also gained approval in Spain
for a livestock variation of its WITNESS® diagnostic
test kits. This product delivers accurate, fast and clear
point-of-care results facilitating timely and informed diagnoses of
intestinal disease in cattle, without disrupting clinical
consultation.
- On the livestock side, the company
received approval of a new label claim in Europe for
DRAXXIN® (tulathromycin) and DRAXXIN®
25 (tulathromycin injection), one of the company’s largest
global product lines, which was first introduced in 2005. This
injectable anti-infective is an effective tool for treating swine
respiratory disease, and can now also be used to treat respiratory
diseases caused by Bordetella bronchiseptica infections in
swine.
- Zoetis also continues to pursue
partnerships that can help broaden and strengthen its product
portfolio. In May, Zoetis launched SILEO®
(dexmedetomidine oromucosal gel), the first and only medication
approved by the U.S. Food and Drug Administration (FDA) for
treatment of noise aversion in dogs. SILEO is available from
veterinarians by prescription and can be safely administered at
home by pet owners to help calm dogs without sedating them. Zoetis
markets and distributes SILEO in the U.S. under an exclusive
agreement with Orion Corporation, Orion Pharma Finland, which
developed and manufactures SILEO.
FINANCIAL GUIDANCE
Zoetis' guidance for the full year 2016 has been increased to
reflect the company’s strong performance in the first half of the
year, the continued strength of its business model, and its
confidence in the outlook for the remainder of the year. The
company’s guidance for the full year 2016 is the following:
- Revenue of between $4.800 billion to
$4.900 billion
- Reported diluted EPS for the full year
of between $1.52 to $1.63 per share
- Adjusted diluted EPS for the full year
between $1.86 to $1.93 per share
Additional guidance on other items such as expenses and tax rate
is included in the financial tables and will be discussed on the
company's conference call this morning. This guidance reflects
foreign exchange rates as of late July.
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 2016 results, discuss 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://investor.zoetis.com/events-presentations. A replay of the
webcast will be archived and made available on Aug. 3, 2016.
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. Zoetis serves
veterinarians, livestock producers and people who raise and care
for farm and companion animals with sales of its products in more
than 100 countries. In 2015, the company generated annual revenue
of $4.8 billion with approximately 9,000 employees. 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 (a non-GAAP financial measure) 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, future guidance, future operating models, expectations
regarding products, future use of cash and dividend payments, tax
rate and tax regimes, changes in the tax regimes and
laws in other jurisdictions, 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, 2015,
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,
adjusted diluted earnings per share and operational results (which
exclude the impact of foreign exchange), to assess and analyze our
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 2016
2015 % Change 2016 2015 %
Change Revenue $ 1,208 $ 1,175 3 $ 2,370 $ 2,277 4 Costs and
expenses: Cost of sales(b) 399 427 (7) 788 821 (4) Selling, general
and administrative expenses(b) 343 379 (9) 658 733 (10) Research
and development expenses(b) 88 84 5 178 164 9 Amortization of
intangible assets(c) 22 15 47 43 30 43 Restructuring
(benefits)/charges and certain acquisition-related costs (21 ) 266
* (19 ) 267 * Interest expense 41 29 41 84 57 47 Other
(income)/deductions–net 4 2 100 (26 ) 2 *
Income/(Loss) before provision for taxes on income 332 (27 ) * 664
203 * Provision for taxes on income 108 9 * 236
74 * Net income/(loss) before allocation to
noncontrolling interests 224 (36 ) * 428 129 * Less: Net income
attributable to noncontrolling interests — 1 (100) —
1 (100) Net income/(loss) attributable to Zoetis $
224 $ (37 ) * $ 428 $ 128 *
Earnings/(Loss) per share—basic $ 0.45 $ (0.07 ) * $ 0.86
$ 0.26 * Earnings/(Loss) per share—diluted $
0.45 $ (0.07 ) * $ 0.86 $ 0.25 *
Weighted-average shares used to calculate earnings per share Basic
496.3 500.2 496.9 500.7 Diluted 498.8
500.2 499.2 502.9 *
Calculation not meaningful. (a) The condensed
consolidated statements of income present the three and six months
ended July 3, 2016, and June 28, 2015. Subsidiaries operating
outside the United States are included for the three and six months
ended May 29, 2016 and May 24, 2015. (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 finite-lived 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 INFORMATIONCERTAIN LINE
ITEMS(UNAUDITED)(millions of dollars, except per share data)
Quarter ended July 3, 2016
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition- RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Revenue
$ 1,208 $ — $ — $ — $ 1,208 Cost of sales(c)
399 (8 ) — (3 ) 388 Gross profit
809 8 — 3 820
Selling, general and administrative expenses(c)
343 (2 ) —
(10 ) 331 Research and development expenses(c)
88 — — — 88
Amortization of intangible assets(d)
22 (18 ) — — 4
Restructuring (benefits)/charges and certain acquisition-related
costs
(21 ) — (2 )
23 — Interest expense
41 — — — 41 Other
(income)/deductions–net
4 — — (6 ) (2 ) Income before
provision for taxes on income
332 28 2 (4 ) 358 Provision
for taxes on income
108 10 1 (7 ) 112 Net income
attributable to Zoetis
224 18 1 3 246 Earnings per common
share attributable to Zoetis–diluted(e)
0.45 0.04 — — 0.49
Quarter ended June 28, 2015
GAAPReported(a)
PurchaseAccounting
Adjustments
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 ) Income
before provision for taxes on income
(27 ) 15 4 319
311 Provision for taxes on income
9 3 — 82 94 Income/(Loss)
from continuing operations
(36 ) 12 4 237 217 Net
income attributable to noncontrolling interests
1 — — — 1
Net income/(loss) attributable to Zoetis
(37 ) 12 4
237 216 Earnings/(Loss) per common share attributable to
Zoetis–diluted(e)
(0.07 ) 0.02 0.01 0.47 0.43
ZOETIS INC.RECONCILIATION OF GAAP REPORTED
TO NON-GAAP ADJUSTED INFORMATIONCERTAIN LINE
ITEMS(UNAUDITED)(millions of dollars, except per share data)
Six months ended July 3, 2016
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition -RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Revenue
$ 2,370 $ — $ — $ — $ 2,370 Cost of sales(c)
788 (15 ) — (7 ) 766 Gross profit
1,582 15 — 7 1,604
Selling, general and administrative expenses(c)
658 (3 ) —
(24 ) 631 Research and development expenses(c)
178 (1 ) — —
177 Amortization of intangible assets(d)
43 (35 ) — — 8
Restructuring (benefits)/charges and certain acquisition-related
costs
(19 ) — (2 )
21 — Interest expense
84 — — — 84 Other
(income)/deductions–net
(26 ) — (1 ) 27 — Income
before provision for taxes on income
664 54 3 (17 ) 704
Provision for taxes on income
236 27 (1 ) (43 ) 219 Net
income attributable to Zoetis
428 27 4 26 485 Earnings per
common share attributable to Zoetis–diluted(e)
0.86 0.05
0.01 0.05 0.97 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 (a) The condensed consolidated
statements of income present the three and six months ended July 3,
2016, and June 28, 2015. Subsidiaries operating outside the United
States are included for the three and six months ended May 29, 2016
and May 24, 2015. (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 finite-lived 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 INFORMATIONCERTAIN LINE
ITEMS(UNAUDITED)(millions of dollars)
(1) Acquisition-related costs include the
following:
Second Quarter Six Months 2016
2015 2016 2015
Integration costs(a) $ 2 $ 3 $ 2 $ 4 Other(b) — 1
1 1 Total acquisition-related costs—pre-tax 2
4 3 5 Income taxes(c) 1 — (1 ) (2 ) Total
acquisition-related costs—net of tax $ 1 $ 4 $ 4
$ 7 (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
(benefits)/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 2016
2015 2016 2015 Operational efficiency
initiative(a) $ (17 ) $ 263 $ (45 ) $ 273 Supply network
strategy(b) 8 15 11 20 Other restructuring charges and
cost-reduction/productivity initiatives(c) (1 ) — (1 ) — Stand-up
costs(d) 5 39 17 62 Other(e) 1 2 1 5 Total
certain significant items—pre-tax (4 ) 319 (17 ) 360 Income
taxes(f) (7 ) 82 (43 ) 90 Total certain significant
items—net of tax $ 3 $ 237 $ 26 $ 270
(a)
For the three months ended July 3, 2016,
represents a reduction in employee termination accruals ($30
million benefit) and an increase in exit costs ($2 million),
included in Restructuring (benefits)/charges and certain
acquisition-related costs, accelerated depreciation of $1 million
and consulting fees of $4 million, included in Selling, general and
administrative expenses, and a $6 million net loss related to
divestitures, included in Other (income)/deductions—net. For the
six months ended July 3, 2016, represents a reduction in employee
termination accruals ($29 million benefit) and an increase in exit
costs ($3 million), included in Restructuring (benefits)/charges
and certain acquisition-related costs, accelerated depreciation of
$1 million and consulting fees of $7 million, included in Selling,
general and administrative expenses, and a $27 million net gain
related to divestitures, included in Other (income)/deductions—net.
The three and six months ended June 28, 2015, represents
restructuring charges of $253 million related to employee
termination costs ($228 million) and asset impairments ($25
million), included in Restructuring (benefits)/charges and certain
acquisition-related costs. Additionally, the three and six months
ended June 28, 2015 include consulting fees of $10 million and $20
million, respectively, included in Selling, general and
administrative expenses.
(b)
For the three and six months ended July 3,
2016, represents restructuring charges of $6 million related to
employee termination costs, included in Restructuring
(benefits)/charges and certain acquisition-related costs, and
accelerated depreciation charges of $1 million and $2 million,
respectively, and consulting fees of $1 million and $3 million,
respectively, included in Cost of sales. For the three and six
months ended June 28, 2015, represents restructuring charges of $10
million related to employee termination costs ($9 million) and
asset impairments ($1 million), included in Restructuring
(benefits)/charges and certain acquisition-related costs.
Additionally, the three and six months ended June 28, 2015, include
consulting fees of $5 million and $10 million, respectively,
included in Cost of sales.
(c)
Included in Restructuring
(benefits)/charges and certain acquisition-related costs.
(d)
Represents certain nonrecurring costs
related to becoming an independent public company, such as the
creation of standalone systems and infrastructure, site separation,
new branding (including changes to the manufacturing process for
required new packaging), and certain legal registration and patent
assignment costs. For the three and six months ended July 3, 2016,
included in Cost of sales ($1 million and $2 million, respectively)
and Selling, general and administrative expenses ($4 million and
$15 million, respectively). For the three and six months ended June
28, 2015, included in Cost of sales ($12 million and $14 million,
respectively) and Selling, general and administrative expenses ($27
million and $48 million, respectively).
(e)
The three and six months ended July 3,
2016, represents costs associated with changes to our operating
model in Selling, general and administrative expenses. The three
and six months ended June 28, 2015, includes an impairment of
IPR&D assets related to a discontinued canine oncology project
($2 million) in Other (income)/deductions—net. The six months ended
June 28, 2015, also includes charges due to unusual
investor-related activities ($3 million) in Selling, general and
administrative expenses.
(f)
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 three and six months ended July 3, 2016, also includes a
net tax charge of approximately $3 million and $38 million,
respectively, related to the impact of the European Commission’s
negative decision on the excess profits rulings in Belgium. These
net charges relate to the Belgium government's recovery of prior
tax benefits for the periods 2013 through 2015 offset by the
revaluation of the company’s deferred tax assets and liabilities
using the rates expected to be in place at the time of the
reversal. These net charges do not include any benefits associated
with a successful appeal of the decision.
Certain amounts may reflect rounding adjustments.
ZOETIS INC.ADJUSTED SELECTED COSTS,
EXPENSES AND INCOME (a)(UNAUDITED)(millions of dollars)
Second Quarter % Change 2016
2015 Total
ForeignExchange
Operational(b) Adjusted cost of sales $ 388 $ 406 (4 )% — %
(4 )% as a percent of revenue 32.1 % 34.6 %
NA
NA
NA
Adjusted SG&A expenses 331 343 (3 )% (2 )% (1 )% Adjusted
R&D expenses 88 83 6 % (1 )% 7 % Adjusted net income
attributable to Zoetis 246 216 14 % (8 )% 22 % Six
Months % Change 2016 2015 Total
ForeignExchange
Operational(b) Adjusted cost of sales $ 766 $ 791 (3 )% (2 )% (1 )%
as a percent of revenue 32.3 % 34.7 %
NA
NA
NA
Adjusted SG&A expenses 631 663 (5 )% (4 )% (1 )% Adjusted
R&D expenses 177 163 9 % (2 )% 11
%
Adjusted net income attributable to Zoetis 485 423 15 % (10 )% 25 %
(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 (non-GAAP financial measures) 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 July 3, 2016, and
June 28, 2015, 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. (b) Operational growth (a non-GAAP
financial measure) is defined as growth excluding the impact of
foreign exchange.
ZOETIS INC.2016 GUIDANCE
Selected Line Items(millions of dollars,
except per share amounts)
Full Year 2016 Revenue $4,800 to
$4,900 Operational growth(a) 3% to 5% Adjusted cost
of sales as a percentage of revenue(b) Approximately
33% Adjusted SG&A expenses(b) $1,290 to $1,330
Adjusted R&D expenses(b) $360 to $380 Adjusted
interest expense and other (income)/deductions(b)
Approximately $170 Adjusted EBIT margin(b) 31% to 32%
Effective tax rate on adjusted income(b)
Approximately 32% Adjusted diluted EPS(b) $1.86 to
$1.93 Adjusted net income(b) $930 to $965 Operational growth(a)
10% to 14% Certain significant items(c) and
acquisition-related costs $40 to $70 Reported diluted
EPS $1.52 to $1.63
A reconciliation of 2016 adjusted net income and adjusted
diluted EPS guidance to 2016 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(b) guidance ~$930 - $965 ~$1.86 -
$1.93 Purchase accounting adjustments ~(60) ~(0.12) Certain
significant items(c) and acquisition-related costs ~(90 -
110) ~(0.18 - 0.22) Reported net income attributable to
Zoetis/diluted EPS guidance ~$760 - $815 ~$1.52 -
$1.63 (a) Operational growth (a non-GAAP financial
measure) excludes the impact of foreign exchange. (b)
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. (c) Primarily includes certain nonrecurring costs
related to restructuring, net gains/losses on sales of assets, and
other charges for the operational efficiency initiative and supply
network strategy, becoming an independent public company, such as
the creation of standalone systems and infrastructure, site
separation, new branding (including changes to the manufacturing
process for required new packaging), and certain legal registration
and patent assignment costs.
ZOETIS INC.2017 GUIDANCE
Selected Line Items(millions of dollars,
except per share amounts)
Full Year 2017 Revenue $5,075 to
$5,275 Operational growth(a) 5% to 9% Adjusted cost
of sales as a percentage of revenue(b) 32% to 33%
Adjusted SG&A expenses(b) $1,250 to $1,340
Adjusted R&D expenses(b) $360 to $380 Adjusted
interest expense and other (income)/deductions(b)
Approximately $150 Adjusted EBIT margin(b)
Approximately 34% Effective tax rate on adjusted income(b)
Approximately 30% Adjusted diluted EPS(b)
$2.24 to $2.38 Adjusted net income(b) $1,120 to $1,190 Operational
growth(a) 18% to 26% Certain significant items(c) and
acquisition-related costs $50 to $80 Reported diluted
EPS $2.01 to $2.19
A reconciliation of 2017 adjusted net income and adjusted
diluted EPS guidance to 2017 reported net income attributable to
Zoetis and reported diluted EPS attributable to Zoetis common
shareholders guidance follows:
Full-Year 2017 Guidance (millions of
dollars, except per share amounts) Net Income Diluted EPS
Adjusted net income/diluted EPS(b) guidance ~$1,120 - $1,190 ~$2.24
- $2.38 Purchase accounting adjustments ~(60) ~(0.12) Certain
significant items(c) and acquisition-related costs ~(35 -
55) ~(0.07 - 0.11) Reported net income attributable to
Zoetis/diluted EPS guidance ~$1,005 - $1,095 ~$2.01 -
$2.19 (a) Operational growth (a non-GAAP financial
measure) excludes the impact of foreign exchange. (b)
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. (c) Primarily includes certain nonrecurring costs
related to restructuring, net gains/losses on sales of assets, and
other charges for the operational efficiency initiative and supply
network strategy, becoming an independent public company, such as
the creation of standalone systems and infrastructure, site
separation, new branding (including changes to the manufacturing
process for required new packaging), and certain legal registration
and patent assignment costs.
ZOETIS INC.CONSOLIDATED REVENUE BY
SEGMENT(a) AND SPECIES(UNAUDITED)(millions of dollars)
Second Quarter % Change 2016
2015 Total
ForeignExchange
Operational(b)
Revenue: Livestock $ 673 $ 690
(2)% (3)% 1% Companion Animal 523 471 11% (2)% 13% Contract
Manufacturing 12 14 (14)% 2% (16)%
Total
Revenue $ 1,208 $ 1,175
3% (3)% 6%
U.S. Livestock $ 262 $ 256 2% —% 2% Companion Animal 332
283 17% —% 17%
Total U.S. Revenue $
594 $ 539 10% —%
10% International Livestock $ 411 $ 434 (5)%
(6)% 1% Companion Animal 191 188 2% (4)% 6%
Total
International Revenue $ 602 $
622 (3)% (5)% 2%
Livestock: Cattle $ 366 $ 372 (2)% (5)% 3% Swine 150
162 (7)% (2)% (5)% Poultry 118 138 (14)% (3)% (11)% Fish 22 — — — —
Other 17 18 (6)% 1% (7)%
Total Livestock
Revenue $ 673 $ 690
(2)% (3)% 1% Companion Animal:
Horses $ 36 $ 42 (14)% (2)% (12)% Dogs and Cats 487 429
14% (1)% 15%
Total Companion Animal Revenue $
523 $ 471 11% (2)%
13% * Calculation not meaningful. (a)
For a description of each segment, see Note 19A to Zoetis'
consolidated financial statements included in Zoetis' Form 10-K for
the year ended December 31, 2015. (b) Operational revenue
growth (a non-GAAP financial measure) is defined as revenue growth
excluding the impact of foreign exchange. Certain amounts
and percentages may reflect rounding adjustments.
ZOETIS INC.CONSOLIDATED REVENUE BY
SEGMENT(a) AND SPECIES(UNAUDITED)(millions of dollars)
Six Months % Change 2016 2015
Total
ForeignExchange
Operational(b)
Revenue: Livestock $ 1,356 $
1,405 (3)% (5)% 2% Companion Animal 989 848 17% (3)% 20% Contract
Manufacturing 25 24 4% (3)% 7%
Total Revenue
$ 2,370 $ 2,277 4%
(5)% 9% U.S. Livestock $
550 $ 555 (1)% —% (1)% Companion Animal 626 505 24%
—% 24%
Total U.S. Revenue $ 1,176
$ 1,060 11% —% 11%
International Livestock $ 806 $ 850 (5)% (10)% 5% Companion
Animal 363 343 6% (7)% 13%
Total International
Revenue $ 1,169 $ 1,193
(2)% (9)% 7%
Livestock: Cattle $ 743 $ 769 (3)% (6)% 3% Swine 296 332
(11)% (5)% (6)% Poultry 240 267 (10)% (5)% (5)% Fish 39 — — — —
Other 38 37 3% (3)% 6%
Total Livestock Revenue
$ 1,356 $ 1,405
(3)% (5)% 2% Companion Animal:
Horses $ 75 $ 82 (9)% (4)% (5)% Dogs and Cats 914 766
19% (3)% 22%
Total Companion Animal Revenue $
989 $ 848 17% (3)%
20% * Calculation not meaningful. (a)
For a description of each segment, see Note 19A to Zoetis'
consolidated financial statements included in Zoetis' Form 10-K for
the year ended December 31, 2015. (b) Operational revenue
growth (a non-GAAP financial measure) is defined as revenue growth
excluding the impact of foreign exchange. Certain amounts
and percentages may reflect rounding adjustments.
ZOETIS INC.CONSOLIDATED REVENUE BY KEY
INTERNATIONAL MARKETS(UNAUDITED)(millions of dollars)
Second Quarter % Change 2016
2015 Total
ForeignExchange
Operational(a)
Total International $ 602
$ 622 (3)% (5)% 2%
Australia 42 41 2% (8)% 10%
Brazil 60 67 (10)%
(16)% 6%
Canada 48 49 (2)% (7)% 5%
China 42 29 45%
(4)% 49%
France 25 27 (7)% 2% (9)%
Germany 32 31 3%
3% —%
Italy 22 20 10% 5% 5%
Japan 31 26 19% 11% 8%
Mexico 20 18 11% (9)% 20%
Spain 23 20 15% 4% 11%
United Kingdom 27 37 (27)% (6)% (21)%
Other Developed
75 78 (4)% (3)% (1)%
Other Emerging 155 179 (13)% (8)% (5)%
Six Months % Change 2016 2015 Total
ForeignExchange
Operational(a)
Total International $ 1,169
$ 1,193 (2)% (9)% 7%
Australia
77 69 12% (10)% 22%
Brazil 106 131 (19)% (26)% 7%
Canada 81 82 (1)% (10)% 9%
China 80 64 25% (5)% 30%
France 61 53 15% (3)% 18%
Germany 61 59 3% (3)% 6%
Italy 42 45 (7)% (3)% (4)%
Japan 62 52 19% 6% 13%
Mexico 39 36 8% (17)% 25%
Spain 42 39 8% (1)% 9%
United Kingdom 77 79 (3)% (6)% 3%
Other Developed 143
143 —% (5)% 5%
Other Emerging 298 341 (13)% (11)% (2)%
(a) Operational revenue growth (a non-GAAP financial
measure) is defined as revenue growth excluding the impact of
foreign exchange. Certain amounts and percentages may
reflect rounding adjustments.
ZOETIS INC.SEGMENT(a)
EARNINGS(UNAUDITED)(millions of dollars)
Second Quarter % Change 2016 2015 Total
ForeignExchange
Operational(b)
U.S.:
Revenue $ 594 $ 539 10% —% 10% Cost of Sales 134 127
6% —% 6% Gross Profit 460 412 12% —% 12% Gross Margin 77.4 % 76.4 %
Operating Expenses 100 93 8% —% 8% Other (income)/deductions —
— —% —% —%
U.S. Earnings $ 360
$ 319 13% —% 13%
International:
Revenue $ 602 $ 622 (3)% (5)% 2% Cost of Sales 201 225
(11)% (7)% (4)% Gross Profit 401 397 1% (4)% 5% Gross Margin
66.6 % 63.8 % Operating Expenses 124 151 (18)% (5)% (13)% Other
(income)/deductions 1 4 (75)% (13)% (62)%
International Earnings $ 276 $
242 14% (4)% 18% Total
Reportable Segments $ 636 $ 561
13% (2)% 15% Other business
activities(c) (74 ) (67 ) 10% Reconciling Items: Corporate(d) (171
) (123 ) 39% Purchase accounting adjustments(e) (28 ) (15 ) 87%
Acquisition-related costs(f) (2 ) (4 ) (50)% Certain significant
items(g) 4 (319 ) * Other unallocated(h) (33 ) (60 ) (45)%
Total
Earnings(i) $ 332 $
(27 ) * * Calculation not meaningful.
(a) For a description of each segment, see Note 19A
to Zoetis' consolidated financial statements included in Zoetis'
Form 10-K for the year ended December 31, 2015. (b)
Operational growth (a non-GAAP financial measure) is defined as
growth excluding the impact of foreign exchange. (c) Other
business activities reflect the research and development costs
managed by our Research and Development organization as well as our
contract manufacturing business. (d) Corporate includes,
among other things, administration expenses, interest expense,
certain compensation and other costs not charged to our operating
segments. (e) Purchase accounting adjustments include
certain charges related to the amortization of fair value
adjustments to inventory, intangible assets and property, plant and
equipment not charged to our operating segments. (f)
Acquisition-related costs can include costs associated with
acquiring and integrating newly acquired businesses, such as
transaction costs and integration costs. (g) 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 and supply network strategy,
certain legal and commercial settlements, and the impact of
divestiture-related gains and losses. (h) Includes overhead
expenses associated with our manufacturing and supply operations
not directly attributable to an operating segment, as well as
procurement costs. (i) 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)
Six Months % Change 2016 2015
Total
ForeignExchange
Operational(b)
U.S.:
Revenue $ 1,176 $ 1,060 11% —% 11% Cost of Sales 265 252
5% —% 5% Gross Profit 911 808 13% —% 13% Gross Margin 77.5 %
76.2 % Operating Expenses 192 174 10% —% 10% Other
(income)/deductions — — —% —% —%
U.S. Earnings
$ 719 $ 634 13% —%
13%
International:
Revenue $ 1,169 $ 1,193 (2)% (9)% 7% Cost of Sales 397 429
(7)% (10)% 3% Gross Profit 772 764 1% (9)% 10% Gross Margin
66.0 % 64.0 % Operating Expenses 233 286 (19)% (8)% (11)% Other
(income)/deductions 3 6 (50)% (31)% (19)%
International Earnings $ 536 $
472 14% (9)% 23% Total
Reportable Segments $ 1,255 $ 1,106
13% (5)% 18% Other business
activities(c) (148 ) (135 ) 10% Reconciling Items: Corporate(d)
(340 ) (254 ) 34% Purchase accounting adjustments(e) (54 ) (28 )
93% Acquisition-related costs(f) (3 ) (5 ) (40)% Certain
significant items(g) 17 (360 ) * Other unallocated(h) (63 ) (121 )
(48)%
Total Earnings(i) $ 664
$ 203 * * Calculation not meaningful.
(a) For a description of each segment, see Note 19A to
Zoetis' consolidated financial statements included in Zoetis' Form
10-K for the year ended December 31, 2015. (b) Operational
growth (a non-GAAP financial measure) is defined as growth
excluding the impact of foreign exchange. (c) Other business
activities reflect the research and development costs managed by
our Research and Development organization as well as our contract
manufacturing business. (d) Corporate includes, among other
things, administration expenses, interest expense, certain
compensation and other costs not charged to our operating segments.
(e) Purchase accounting adjustments include certain charges
related to the amortization of fair value adjustments to inventory,
intangible assets and property, plant and equipment not charged to
our operating segments. (f) Acquisition-related costs can
include costs associated with acquiring and integrating newly
acquired businesses, such as transaction costs and integration
costs. (g) 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 and supply network strategy, certain legal
and commercial settlements, and the impact of divestiture-related
gains and losses. (h) Includes overhead expenses associated
with our manufacturing and supply operations not directly
attributable to an operating segment, as well as procurement costs.
(i) 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/20160803005793/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.comorInvestors:Steve Frank, 1-973-822-7141
(o)steve.frank@zoetis.com
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