- For Third Quarter 2016, Zoetis
Reports Revenue of $1.2 Billion, Growing 2%, and Net Income of $239
Million, or $0.48 per Diluted Share, Growing 26% on a Reported
Basis
- Reports Adjusted Net Income of $258
Million, or Adjusted Diluted EPS of $0.52, for Third Quarter
2016
- Delivers 4% Operational Growth in
Revenue and 6% Operational Growth in Adjusted Net Income, Excluding
Foreign Exchange, for Third Quarter 2016
- Updates Full Year 2016 Revenue
Guidance to $4.850 - $4.900 Billion and Increases Diluted EPS to
$1.66 - $1.75 on a Reported Basis, or $1.91 - $1.96 on an Adjusted
Basis
- Updates Full Year 2017 Revenue
Guidance to $5.150 - $5.275 Billion, with Diluted EPS of $2.10 -
$2.22 on a Reported Basis, or $2.28 - $2.38 on an Adjusted
Basis
Zoetis Inc. (NYSE:ZTS) today reported its financial results for
the third quarter of 2016 and updated its guidance for full year
2016 and 2017.
The company reported revenue of $1.2 billion for the third
quarter of 2016, an increase of 2% compared with the third quarter
of 2015. Net income for the third quarter of 2016 was $239 million,
or $0.48 per diluted share, an increase of 26% to both on a
reported basis.
Adjusted net income1 for the third quarter of 2016 was $258
million, or $0.52 per diluted share, an increase of 2% and 4%,
respectively. Adjusted net income for the third quarter of 2016
excludes the net impact of $19 million for purchase accounting
adjustments, acquisition-related costs and certain significant
items.
On an operational2 basis, revenue for the third quarter of 2016
increased 4%, excluding the impact of foreign currency. Adjusted
net income for the third quarter of 2016 increased 6%
operationally, excluding the impact of foreign currency.
EXECUTIVE COMMENTARY
“In the third quarter, we grew revenue 4% operationally, with
particular strength in our companion animal portfolio due to
increased global sales of APOQUEL and other new products,” said
Zoetis Chief Executive Officer Juan Ramón Alaix. “The
livestock portfolio also showed positive operational growth in the
quarter, excluding the impact of product rationalizations -- a
testament to the value of our diversification.”
“Our operational efficiency initiative as well as recent product
launches are having clear benefits on our profitability, while we
continue to invest in our business to sustain and grow our market
leadership over the long term,” said Alaix.
“We continue to deliver solid operational revenue growth, while
reducing our costs and improving margins. We are effectively
implementing our operational efficiency initiative and are on
target to exceed $300 million in savings in 2017,” said Glenn
David, Executive Vice President and Chief Financial Officer of
Zoetis. “We remain committed to allocating resources to the
most promising opportunities and returning excess capital to our
shareholders. Based on our strong performance through the
first nine months, we are raising our earnings guidance for 2016
and improving our earnings guidance for 2017 despite the impact of
foreign currency.”
QUARTERLY HIGHLIGHTS
Zoetis organizes and manages its commercial operations across
two regional 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 2016:
- Revenue in the U.S. segment was
$640 million, an increase of 1% compared with the third quarter of
2015. Sales of companion animal products grew 5%, driven by
increased sales of APOQUEL® and several other new product launches,
which were partially offset by declines in the company’s surgical
fluid products. Sales of livestock products declined 2%, primarily
due to product rationalizations as part of the company’s
operational efficiency initiative, which impacted both poultry and
swine. Swine also declined due to increased competition. The
declines were partially offset by increased sales of cattle
products due to promotional activities.
- Revenue in the International
segment was $585 million, an increase of 3% on a reported basis
and an increase of 6% operationally, compared with the third
quarter of 2015. Growth was partially offset by product
rationalizations as a result of the company’s operational
efficiency initiative and business changes in Venezuela and India.
Sales of companion animal products grew 14% on a reported basis and
15% operationally, driven primarily from increased sales of
APOQUEL, due in part to initial customer purchases in Japan, and
other new product launches. In addition, sales grew in China,
primarily in the vaccine portfolio, due to increased field force
expansions and positive medicalization trends. Sales of livestock
products declined 2% on a reported basis and grew 2% operationally,
driven primarily by the acquisition of PHARMAQ, with sales
primarily in Chile and Norway. Growth also resulted from an
increase in sales of cattle products in Brazil and swine products
in China.
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.
As part of the company’s focus on lifecycle innovation, Zoetis
received approvals for new indications and formulations of key
livestock products.
- For swine, the company obtained
approvals in the U.S. for new combinations of its FLUSURE
XP® vaccine, which now helps guard against additional
flu strains threatening swine herd health. Zoetis also expanded the
breadth of its FOSTERA® swine vaccine franchise. In
Mexico, the FOSTERA porcine reproductive and respiratory (PRRS)
vaccine received an additional approval for reproductive
protection, helping to prevent loss of piglets in utero due to PRRS
infection. The company continued to bring its FOSTERA PCV MH
vaccine to key markets with approvals in Brazil and Korea. This
combination vaccine helps protect swine from porcine
circovirus-associated disease and enzootic pneumonia caused by
Mycoplasma hyopneumoniae.
- DRAXXIN®, an injectable
anti-infective to control and treat bovine respiratory disease, was
approved for use in cattle in Japan, and it received an additional
approval in Canada for use in pre-ruminating calves and veal
cattle. Zoetis also obtained approval in Japan for BOPRIVA®,
a unique vaccine that temporarily reduces testosterone in bulls,
providing farmers with a highly effective therapy to manage
aggressive behavior in cattle herds.
Zoetis continued to grow its diagnostics business through both
an acquisition and the expansion of products into new markets.
- In August, Zoetis acquired
Scandinavian Micro Biodevices, a pioneer in developing and
manufacturing microfluidic “lab on a chip” diagnostic analyzers and
tests for veterinary point-of-care services. The acquisition gives
the company an expanded and promising pipeline in this fast-growing
segment of the animal health industry.
- Zoetis also obtained new approvals for
its WITNESS™, SERELISA® and
PROFLOK® lines of diagnostic test kits in new markets
such as Mexico, Japan and Korea. WITNESS diagnostic test kits help
detect parvovirus in dogs. SERELISA PRV and PROFLOK diagnostic test
kits help detect Aujeszky’s disease in swine and various diseases
in poultry, respectively.
FINANCIAL GUIDANCE
Zoetis' guidance for the full year 2016 has been updated to
reflect the company’s strong performance throughout 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 $4.850 billion to
$4.900 billion
- Reported diluted EPS for the full year
of between $1.66 to $1.75 per share
- Adjusted diluted EPS for the full year
between $1.91 to $1.96 per share
Zoetis is improving its adjusted earnings guidance for 2017
despite the negative impact of foreign currency. The company’s
guidance for the full year 2017 is as follows:
- Revenue of between $5.150 billion to
$5.275 billion
- Reported diluted EPS for the full year
of between $2.10 to $2.22 per share
- Adjusted diluted EPS for the full year
between $2.28 to $2.38 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 October.
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 third
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 Nov. 2, 2016.
About Zoetis
Zoetis 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 INCOME(a)(UNAUDITED)(millions of dollars, except per
share data)
Third Quarter Nine Months 2016
2015 % Change 2016 2015 % Change
Revenue $ 1,241 $ 1,214 2 $ 3,611 $ 3,491 3 Costs and expenses:
Cost of sales(b) 410 421 (3) 1,198 1,242 (4) Selling, general and
administrative expenses(b) 345 374 (8) 1,003 1,107 (9) Research and
development expenses(b) 90 91 (1) 268 255 5 Amortization of
intangible assets(c) 21 15 40 64 45 42 Restructuring
charges/(benefits) and certain acquisition-related costs 4 13 (69)
(15 ) 280 * Interest expense 41 29 41 125 86 45 Other
(income)/deductions–net (3 ) (2 ) 50 (29 ) — * Income before
provision for taxes on income 333 273 22 997 476 * Provision for
taxes on income 96 83 16 332 157 * Net
income before allocation to noncontrolling interests 237 190 25 665
319 * Less: Net (loss)/income attributable to noncontrolling
interests (2 ) 1 * (2 ) 2 * Net income attributable
to Zoetis $ 239 $ 189 26 $ 667 $ 317 *
Earnings per share—basic $ 0.48 $ 0.38 26 $
1.34 $ 0.63 * Earnings per share—diluted $
0.48 $ 0.38 26 $ 1.34 $ 0.63 *
Weighted-average shares used to calculate earnings per share Basic
495.2 499.2 496.3 500.2 Diluted 497.9
501.7 498.8 502.5 * Calculation
not meaningful. (a) The condensed consolidated
statements of income present the three and nine months ended
October 2, 2016, and September 27, 2015. Subsidiaries operating
outside the United States are included for the three and nine
months ended August 28, 2016 and August 23, 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 October 2, 2016
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 410 $ (7 ) $ — $ — $ 403 Gross
profit
831 7 — — 838 Selling, general and administrative
expenses(c)
345 (1 ) — (11 ) 333 Research and development
expenses(c)
90 — — — 90 Amortization of intangible assets(d)
21 (17 ) — — 4 Restructuring charges/(benefits) and certain
acquisition-related costs
4 — —
(4 ) — Other (income)/deductions–net
(3 ) — — (1 ) (4
) Income before provision for taxes on income
333 25 — 16
374 Provision for taxes on income
96 7 — 15 118 Net income
attributable to Zoetis
239 18 — 1 258 Earnings per common
share attributable to Zoetis–diluted
0.48 0.04 — — 0.52
Quarter ended September 27, 2015
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
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 ) — 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 Net income
attributable to Zoetis
189 9 6 48 252 Earnings per common
share attributable to Zoetis–diluted
0.38 0.02 0.01 0.09
0.50
ZOETIS INC.RECONCILIATION OF GAAP REPORTED
TO NON-GAAP ADJUSTED INFORMATIONCERTAIN LINE
ITEMS(UNAUDITED)(millions of dollars, except per share data)
Nine months ended October 2, 2016
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 1,198 $ (22 ) $ — $ (7 ) $ 1,169
Gross profit
2,413 22 — 7 2,442 Selling, general and
administrative expenses(c)
1,003 (4 ) — (35 ) 964 Research
and development expenses(c)
268 (1 ) — — 267 Amortization of
intangible assets(d)
64 (52 ) — — 12 Restructuring
charges/(benefits) and certain acquisition-related costs
(15
) — (2 )
17 — Other (income)/deductions–net
(29 ) — (1 ) 26 (4
) Income before provision for taxes on income
997 79 3 (1 )
1,078 Provision for taxes on income
332 34 (1 ) (28 ) 337
Net income attributable to Zoetis
667 45 4 27 743 Earnings
per common share attributable to Zoetis–diluted
1.34 0.09
0.01 0.05 1.49 Nine months ended September 27, 2015
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
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 ) —
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 Net income
attributable to Zoetis
317 27 13 318 675 Earnings per common
share attributable to Zoetis–diluted
0.63 0.05 0.03 0.63
1.34 (a) The condensed consolidated statements of income
present the three and nine months ended October 2, 2016, and
September 27, 2015. Subsidiaries operating outside the United
States are included for the three and nine months ended August 28,
2016 and August 23, 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.
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:
Third Quarter Nine Months
2016 2015 2016 2015
Integration costs(a) $ — $ 5 $ 2 $ 9 Other(b) — 1
1 2 Total acquisition-related costs—pre-tax —
6 3 11 Income taxes(c) — — (1 ) (2 ) Total
acquisition-related costs—net of tax $ — $ 6 $ 4
$ 13 (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/(benefits) 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 2016
2015 2016 2015 Operational
efficiency initiative(a) $ 9 $ 21 $ (36 ) $ 294 Supply
network strategy(b) 2 3 13 23 Other restructuring charges and
cost-reduction/productivity initiatives(c) — — (1 ) — Certain asset
impairment charges(d) 1 — 1 2 Stand-up costs(e) 1 22 18 84 Other(f)
3 — 4 3 Total certain significant
items—pre-tax 16 46 (1 ) 406 Income taxes(g) 15 (2 ) (28 )
88 Total certain significant items—net of tax $ 1 $ 48
$ 27 $ 318 (a)
For the three months ended October 2,
2016, represents an increase in employee termination accruals ($3
million) and exit costs ($1 million), included in Restructuring
charges/(benefits) and certain acquisition-related costs, inventory
write-offs of $1 million, included in Cost of sales, and consulting
fees of $4 million, included in Selling, general and administrative
expenses. For the nine months ended October 2, 2016, represents a
reduction in employee termination accruals ($26 million benefit)
and an increase in exit costs ($4 million), included in
Restructuring charges/(benefits) and certain acquisition-related
costs, inventory write-offs of $1 million, included in Cost of
sales, accelerated depreciation of $1 million and consulting fees
of $11 million, included in Selling, general and administrative
expenses, and a $27 million net gain related to divestitures,
included in Other (income)/deductions—net.
For the three months ended September 27,
2015, includes restructuring charges of $8 million related to asset
impairments, included in Restructuring charges/(benefits) and
certain acquisition-related costs. For the nine months ended
September 27, 2015, includes restructuring charges of $261 million
related to employee termination costs ($228 million) and asset
impairments ($33 million), included in Restructuring
charges/(benefits) and certain acquisition-related costs.
Additionally, the three and nine months ended September 27, 2015
include inventory write-offs of $5 million included in Cost of
sales, and consulting fees of $8 million and $28 million,
respectively, included in Selling, general and administrative
expenses.
(b)
For the three months ended October 2,
2016, represents accelerated depreciation charges of $2 million,
included in Cost of sales. For the nine months ended October 2,
2016, represents restructuring charges of $6 million related to
employee termination costs, included in Restructuring
charges/(benefits) and certain acquisition-related costs, and
accelerated depreciation charges of $4 million and consulting fees
of $3 million, included in Cost of sales.
For the nine months ended September 27,
2015, represents restructuring charges of $10 million related to
employee termination costs ($9 million) and asset impairments ($1
million), included in Restructuring charges/(benefits) and certain
acquisition-related costs. Additionally, the three and nine months
ended September 27, 2015, includes consulting fees of $3 million
and $13 million, respectively, included in Cost of sales.
(c)
Included in Restructuring
charges/(benefits) and certain acquisition-related costs.
(d)
For the three and nine months ended
October 2, 2016, represents an impairment of finite-lived
trademarks related to a canine pain management product. For the
nine months ended September 27, 2015, represents an impairment of
IPR&D assets related to the termination of a canine oncology
project. Included in Other (income)/deductions—net.
(e)
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 nine months ended October 2,
2016, included in Cost of sales ($3 million benefit and $1 million
benefit, respectively) and Selling, general and administrative
expenses ($4 million and $19 million, respectively).
For the three and nine months ended
September 27, 2015, included in Cost of sales ($2 million and $16
million, respectively) and Selling, general and administrative
expenses ($20 million and $68 million, respectively).
(f)
The three and nine months ended October 2,
2016, represents costs associated with changes to our operating
model in Selling, general and administrative expenses.
The nine months ended September 27, 2015,
represents charges due to unusual investor-related activities in
Selling, general and administrative expenses.
(g)
Included in Provision for taxes on income.
Income taxes include the tax effect of the associated pre-tax
amounts, calculated by determining the jurisdictional location of
the pre-tax amounts and applying that jurisdiction's applicable tax
rate. The nine months ended October 2, 2016, includes (i) a net tax
benefit of approximately $7 million related to a revaluation of the
company’s deferred tax assets and liabilities using the tax rates
expected to be in place going forward as a result of the
implementation of certain operational changes and (ii) a net tax
charge of approximately $38 million related to the impact of the
European Commission’s negative decision on the excess profits
rulings in Belgium. This net charge represents the 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, and does not include any benefits associated with a
successful appeal of the decision.
The nine months ended September 27, 2015, 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 2016
2015 Total
ForeignExchange
Operational(b) Adjusted cost of sales $ 403 $ 409 (1)% 1%
(2)% as a percent of revenue 32.5 % 33.7 % NA NA NA Adjusted
SG&A expenses 333 346 (4)% (1)% (3)% Adjusted R&D expenses
90 91 (1)% 1% (2)% Adjusted net income attributable to Zoetis 258
252 2% (4)% 6% Nine Months % Change 2016 2015
Total
ForeignExchange
Operational(b) Adjusted cost of sales $ 1,169 $ 1,200 (3)% (2)%
(1)% as a percent of revenue 32.4 % 34.4 % NA NA NA Adjusted
SG&A expenses 964 1,009 (4)% (2)% (2)% Adjusted R&D
expenses 267 254 5% (1)% 6% Adjusted net income attributable to
Zoetis 743 675 10% (8)% 18% (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 nine months
ended October 2, 2016, and September 27, 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. For the
corresponding GAAP line items, see Condensed Consolidated
Statements of Operations and Reconciliation of GAAP Reported to
Non-GAAP Adjusted Information. (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 $4,850 to
$4,900 Operational growth(a) 4% to 5% Adjusted cost
of sales as a percentage of revenue(b) Approximately
32.5% to 33% Adjusted SG&A expenses(b) $1,305 to
$1,330 Adjusted R&D expenses(b) $365 to $375
Adjusted interest expense and other (income)/deductions(b)
Approximately $165 Adjusted EBIT margin(b)
Approximately 32% Effective tax rate on adjusted income(b)
Approximately 32% Adjusted diluted EPS(b)
$1.91 to $1.96 Adjusted net income(b) $955 to $980 Operational
growth(a)(c) 12% to 15% Certain significant items(d)
and acquisition-related costs $30 to $50
The guidance reflects foreign exchange rates as of late October
2016.
Reconciliations of 2016 reported guidance to 2016 adjusted
guidance follows:
(millions of dollars, except per share
amounts)
Reported
Certain significantitems(d)
andacquisition-relatedcosts
Purchase accounting Adjusted(b)
Cost of sales as a percentage of revenue ~ 33.5%
(0.25%) (0.5%) ~ 32.5% to 33% SG&A
expenses $1,350 to $1,375 ($40) ($5)
$1,305 to $1,330 R&D expenses $365 to $375
$365 to $375 Interest expense and other
(income)/deductions ~ $135 $30 ~
$165 EBIT margin ~ 29% to 29.5% 0.5% to 1% 2%
~ 32% Effective tax rate ~ 34% (2.5%)
0.5% ~ 32% Diluted EPS $1.66 to $1.75 $0.09 to
$0.13 $0.12 $1.91 to $1.96 Net income attributable to
Zoetis $830 to $875 $45 to $65 $60 $955
to $980 (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) We do not provide a reconciliation of
forward-looking non-GAAP adjusted net income operational growth to
the most directly comparable GAAP Reported financial measure
because we are unable to calculate with reasonable certainty the
foreign exchange impact of unusual gains and losses,
acquisition-related expenses, potential future asset impairments
and other certain significant items, without unreasonable effort.
The foreign exchange impacts of these items are uncertain, depend
on various factors, and could have a material impact on GAAP
Reported results for the guidance period. (d) 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 $5,150 to
$5,275 Operational growth(a) 6% to 8% Adjusted cost
of sales as a percentage of revenue(b) 32% to 33%
Adjusted SG&A expenses(b) $1,280 to $1,340
Adjusted R&D expenses(b) $360 to $380 Adjusted
interest expense and other (income)/deductions(b)
Approximately $160 Adjusted EBIT margin(b) 34% to 35%
Effective tax rate on adjusted income(b)
Approximately 30% Adjusted diluted EPS(b) $2.28 to
$2.38 Adjusted net income(b) $1,135 to $1,190 Operational
growth(a)(c) 17% to 23% Certain significant items(d)
and acquisition-related costs $30 to $50
The guidance reflects foreign exchange rates as of late October
2016.
Reconciliations of 2017 reported guidance to 2017 adjusted
guidance follows:
(millions of dollars. except per share amounts) Reported
Certain significantitems(d)
andacquisition-relatedcosts
Purchase accounting Adjusted(b)
Cost of sales as a percentage of revenue 33% to 34%
(1%) 32% to 33% SG&A expenses
$1,290 to $1,350 ($5) ($5) $1,280 to
$1,340 R&D expenses $360 to $380
$360 to $380 Interest expense and other
(income)/deductions ~ $160
~ $160 EBIT margin ~ 32% to 33% 0.5% to 1%
1.5% 34% to 35% Effective tax rate ~ 30%
~ 30% Diluted EPS $2.10
to $2.22 $0.05 to $0.07 $0.11 $2.28 to $2.38
Net income attributable to Zoetis $1,045 to $1,110
$25 to $35 $55 $1,135 to $1,190 (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) We do not provide a
reconciliation of forward-looking non-GAAP adjusted net income
operational growth to the most directly comparable GAAP Reported
financial measure because we are unable to calculate with
reasonable certainty the foreign exchange impact of unusual gains
and losses, acquisition-related expenses, potential future asset
impairments and other certain significant items, without
unreasonable effort. The foreign exchange impacts of these items
are uncertain, depend on various factors, and could have a material
impact on GAAP Reported results for the guidance period. (d)
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)
Third Quarter % Change 2016
2015 Total
ForeignExchange
Operational(b)
Revenue: Livestock $ 735 $ 750
(2)% (2)% —% Companion Animal 490 451 9% —% 9% Contract
Manufacturing 16 13 23% (3)% 26%
Total Revenue
$ 1,241 $ 1,214 2%
(2)% 4% U.S. Livestock $
341 $ 348 (2)% —% (2)% Companion Animal 299 284 5% —%
5%
Total U.S. Revenue $ 640 $
632 1% —% 1%
International Livestock $ 394 $ 402 (2)% (4)% 2% Companion
Animal 191 167 14% (1)% 15%
Total International
Revenue $ 585 $ 569
3% (3)% 6% Livestock:
Cattle $ 432 $ 432 —% (1)% 1% Swine 145 163 (11)% (2)% (9)% Poultry
111 132 (16)% (2)% (14)% Fish 25 — —% —% —% Other 22 23
(4)% (3)% (1)%
Total Livestock Revenue $
735 $ 750 (2)%
(2)% —% Companion Animal: Horses $ 33 $
35 (6)% (1)% (5)% Dogs and Cats 457 416 10% —% 10%
Total Companion Animal Revenue $ 490
$ 451 9% —% 9% (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)
Nine Months % Change 2016
2015 Total
ForeignExchange
Operational(b)
Revenue: Livestock $ 2,091 $
2,155 (3)% (5)% 2% Companion Animal 1,479 1,299 14% (2)% 16%
Contract Manufacturing 41 37 11% (2)% 13%
Total
Revenue $ 3,611 $ 3,491
3% (4)% 7%
U.S. Livestock $ 891 $ 903 (1)% —% (1)% Companion Animal 925
789 17% —% 17%
Total U.S. Revenue $
1,816 $ 1,692 7%
—% 7% International Livestock $ 1,200 $
1,252 (4)% (8)% 4% Companion Animal 554 510 9% (5)%
14%
Total International Revenue $ 1,754
$ 1,762 —% (7)% 7%
Livestock: Cattle $ 1,175 $ 1,201 (2)% (4)% 2% Swine
441 495 (11)% (4)% (7)% Poultry 351 399 (12)% (4)% (8)% Fish 64 —
—% —% —% Other 60 60 —% (4)% 4%
Total Livestock
Revenue $ 2,091 $ 2,155
(3)% (5)% 2% Companion
Animal: Horses $ 108 $ 117 (8)% (3)% (5)% Dogs and Cats 1,371
1,182 16% (2)% 18%
Total Companion Animal
Revenue $ 1,479 $ 1,299
14% (2)% 16% (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)
Third Quarter % Change 2016
2015 Total
ForeignExchange
Operational(a)
Total International $ 585
$ 569 3% (3)% 6%
Australia 42 40 5% —% 5%
Brazil 56 54 4% (1)%
5%
Canada 39 35 11% (1)% 12%
China 33 30 10% (8)% 18%
France 28 24 17% (1)% 18%
Germany 29 27 7% (1)% 8%
Italy 21 21 —% 1% (1)%
Japan 34 23 48% 18% 30%
Mexico 17 19 (11)% (24)% 13%
Spain 20 21 (5)% —% (5)%
United Kingdom 35 43 (19)% (11)% (8)%
Other Developed
80 68 18% 2% 16%
Other Emerging 151 164 (8)% (5)% (3)%
Nine Months % Change 2016 2015 Total
ForeignExchange
Operational(a)
Total International $ 1,754
$ 1,762 —% (7)% 7%
Australia 119
109 9% (6)% 15%
Brazil 162 185 (12)% (18)% 6%
Canada
120 117 3% (7)% 10%
China 113 94 20% (7)% 27%
France
89 77 16% (2)% 18%
Germany 90 86 5% (2)% 7%
Italy 63
66 (5)% (2)% (3)%
Japan 96 75 28% 10% 18%
Mexico 56
55 2% (19)% 21%
Spain 62 60 3% (1)% 4%
United Kingdom
112 122 (8)% (8)% —%
Other Developed 223 211 6% (3)% 9%
Other Emerging 449 505 (11)% (9)% (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)
Third Quarter % Change 2016
2015 Total
ForeignExchange
Operational(b)
U.S.:
Revenue $ 640 $ 632 1% —% 1% Cost of Sales 137 147
(7)% —% (7)% Gross Profit 503 485 4% —% 4% Gross Margin 78.6 % 76.7
% Operating Expenses 101 100 1% —% 1% Other (income)/deductions —
(1 ) (100)% —% (100)%
U.S. Earnings $
402 $ 386 4% —% 4%
International:
Revenue $ 585 $ 569 3% (3)% 6% Cost of Sales 201 209
(4)% (5)% 1% Gross Profit 384 360 7% (2)% 9% Gross Margin 65.6 %
63.3 % Operating Expenses 128 137 (7)% (2)% (5)% Other
(income)/deductions — 4 (100)% (122)% 22%
International Earnings $ 256 $
219 17% —% 17% Total
Reportable Segments $ 658 $ 605
9% —% 9% Other business activities(c)
(71 ) (73 ) (3)% Reconciling Items: Corporate(d) (159 ) (138 ) 15%
Purchase accounting adjustments(e) (25 ) (13 ) 92%
Acquisition-related costs(f) — (6 ) (100)% Certain significant
items(g) (16 ) (46 ) (65)% Other unallocated(h) (54 ) (56 ) (4)%
Total Earnings(i) $ 333 $
273 22% (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)
Nine Months % Change 2016
2015 Total
ForeignExchange
Operational(b)
U.S.:
Revenue $ 1,816 $ 1,692 7% —% 7% Cost of Sales 402 399
1% —% 1% Gross Profit 1,414 1,293 9% —% 9% Gross Margin 77.9
% 76.4 % Operating Expenses 293 274 7% —% 7% Other
(income)/deductions — (1 ) (100)% —% (100)%
U.S.
Earnings $ 1,121 $ 1,020 10%
—% 10%
International:
Revenue $ 1,754 $ 1,762 —% (7)% 7% Cost of Sales 598 638
(6)% (8)% 2% Gross Profit 1,156 1,124 3% (6)% 9% Gross
Margin 65.9 % 63.8 % Operating Expenses 361 423 (15)% (6)% (9)%
Other (income)/deductions 3 10 (70)% (65)% (5)%
International Earnings $ 792 $
691 15% (6)% 21% Total
Reportable Segments $ 1,913 $ 1,711
12% (2)% 14% Other business
activities(c) (219 ) (208 ) 5% Reconciling Items: Corporate(d) (499
) (392 ) 27% Purchase accounting adjustments(e) (79 ) (41 ) 93%
Acquisition-related costs(f) (3 ) (11 ) (73)% Certain significant
items(g) 1 (406 ) * Other unallocated(h) (117 ) (177 ) (34)%
Total Earnings(i) $ 997 $
476 * * 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/20161102005758/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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