- For Fourth Quarter 2016, Zoetis
Reports Revenue of $1.3 Billion, and Net Income of $154 Million, or
$0.31 per Diluted Share, on a Reported Basis
- Reports Adjusted Net Income of $232
Million, or Adjusted Diluted EPS of $0.47, for Fourth Quarter
2016
- Delivers Flat Operational Growth in
Revenue and 13% Operational Growth in Adjusted Net Income,
Excluding Foreign Exchange, for Fourth Quarter 2016
- For Full Year 2016, Zoetis Reports
Revenue of $4.9 Billion and Net Income of $821 Million, or $1.65
per Diluted Share, on a Reported Basis
- Reports Adjusted Net Income of $975
Million, or Adjusted Diluted EPS of $1.96, for Full Year
2016
- Delivers 5% Operational Growth in
Revenue and 17% Operational Growth in Adjusted Net Income,
Excluding Foreign Exchange, for Full Year 2016
- Updates Full Year 2017 Revenue
Guidance to $5.100 - $5.225 Billion, with Diluted EPS of $2.08 -
$2.20 on a Reported Basis, or $2.26 - $2.36 on an Adjusted Basis,
To Reflect Changes in Foreign Exchange Rates
Zoetis Inc. (NYSE:ZTS) today reported its financial results for
the fourth quarter and full year 2016 and updated its guidance for
the full year 2017.
The company reported revenue of $1.3 billion for the fourth
quarter of 2016, which was flat compared with the fourth quarter of
2015. Net income for the fourth quarter of 2016 was $154 million,
or $0.31 per diluted share compared with $22 million and $0.04 per
diluted share in the fourth quarter of 2015.
Adjusted net income1 for the fourth quarter of 2016 was $232
million, or $0.47 per diluted share, an increase of 8% and 9%,
respectively. Adjusted net income for the fourth quarter of 2016
excludes the net impact of $78 million for purchase accounting
adjustments, acquisition-related costs and certain significant
items.
On an operational2 basis, revenue for the fourth quarter of
2016, excluding the impact of foreign exchange, was flat compared
with the fourth quarter of 2015. This performance reflects the
impact of fewer calendar days in the quarter, product
rationalizations and business changes in certain markets as part of
the company’s operational efficiency initiative, and acquisitions.
Adjusted net income for the fourth quarter of 2016 increased 13%
operationally, excluding the impact of foreign exchange.
For full year 2016, the company reported revenue of $4.9
billion, an increase of 3% compared with full year 2015. Net income
for full year 2016 was $821 million, or $1.65 per diluted share
compared with $339 million and $0.68 per diluted share for full
year 2015.
Adjusted net income for full year 2016 was $975 million, or
$1.96 per diluted share, an increase of 10% and 11%, respectively.
Adjusted net income for full year 2016 excludes the net impact of
$154 million for purchase accounting adjustments,
acquisition-related costs and certain significant items.
On an operational basis, revenue for full year 2016 increased
5%, excluding the impact of foreign exchange. This performance
reflects the impact of product rationalizations and business
changes in certain markets as part of the company’s operational
efficiency initiative as well as acquisitions. Adjusted net income
for full year 2016 increased 17% operationally, excluding the
impact of foreign exchange.
EXECUTIVE COMMENTARY
“In 2016, we delivered our fourth consecutive year of
operational revenue growth and improved profitability since
becoming a public company,” said Juan Ramón Alaix, Chief Executive
Officer of Zoetis. “Our 5% operational growth for the year was
driven by the successful launch of several new products and the
strength of our diverse portfolio. We also completed significant
initiatives to shape our business for greater efficiency and cash
generation, which helped us deliver 17% operational growth in
adjusted net income and make investments that will sustain our
future growth, innovation and market leadership.”
“In the fourth quarter, we delivered another solid quarter of
double-digit operational growth in adjusted net income, overcoming
the negative impact to revenue of fewer calendar days and business
changes related to our operational efficiency initiative,” said
Glenn David, Executive Vice President and Chief Financial Officer
of Zoetis.
“In 2017, we again expect revenue to grow in line with or faster
than the market and to deliver double-digit growth in adjusted net
income -- fully realizing the benefits of our operational
efficiency initiative. Cash flow is expected to grow significantly
in 2017, and we will leverage our improved financial position for
investments in promising internal and external opportunities and to
return excess capital to shareholders.”
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 fourth quarter of 2016:
- Revenue in the U.S. segment was
$631 million, a decrease of 1% compared with the fourth quarter of
2015; this decline reflects the impact of fewer calendar days and
product rationalizations. Sales of companion animal products grew
2%, driven by increased sales of Apoquel® (oclacitinib tablet) and
other new products, including Simparica® (sarolaner) Chewables and
Cytopoint™, as well as initial sales into newly expanded
distribution relationships. This growth was partially offset by a
decline in sales of surgical fluid products. Sales of livestock
products declined 3%. Excluding the impact of product
rationalizations and fewer calendar days, livestock sales grew,
driven by cattle and poultry products, while swine products
declined.
- Revenue in the International
segment was $636 million, an increase of 2% on both a reported and
operational basis compared with the fourth quarter of 2015; this
growth reflects the impact of product rationalizations, fewer
calendar days, and acquisitions. Sales of companion animal products
grew 8% on a reported basis and 10% operationally, primarily due to
increased sales of Apoquel and other new product launches. Sales of
livestock products were flat on a reported basis and declined 1%
operationally. The impact of product rationalizations and fewer
calendar days were offset by growth from the acquisition of
PHARMAQ, as well as growth in cattle and swine products in key
emerging markets.
Zoetis continues to drive demand and strengthen its diverse
portfolio through new product delivery, lifecycle innovations,
strong customer relationships and access to new markets and
technologies. The company is focused on enhancing 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.
Zoetis continues to advance animal health through innovations
that address market needs or improve veterinarians’ approach to
treatment.
- The company continued to strengthen its
canine dermatology portfolio with the approval of Cytopoint
and further geographic expansion of Apoquel. Zoetis received
a full license from the U.S. Department of Agriculture for
Cytopoint, the first monoclonal antibody (mAb) therapy approved to
help provide a reduction in the clinical signs associated with
atopic dermatitis in dogs. The company also received approval in
Argentina and Korea for Apoquel, a novel Janus Kinase inhibitor for
the control of pruritus, or itching, associated with allergic
dermatitis and the control of atopic dermatitis in dogs; Apoquel
was first approved in the U.S. in 2013.
- Simparica, a once-monthly flea
and tick medication for dogs, was approved in Australia. Meanwhile,
in the U.S. and Canada, the product received a new claim approval
for protection from an additional tick species known as Ixodes
scapularis (black-legged tick) which is associated with the
transmission of Lyme disease.
The company continues to receive approvals for new indications
and formulations of key livestock products, as well as expand major
products into new geographies.
- Draxxin® (tulathromycin), an
injectable anti-infective to help control and treat respiratory
disease in swine and cattle, was approved in the European Union to
treat virulent foot rot (D. nodosus) in sheep. The product also
received approval for new label language in the EU regarding its
demonstration of immune-modulating and anti-inflammatory actions
for cattle and swine. Zoetis also expanded its Fostera®
swine vaccine franchise. In the U.S., Fostera PCV MH received
approval for 23 weeks duration of immunity against Mycoplasma
hyopneumoniae (M. hyo), making it the only combination vaccine to
have demonstrated 23 weeks duration of immunity for both porcine
circovirus-type 2 and M. hyo.
FINANCIAL GUIDANCE
Zoetis' guidance for the full year 2017 has been updated to
reflect foreign exchange rates as of late January.
The company’s guidance for the full year 2017 includes:
- Revenue of between $5.100 billion to
$5.225 billion
- Reported diluted EPS for the full year
of between $2.08 to $2.20 per share
- Adjusted diluted EPS for the full year
between $2.26 to $2.36 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.
WEBCAST & CONFERENCE CALL
DETAILS
Zoetis will host a webcast and conference call at 8:30 a.m. (ET)
today, during which company executives will review fourth quarter
and full year 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 Feb. 16, 2017.
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, genetic tests, biodevices and 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 2016, the company generated annual
revenue of $4.9 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
Statements 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.
CONSOLIDATED STATEMENTS OF INCOME(a)
(UNAUDITED)
(millions of dollars, except per share
data)
Fourth Quarter Full Year 2016
2015 % Change 2016 2015 % Change Revenue $ 1,277 $
1,274 — $ 4,888 $ 4,765 3 Costs and expenses: Cost of sales(b) 468
496 (6) 1,666 1,738 (4) Selling, general and administrative
expenses(b) 361 425 (15) 1,364 1,532 (11) Research and development
expenses(b) 108 109 (1) 376 364 3 Amortization of intangible
assets(c) 21 16 31 85 61 39 Restructuring charges and certain
acquisition-related costs 20 40 (50) 5 320 (98) Interest expense 41
38 8 166 124 34 Other (income)/deductions–net 27 81
(67) (2 ) 81 * Income before provision for taxes on income
231 69 * 1,228 545 * Provision for taxes on income 77 49
57 409 206 99 Net income before allocation to
noncontrolling interests 154 20 * 819 339 * Less: Net (loss)/income
attributable to noncontrolling interests — (2 ) (100) (2 ) —
* Net income attributable to Zoetis $ 154 $ 22
* $ 821 $ 339 * Earnings per share—basic $
0.31 $ 0.04 * $ 1.66 $ 0.68 *
Earnings per share—diluted $ 0.31 $ 0.04 * $ 1.65
$ 0.68 * Weighted-average shares used to
calculate earnings per share (in thousands) Basic 493,932
498,271 495,715 499,707 Diluted 496,638
500,639 498,225 502,019 * Calculation not
meaningful. (a) The consolidated statements of income
present the three and twelve months ended December 31, 2016 and
2015. Subsidiaries operating outside the United States are included
for the three and twelve months ended November 30, 2016 and 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 INFORMATION
CERTAIN LINE ITEMS
(UNAUDITED)
(millions of dollars, except per share
data)
Quarter Ended December 31, 2016
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 468 $ (1 ) $ — $ (12 ) $ 455 Gross
profit
809 1 — 12 822 Selling, general and administrative
expenses(c)
361 (1 ) — (12 ) 348 Research and development
expenses(c)
108 (1 ) — — 107 Amortization of intangible
assets(d)
21 (17 ) — — 4 Restructuring charges and certain
acquisition-related costs
20 — (1 ) (19 ) — Other
(income)/deductions–net
27 — — (15 ) 12 Income before
provision for taxes on income
231 20 1 58 310 Provision for
taxes on income
77 5 1 (5 ) 78 Net income attributable to
Zoetis
154 15 — 63 232 Earnings per common share
attributable to Zoetis–diluted
0.31 0.03 — 0.13 0.47
Quarter Ended December 31, 2015
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 496 $ (2 ) $ — $ (27 ) $ 467 Gross
profit
778 2 — 27 807 Selling, general and administrative
expenses(c)
425 — — (35 ) 390 Research and development
expenses(c)
109 (1 ) — (2 ) 106 Amortization of intangible
assets(d)
16 (13 ) — — 3 Restructuring charges and certain
acquisition-related costs
40 — (10 ) (30 ) — Other
(income)/deductions–net
81 — — (92 ) (11 ) Income before
provision for taxes on income
69 16 10 186 281 Provision for
taxes on income
49 4 1 15 69 Net income before allocation to
noncontrolling interests
20 12 9 171 212 Net income
attributable to Zoetis
22 12 9 171 214 Earnings per common
share attributable to Zoetis–diluted
0.04 0.03 0.02 0.34
0.43
ZOETIS INC.
RECONCILIATION OF GAAP REPORTED TO
NON-GAAP ADJUSTED INFORMATION
CERTAIN LINE ITEMS
(UNAUDITED)
(millions of dollars, except per share
data)
Twelve Months Ended December 31, 2016
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 1,666 $ (23 ) $ — $ (19 ) $ 1,624
Gross profit
3,222 23 — 19 3,264 Selling, general and
administrative expenses(c)
1,364 (5 ) — (47 ) 1,312 Research
and development expenses(c)
376 (2 ) — — 374 Amortization of
intangible assets(d)
85 (69 ) — — 16 Restructuring charges
and certain acquisition-related costs
5 — (3 ) (2 ) — Other
(income)/deductions–net
(2 ) — (1 ) 11 8 Income
before provision for taxes on income
1,228 99 4 57 1,388
Provision for taxes on income
409 39 — (33 ) 415 Net income
before allocation to noncontrolling interests
819 60 4 90
973 Net income attributable to Zoetis
821 60 4 90 975
Earnings per common share attributable to Zoetis–diluted
1.65 0.12 0.01 0.18 1.96 Twelve Months Ended December
31, 2015
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 1,738 $ (9 ) $ — $ (62 ) $ 1,667
Gross profit
3,027 9 — 62 3,098 Selling, general and
administrative expenses(c)
1,532 — — (133 ) 1,399 Research
and development expenses(c)
364 (2 ) — (2 ) 360 Amortization
of intangible assets(d)
61 (46 ) — — 15 Restructuring
charges and certain acquisition-related costs
320 — (19 )
(301 ) — Other (income)/deductions–net
81 — (2 ) (94 ) (15 )
Income before provision for taxes on income
545 57 21 592
1,215 Provision for taxes on income
206 18 (1 ) 103 326 Net
income attributable to Zoetis
339 39 22 489 889 Earnings per
common share attributable to Zoetis–diluted
0.68 0.08 0.04
0.97 1.77 (a) The consolidated statements of income present
the three and twelve months ended December 31, 2016 and 2015.
Subsidiaries operating outside the United States are included for
the three and twelve months ended November 30, 2016 and 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 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 INFORMATION
CERTAIN LINE ITEMS
(UNAUDITED)
(millions of dollars)
(1) Acquisition-related costs include the
following:
Fourth Quarter Full Year 2016 2015 2016 2015
Transaction costs(a) $ — $ 9 $ — $ 9 Integration costs(b) 1 1 3 10
Other(c) — — 1 2 Total
acquisition-related costs—pre-tax 1 10 4 21 Income taxes(d) 1
1 — (1 ) Total acquisition-related costs—net
of tax $ — $ 9 $ 4 $ 22 (a)
Transaction costs represent external costs
directly related to acquiring businesses and primarily include
expenditures for banking, legal, accounting and other similar
services. Included in Restructuring charges and certain
acquisition-related costs.
(b)
Integration costs represent external,
incremental costs directly related to integrating acquired
businesses and primarily include expenditures for consulting and
the integration of systems and processes. Included in Restructuring
charges and certain acquisition-related costs.
(c)
Included in Other
(income)/deductions—net.
(d)
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:
Fourth Quarter Full Year 2016 2015 2016 2015
Operational efficiency initiative(a) $ 27 $ 52 $ (9 ) $ 346 Supply
network strategy(b) 6 4 19 27 Other restructuring charges and
cost-reduction/productivity initiatives(c) — — (1 ) — Certain asset
impairment charges(d) — 3 1 5 Stand-up costs(e) 5 34 23 118 Foreign
currency loss related to Venezuela revaluation(f) — 93 — 93
Other(g) 20 — 24 3 Total certain significant
items—pre-tax 58 186 57 592 Income taxes(h) (5 ) 15 (33 )
103 Total certain significant items—net of tax $ 63 $ 171
$ 90 $ 489 (a)
For the three months ended December 31,
2016, includes restructuring charges of $19 million related to
employee termination costs ($18 million) and exit costs ($1
million), included in Restructuring charges and certain
acquisition-related costs, inventory write-offs of $4 million,
included in Cost of sales, $3 million primarily related to
consulting fees included in Selling, general and administrative
expenses, and a net loss related to divestitures of $1 million,
included in Other (income)/deductions—net. For the twelve months
ended December 31, 2016, includes a reduction in employee
termination accruals of $8 million and an increase in exit costs of
$5 million, included in Restructuring charges and certain
acquisition-related costs, inventory write-offs of $5 million,
included in Cost of sales, accelerated depreciation of $1 million
and consulting fees of $14 million, included in Selling, general
and administrative expenses, and a $26 million net gain related to
divestitures, included in Other (income)/deductions—net.
For the three months ended December 31,
2015, includes restructuring charges of $30 million related to
employee termination costs ($25 million) and asset impairments ($5
million), included in Restructuring charges and certain
acquisition-related costs, inventory write-offs of $8 million,
included in Cost of sales, accelerated depreciation of $2 million,
included in Research and development expenses, and $12 million
primarily related to consulting fees included in Selling, general
and administrative expenses. For the twelve months ended December
31, 2015, includes restructuring charges of $291 million related to
employee termination costs ($253 million) and asset impairments
($38 million), included in Restructuring charges and certain
acquisition-related costs, inventory write-offs of $13 million,
included in Cost of sales, accelerated depreciation of $2 million,
included in Research and development expenses, and $40 million
primarily related to consulting fees included in Selling, general
and administrative expenses.
(b)
For the three months ended December 31,
2016, includes accelerated depreciation of $2 million, included in
Cost of sales, and inventory write-offs of $1 million and
consulting fees of $3 million, included in Cost of sales. For the
twelve months ended December 31, 2016, includes restructuring
charges of $6 million related to employee termination costs,
included in Restructuring charges and certain acquisition-related
costs, accelerated depreciation of $6 million, inventory write-offs
of $1 million and consulting fees of $6 million, included in Cost
of sales.
For the three months ended December 31,
2015, includes accelerated depreciation of $1 million, included in
Cost of sales, and $3 million primarily related to consulting fees,
included in Cost of sales. For the twelve months ended December 31,
2015, includes restructuring charges of $10 million related to
employee termination costs ($9 million) and asset impairments ($1
million), included in Restructuring charges and certain
acquisition-related costs, accelerated depreciation of $1 million,
included in Cost of sales, and $16 million primarily related to
consulting fees, included in Cost of sales.
(c)
Included in Restructuring charges and
certain acquisition-related costs.
(d)
Included in Other
(income)/deductions—net.
For the twelve months ended December 31,
2016, represents an impairment of finite-lived trademarks related
to a canine pain management product.
For the three and twelve months ended December 31, 2015,
represents impairment charges related to assets held by our joint
venture in Taiwan, which was subsequently sold in 2016. The twelve
months ended December 31, 2015, also includes an impairment of
IPR&D assets related to the termination of a canine oncology
project. (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 months ended December 31,
2016, included in Cost of sales ($2 million) and Selling, general
and administrative expenses ($3 million). For the twelve months
ended December 31, 2016, included in Cost of sales ($1 million) and
Selling, general and administrative expenses ($22 million).
For the three months ended December 31,
2015, included in Cost of sales ($11 million), Selling, general and
administrative expenses ($22 million), and Other
(income)/deductions—net ($1 million). For the twelve months ended
December 31, 2015, included in Cost of sales ($27 million),
Selling, general and administrative expenses ($90 million), and
Other (income)/deductions—net ($1 million).
(f) Represents charges primarily related to the foreign
currency losses associated with our Venezuela business. (g)
The three and twelve months ended December
31, 2016, represents costs associated with changes to our operating
model ($6 million and $10 million, respectively), in Selling,
general and administrative expenses, and a charge associated with a
commercial settlement in Mexico ($14 million), in Other
(income)/deductions—net.
The twelve months ended December 31, 2015, represents
charges due to unusual investor-related activities. (h)
Included in Provision for taxes on income.
Income taxes include the tax effect of the associated pre-tax
amounts, calculated by determining the jurisdictional location of
the pre-tax amounts and applying that jurisdiction's applicable tax
rate. The twelve months ended December 31, 2016, also includes (i)
a net tax charge of approximately $20 million recorded in the
second half of 2016, as a result of the implementation of certain
operational changes, which represents an increase to current income
tax expense of approximately $22 million offset by a $2 million tax
benefit related to a revaluation of the company’s deferred tax
assets and liabilities using the tax rates expected to be in place
going forward, and (ii) a net tax charge of approximately $35
million mainly recorded in the first half of 2016, related to the
impact of the European Commission’s negative decision on the excess
profits rulings in Belgium which 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 twelve months ended December 31, 2015, also includes a
net tax benefit related to the revaluation of deferred taxes and
other deferred tax adjustments.
ZOETIS INC.
ADJUSTED SELECTED COSTS AND
EXPENSES(a)
(UNAUDITED)
(millions of dollars)
Fourth Quarter % Change 2016 2015 Total
ForeignExchange
Operational(b) Adjusted cost of sales $ 455 $ 467 (3 )% (5
)% 2 % As a percent of revenue 35.6 % 36.7 % NA NA NA Adjusted
SG&A expenses 348 390 (11 )% (1 )% (10 )% Adjusted R&D
expenses 107 106 1 % 1 % — % Adjusted net income attributable to
Zoetis 232 214 8 % (5 )% 13 % Full Year %
Change 2016 2015 Total
ForeignExchange
Operational(b) Adjusted cost of sales $ 1,624 $ 1,667 (3 )% (3 )% —
% As a percent of revenue 33.2 % 35.0 % NA NA NA Adjusted SG&A
expenses 1,312 1,399 (6 )% (2 )% (4 )% Adjusted R&D expenses
374 360 4 % (1 )% 5 % Adjusted net income attributable to Zoetis
975 889 10 % (7 )% 17 % (a) Adjusted cost of sales, adjusted
selling, general, and administrative (SG&A) expenses, adjusted
research and development (R&D) expenses, and adjusted net
income attributable to Zoetis are defined as the corresponding
reported U.S. generally accepted accounting principles (GAAP)
income statement line items excluding purchase accounting
adjustments, acquisition-related costs, and certain significant
items. Reconciliations of certain reported to adjusted information
for the three and twelve months ended December 31, 2016 and 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 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.
2017 GUIDANCE
Selected Line Items
(millions of dollars, except per share
amounts)
Full Year 2017 Revenue $5,100 to $5,225 Operational
growth(a) 5.5% to 7.5% Adjusted cost of sales as a
percentage of revenue(b) 32% to 33% Adjusted SG&A
expenses(b) $1,265 to $1,325 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)
$2.26 to $2.36 Adjusted net income(b) $1,120 to $1,170 Operational
growth(a)(c) 15% to 20% Certain significant items(d) and
acquisition-related costs $30 to $50
The guidance reflects foreign exchange rates as of late January
2017.
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 $1,275
to $1,335 ($5) ($5) $1,265 to $1,325 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 $2.08 to $2.20 $0.05 to $0.07 $0.11 $2.26
to $2.36 Net income attributable to Zoetis $1,030 to $1,090 $25 to
$35 $55 $1,120 to $1,170 (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, and adjusted interest expense and 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.
ZOETIS INC.
CONSOLIDATED REVENUE BY SEGMENT(a) AND
SPECIES
(UNAUDITED)
(millions of dollars)
Fourth Quarter % Change 2016 2015 Total
ForeignExchange
Operational(b)
Revenue: Livestock $ 790 $ 803 (2 )% —
% (2 )% Companion Animal 477 457 4 % (1 )% 5 % Contract
Manufacturing 10 14 (29 )% (3 )% (26 )%
Total
Revenue $ 1,277 $ 1,274
— % — % — %
U.S. Livestock $ 336 $ 348 (3 )% — % (3 )% Companion Animal
295 288 2 % — % 2 %
Total U.S. Revenue
$ 631 $ 636 (1
)% — % (1 )%
International Livestock $ 454 $ 455 — % 1 % (1 )% Companion
Animal 182 169 8 % (2 )% 10 %
Total International
Revenue $ 636 $ 624
2 % — % 2 %
Livestock: Cattle $ 478 $ 479 — % — % — % Swine 161 173 (7
)% — % (7 )% Poultry 106 126 (16 )% — % (16 )% Fish 26 5 * * *
Other 19 20 (5 )% 6 % (11 )%
Total Livestock
Revenue $ 790 $ 803
(2 )% — % (2 )%
Companion Animal: Horses $ 42 $ 45 (7 )% (4 )% (3 )% Dogs
and Cats 435 412 6 % — % 6 %
Total Companion
Animal Revenue $ 477 $ 457
4 % (1 )% 5 % *
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)
Full Year % Change 2016 2015 Total
ForeignExchange
Operational(b)
Revenue: Livestock $ 2,881 $ 2,958 (3
)% (4 )% 1 % Companion Animal 1,956 1,756 11 % (2 )% 13 % Contract
Manufacturing 51 51 — % (3 )% 3 %
Total
Revenue $ 4,888 $ 4,765
3 % (2 )% 5 %
U.S. Livestock $ 1,227 $ 1,251 (2 )% — % (2 )%
Companion Animal 1,220 1,077 13 % — % 13 %
Total
U.S. Revenue $ 2,447 $ 2,328
5 % — % 5 %
International Livestock $ 1,654 $ 1,707 (3 )% (6 )% 3 %
Companion Animal 736 679 8 % (5 )% 13 %
Total
International Revenue $ 2,390 $
2,386 — % (5 )% 5
% Livestock: Cattle $ 1,653 $ 1,680 (2 )% (4
)% 2 % Swine 602 668 (10 )% (3 )% (7 )% Poultry 457 525 (13 )% (3
)% (10 )% Fish 90 5 * * * Other 79 80 (1 )% (1 )% — %
Total Livestock Revenue $ 2,881
$ 2,958 (3 )% (4
)% 1 % Companion Animal: Horses
$ 150 $ 162 (7 )% (3 )% (4 )% Dogs and Cats 1,806 1,594
13 % (2 )% 15 %
Total Companion Animal Revenue
$ 1,956 $ 1,756 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 KEY INTERNATIONAL
MARKETS
(UNAUDITED)
(millions of dollars)
Fourth Quarter % Change 2016 2015 Total
ForeignExchange
Operational(a)
Total International $
636 $ 624 2 % — % 2 %
Australia 38 35 9 % 8 % 1 %
Brazil 83 65 28 % 20 % 8
%
Canada 53 55 (4 )% (3 )% (1 )%
China 32 29 10 % (7
)% 17 %
France 28 31 (10 )% — % (10 )%
Germany 35 34
3 % 1 % 2 %
Italy 20 24 (17 )% — % (17 )%
Japan 31 26
19 % 15 % 4 %
Mexico 20 20 — % (13 )% 13 %
Spain 20
26 (23 )% (3 )% (20 )%
United Kingdom 39 46 (15 )% (19 )% 4
%
Other Developed 79 77 3 % 3 % — %
Other Emerging
158 156 1 % (5 )% 6 % Full Year % Change 2016
2015 Total
ForeignExchange
Operational(a)
Total International $ 2,390
$ 2,386 — % (5 )% 5 %
Australia 157 144 9 % (3 )% 12 %
Brazil 245 250 (2 )%
(9 )% 7 %
Canada 173 172 1 % (5 )% 6 %
China 145 123
18 % (6 )% 24 %
France 117 108 8 % (2 )% 10 %
Germany
125 120 4 % (1 )% 5 %
Italy 83 90 (8 )% (1 )% (7 )%
Japan 127 101 26 % 11 % 15 %
Mexico 76 75 1 % (18 )%
19 %
Spain 82 86 (5 )% (2 )% (3 )%
United Kingdom 151
168 (10 )% (11 )% 1 %
Other Developed 302 288 5 % (2 )% 7 %
Other Emerging 607 661 (8 )% (8 )% — % Certain amounts and
percentages may reflect rounding adjustments. (a)
Operational growth (a non-GAAP financial measure) is defined as
growth excluding the impact of foreign exchange.
ZOETIS INC.
SEGMENT(a) EARNINGS
(UNAUDITED)
(millions of dollars)
Fourth Quarter % Change 2016 2015 Total
ForeignExchange
Operational(b)
U.S.: Revenue $
631 $ 636 (1 )% — % (1 )% Cost of sales 149 152 (2 )%
— % (2 )% Gross profit 482 484 — % — % — % Gross margin 76.4 % 76.1
% Operating expenses 95 115 (17 )% — % (17 )% Other
(income)/deductions — (1 ) (100 )% — % (100 )%
U.S.
Earnings $ 387 $ 370 5
% — % 5 %
International: Revenue $ 636 $ 624 2 % — % 2 %
Cost of sales 235 235 — % (1 )% 1 % Gross profit 401
389 3 % — % 3 % Gross margin 63.1 % 62.3 % Operating expenses 140
147 (5 )% (1 )% (4 )% Other (income)/deductions (1 ) (8 ) (88 )%
(84 )% (4 )%
International Earnings $ 262
$ 250 5 % (1 )% 6
% Total Reportable Segments $
649 $ 620 5 % — %
5 % Other business activities(c) (90 ) (85 ) 6
% Reconciling Items: Corporate(d) (185 ) (214 ) (14 )% Purchase
accounting adjustments(e) (20 ) (16 ) 25 % Acquisition-related
costs(f) (1 ) (10 ) (90 )% Certain significant items(g) (58 ) (186
) (69 )% Other unallocated(h) (64 ) (40 ) 60 %
Total
Earnings(i) $ 231 $ 69 * * 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)
Full Year % Change 2016 2015 Total
ForeignExchange
Operational(b)
U.S.: Revenue $ 2,447 $ 2,328 5 % — %
5 % Cost of sales 551 551 — % — % — % Gross profit
1,896 1,777 7 % — % 7 % Gross margin 77.5 % 76.3 % Operating
expenses 388 389 — % — % — % Other (income)/deductions — (2
) (100 )% — % (100 )%
U.S. Earnings $ 1,508
$ 1,390 8 % — % 8
% International: Revenue $ 2,390
$ 2,386 — % (5 )% 5 % Cost of sales 833 873 (5 )% (7
)% 2 % Gross profit 1,557 1,513 3 % (5 )% 8 % Gross margin 65.1 %
63.4 % Operating expenses 501 570 (12 )% (4 )% (8 )% Other
(income)/deductions 2 2 — % 10 % (10 )%
International Earnings $ 1,054 $
941 12 % (5 )% 17
% Total Reportable Segments $
2,562 $ 2,331 10 % (2
)% 12 % Other business activities(c)
(309 ) (293 ) 5 % Reconciling Items: Corporate(d) (684 ) (606 ) 13
% Purchase accounting adjustments(e) (99 ) (57 ) 74 %
Acquisition-related costs(f) (4 ) (21 ) (81 )% Certain significant
items(g) (57 ) (592 ) (90 )% Other unallocated(h) (181 ) (217 ) (17
)%
Total Earnings(i) $ 1,228
$ 545 * * 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/20170216005582/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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