- For Fourth Quarter 2017, Zoetis
Reports Revenue of $1.5 Billion, and Net Income of $81 Million, or
$0.16 per Diluted Share, on a Reported Basis
- Reports Adjusted Net Income of $341
Million, or Adjusted Diluted EPS of $0.69, for Fourth Quarter
2017
- Delivers 13% Operational Growth in
Revenue and 37% Operational Growth in Adjusted Net Income for
Fourth Quarter 2017
- For Full Year 2017, Zoetis Reports
Revenue of $5.3 Billion and Net Income of $864 Million, or $1.75
per Diluted Share, on a Reported Basis
- Reports Adjusted Net Income of
$1.185 Billion, or Adjusted Diluted EPS of $2.40, for Full Year
2017
- Delivers 8% Operational Growth in
Revenue and 21% Operational Growth in Adjusted Net Income for Full
Year 2017
- Company Records One-Time Provisional
Net Tax Charge of $212 Million Related to Recently Enacted Tax
Legislation in the U.S.
- Provides Full Year 2018 Revenue
Guidance of $5.675 - $5.800 Billion, with Diluted EPS of $2.77 -
$2.93 on a Reported Basis, or $2.96 - $3.10 on an Adjusted
Basis
Zoetis Inc. (NYSE: ZTS) today reported its financial results for
the fourth quarter and full year 2017 and provided full year
guidance for 2018.
The company reported revenue of $1.5 billion for the fourth
quarter of 2017, which was an increase of 14% compared with the
fourth quarter of 2016. Net income for the fourth quarter of 2017
was $81 million, or $0.16 per diluted share compared with $154
million and $0.31 per diluted share in the fourth quarter of
2016.
Adjusted net income1 for the fourth quarter of 2017 was $341
million, or $0.69 per diluted share, an increase of 47%. Adjusted
net income for the fourth quarter of 2017 excludes the net impact
of $260 million for purchase accounting adjustments,
acquisition-related costs and certain significant items. Included
in the $260 million is a provisional net tax charge of $212 million
related to recently enacted tax legislation in the U.S.
On an operational2 basis, revenue for the fourth quarter of
2017, excluding the impact of foreign exchange, increased 13%
compared with the fourth quarter of 2016. Adjusted net income for
the fourth quarter of 2017 increased 37% operationally, excluding
the impact of foreign exchange.
For full year 2017, the company reported revenue of $5.3
billion, an increase of 9% compared with full year 2016. Net income
for full year 2017 was $864 million, or $1.75 per diluted share, an
increase of 5% and 6%, respectively.
Adjusted net income for full year 2017 was $1.185 billion, or
$2.40 per diluted share, an increase of 22%. Adjusted net income
for full year 2017 excludes the net impact of $321 million for
purchase accounting adjustments, acquisition-related costs and
certain significant items. Included in the $321 million is a
provisional net tax charge of $212 million related to recently
enacted tax legislation in the U.S.
On an operational basis, revenue for full year 2017 increased
8%, excluding the impact of foreign exchange. Adjusted net income
for full year 2017 increased 21% operationally, excluding the
impact of foreign exchange.
EXECUTIVE COMMENTARY“In 2017,
Zoetis became the first animal health company to deliver more than
$5 billion in revenue as we continued to demonstrate the strength
of our business model and the growth opportunities that are
uniquely available in animal health,” said Juan Ramón Alaix, Chief
Executive Officer of Zoetis. “We achieved operational revenue
growth for the year of 8%, based on the diversity of our product
portfolio and balanced performance across the U.S. and all of our
major international markets. We also grew our adjusted net income
faster than sales, at 21% operationally, as we continue to deliver
on our long-term value proposition.
“As we mark our fifth year as an independent company, I am
grateful to the colleagues of Zoetis who have placed us firmly on a
course for sustainable profitable growth. We continue to drive
innovations, lead in customer excellence and simplify our
operations,” said Alaix. “As we look to the future, we will remain
committed to strengthening our interconnected capabilities in
direct sales, R&D and manufacturing, and look for additional
investment opportunities to enhance our short and long term
growth.”
“We finished off 2017 with strong revenue and income growth,
while almost doubling our operating cash flow for the year,” said
Glenn David, Executive Vice President and Chief Financial Officer
of Zoetis. “For full year 2018, we expect operational growth of 5%
to 7% in revenue and 20% to 26% in adjusted net income, while we
continue to improve our working capital and fund investments that
will support our ability to create long-term value for our
shareholders.”
QUARTERLY HIGHLIGHTSZoetis
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 2017:
- Revenue in the U.S. segment was
$712 million, an increase of 13% compared with the fourth quarter
of 2016. Sales of companion animal products grew 15%, driven by
increased sales in our dermatology portfolio and several other new
products, including Simparica® (sarolaner), our oral parasiticide.
This growth was tempered by the prior year’s initial sales of
certain products into expanded distribution relationships. Sales of
livestock products grew 11%, driven by growth in our cattle and
poultry portfolios, which was partially offset by declines in swine
products. In cattle, growth was driven by increased sales of
premium products, which were supported by favorable weather
conditions that drove higher disease risk and incidence and more
placements in feedlots, as well as the timing of promotional
activities in the prior year. In poultry, growth was driven by
increased sales of medicated feed additive products, while lower
sales of medicated feed additives drove declines in swine products.
Consistent with the year, both cattle and swine products were
negatively impacted by livestock producers’ continued
implementation of the Veterinary Feed Directive.
- Revenue in the International
segment was $740 million, an increase of 16% on a reported
basis and 13% operationally compared with the fourth quarter of
2016. Sales of companion animal products grew 23% on a reported
basis and 18% on an operational basis, resulting primarily from
increased sales of our dermatology portfolio and Simparica. Sales
of livestock products grew 14% on a reported basis and 11% on an
operational basis, driven by balanced growth across our portfolio.
New product launches drove growth in our fish portfolio in Norway
as well as in our swine portfolio, primarily across Europe. Sales
of cattle products grew primarily in Brazil and Canada, while
poultry sales grew primarily across Asia Pacific.
Zoetis continues to drive demand and strengthen its diverse
portfolio through the introduction of new products, lifecycle
innovations, business development initiatives, strong customer
relationships and entry into new markets and technologies. In the
fourth quarter of 2017, the company received approvals for new
indications and formulations and expanded major product lines into
new geographies.
- Zoetis continued to expand the
availability of its oral flea and tick medication,
Simparica, into new markets, with additional approvals in
Chile, Panama, the Philippines and Switzerland. The product also
received approval in the European Union for the treatment of two
additional types of skin mites. Simparica delivers fast and
persistent protection from fleas and ticks in dogs, with
effectiveness that lasts for a full 35 days, without losing
efficacy at the end of the month.
- Building on the success of the
company’s vaccine portfolio, Zoetis’ Vanguard®
Rapid Resp intranasal vaccine line was granted a one-year
duration of immunity claim for canine adenovirus type 2 and canine
parainfluenza virus, in addition to the product’s prior one-year
duration of immunity claim for Bordatella bronchiseptica. Vanguard
Rapid Resp is the first and only intranasal vaccine line in the
U.S. that has been demonstrated to provide one year of protection
against these three important canine infectious respiratory
diseases.
- In the U.S., the company enhanced its
medicated feed additives portfolio with an expanded claim for
Lincomix® (lincomycin hydrochloride), a popular feed
medication. This new claim gives pork producers more flexibility
when treating swine respiratory disease associated with Mycoplasma
hyopneumoniae (M. hyo), which can be devastating to herds.
FINANCIAL GUIDANCEZoetis is
providing full year 2018 guidance, which includes:
- Revenue between $5.675 billion to
$5.800 billion
- Reported diluted EPS between $2.77 to
$2.93
- Adjusted diluted EPS between $2.96 to
$3.10
- Reported and adjusted effective tax
rate between 21% to 22%
This guidance reflects foreign exchange rates as of early
February. Additional details on guidance are included in the
financial tables and will be discussed on the company's conference
call this morning.
WEBCAST & CONFERENCE CALL
DETAILSZoetis 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 2017 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. 15, 2018.
About ZoetisZoetis (NYSE: ZTS) 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 2017, the company generated annual
revenue of $5.3 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 most
recent Annual Report on Form 10-K, 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 2017 2016 % Change
2017 2016 % Change Revenue $ 1,460 $ 1,277 14 $ 5,307
$ 4,888 9 Costs and expenses: Cost of sales(b) 457 468 (2) 1,775
1,666 7 Selling, general and administrative expenses(b) 361 361 —
1,334 1,364 (2) Research and development expenses(b) 110 108 2 382
376 2 Amortization of intangible assets(c) 23 21 10 91 85 7
Restructuring charges and certain acquisition-related costs 12 20
(40) 19 5 * Interest expense 50 41 22 175 166 5 Other
(income)/deductions–net 17 27 (37) 6 (2 ) *
Income before provision for taxes on income 430 231 86 1,525 1,228
24 Provision for taxes on income 350 77 * 663
409 62 Net income before allocation to noncontrolling
interests 80 154 (48) 862 819 5 Less: Net (loss)/income
attributable to noncontrolling interests (1 ) — * (2 ) (2 )
— Net income attributable to Zoetis $ 81 $ 154 (47) $
864 $ 821 5 Earnings per share—basic $ 0.17
$ 0.31 (45) $ 1.76 $ 1.66 6
Earnings per share—diluted $ 0.16 $ 0.31 (48) $ 1.75
$ 1.65 6 Weighted-average shares used to
calculate earnings per share (in thousands) Basic 487,323
493,932 489,918 495,715 Diluted 491,022
496,638 493,161 498,225 * Calculation not
meaningful. (a) The consolidated statements of
income present the three and twelve months ended December 31, 2017
and 2016. Subsidiaries operating outside the United States are
included for the three and twelve months ended November 30, 2017
and 2016. (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, 2017
GAAPReported(a)
PurchaseAccountingAdjustments(1)
Acquisition-RelatedCosts(2)
CertainSignificantItems(3)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 457 $ (2 ) $ — $ (1 ) $ 454 Gross
profit
1,003 2 — 1 1,006 Selling, general and administrative
expenses(c)
361 (1 ) — (1 ) 359 Research and development
expenses(c)
110 — — — 110 Amortization of intangible
assets(d)
23 (19 ) — — 4 Restructuring charges and certain
acquisition-related costs
12 — (2 ) (10 ) — Other
(income)/deductions–net
17 — — (3 ) 14 Income before
provision for taxes on income
430 22 2 15 469 Provision for
taxes on income
350 21 — (242 ) 129 Net income attributable
to Zoetis
81 1 2 257 341 Earnings per common share
attributable to Zoetis–diluted
0.16 — — 0.53 0.69
Quarter Ended December 31, 2016
GAAPReported(a)
PurchaseAccountingAdjustments(1)
Acquisition-RelatedCosts(2)
CertainSignificantItems(3)
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
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, 2017
GAAPReported(a)
PurchaseAccountingAdjustments(1)
Acquisition-RelatedCosts(2)
CertainSignificantItems(3)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 1,775 $ (7 ) $ — $ (7 ) $ 1,761
Gross profit
3,532 7 — 7 3,546 Selling, general and
administrative expenses(c)
1,334 (5 ) — (4 ) 1,325 Research
and development expenses(c)
382 (2 ) — — 380 Amortization of
intangible assets(d)
91 (74 ) — — 17 Restructuring charges
and certain acquisition-related costs
19 — (10 ) (9 ) —
Other (income)/deductions–net
6 — — (5 ) 1 Income before
provision for taxes on income
1,525 88 10 25 1,648 Provision
for taxes on income
663 37 3 (238 ) 465 Net income
attributable to Zoetis
864 51 7 263 1,185 Earnings per
common share attributable to Zoetis–diluted
1.75 0.10 0.01
0.54 2.40 Twelve Months Ended December 31, 2016
GAAPReported(a)
PurchaseAccountingAdjustments(1)
Acquisition-RelatedCosts(2)
CertainSignificantItems(3)
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
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 (a) The consolidated statements of income
present the three and twelve months ended December 31, 2017 and
2016. Subsidiaries operating outside the United States are included
for the three and twelve months ended November 30, 2017 and 2016.
(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), (2) and
(3).
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)
Income taxes in Purchase accounting
adjustments for the three and twelve months ended December 31,
2017, includes a provisional tax benefit of $17 million related to
the remeasurement of the company’s deferred taxes due to the
reduction in the U.S. federal corporate tax rate as provided by the
U.S. Tax Cuts and Jobs Act enacted on December 22, 2017.
(2) Acquisition-related costs include the following:
Fourth Quarter Full Year 2017
2016 2017 2016 Integration costs(a) $ 2
$ 1 $ 6 $ 3 Restructuring charges(b) — — 4 — Other(c) — —
— 1 Total acquisition-related costs—pre-tax 2 1 10 4
Income taxes(d) — 1 3 — Total
acquisition-related costs—net of tax $ 2 $ — $ 7
$ 4 (a)
Integration costs represent external,
incremental costs directly related to integrating acquired
businesses and primarily include expenditures for consulting and
the integration of systems and processes. Included in Restructuring
charges and certain acquisition-related costs.
(b)
For 2017, represents employee termination
costs related to the acquisition of an Irish biologic therapeutics
company in the third quarter of 2017, 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. For the twelve months ended December 31, 2016, also includes
a tax charge related to the acquisition of certain assets of Abbott
Animal Health.
Certain amounts may reflect rounding adjustments.
(3) Certain significant items include
the following: Fourth Quarter
Full Year 2017 2016 2017 2016
Operational efficiency initiative(a) $ 1 $ 27 $ 5 $ (9 ) Supply
network strategy(b) 8 6 15 19 Other restructuring charges and
cost-reduction/productivity initiatives(c) 4 — 4 (1 ) Certain asset
impairment charges(d) — — — 1 Stand-up costs(e) 3 5 3 23 Other(f)
(1 ) 20 (2 ) 24 Total certain significant
items—pre-tax 15 58 25 57 Income taxes(g) (242 ) (5 ) (238 ) (33 )
Total certain significant items—net of tax $ 257 $ 63
$ 263 $ 90 (a)
For the three months ended December 31,
2017, includes an adjustment to inventory reserves of $2 million,
included in Cost of sales, consulting fees of $1 million, included
in Selling, general and administrative expenses, and restructuring
charges of $2 million related to a reversal of previously accrued
employee termination costs ($1 million) and an increase in exit
costs ($3 million), included in Restructuring charges and certain
acquisition-related costs. For the twelve months ended December 31,
2017, includes an adjustment to inventory reserves of $2 million,
included in Cost of sales, consulting fees of $2 million, included
in Selling, general and administrative expenses, restructuring
charges of $4 million related to employee termination costs ($1
million) and exit costs ($3 million), included in Restructuring
charges and certain acquisition-related costs, and a net loss
related to sales of certain manufacturing sites and products of $1
million, included in Other (income)/deductions—net.
For the three months ended December 31,
2016, includes 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, 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, and a net loss
related to sales of certain manufacturing sites and products of $1
million, included in Other (income)/deductions—net. For the twelve
months ended December 31, 2016, includes 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, a net reversal of
restructuring charges of $3 million related to a reduction in
previously accrued employee termination costs ($8 million) and an
increase in exit costs ($5 million), included in Restructuring
charges and certain acquisition-related costs, and a $26 million
net gain related to sales of certain manufacturing sites and
products, included in Other (income)/deductions—net.
(b)
For the three months ended December 31,
2017, includes an adjustment of $1 million related to discontinuing
the depreciation of assets located at the manufacturing site in
Guarulhos, Brazil that was sold in the fourth quarter of 2017, and
consulting fees of $1 million, included in Cost of sales,
restructuring charges of $4 million related to a net increase in
employee termination costs, included in Restructuring charges and
certain acquisition-related costs, and a net loss of $4 million
related to the disposal of our manufacturing site in Guarulhos,
Brazil, included in Other (income)/deductions—net. For the twelve
months ended December 31, 2017, includes accelerated depreciation
of $2 million, an adjustment of $2 million related to discontinuing
the depreciation of assets located at the manufacturing site in
Guarulhos, Brazil that was sold in the fourth quarter of 2017, and
consulting fees of $5 million, included in Cost of sales,
restructuring charges of $1 million related to a net increase in
employee termination costs, included in Restructuring charges and
certain acquisition-related costs, and a net loss of $9 million,
related to sales of certain manufacturing sites and products,
including the disposal of our manufacturing site in Guarulhos,
Brazil, included in Other (income)/deductions—net.
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.
(c)
Included in Restructuring charges and
certain acquisition-related costs. For the three and twelve months
ended December 31, 2017, represents employee termination costs in
Europe as a result of initiatives to better align our
organizational structure.
(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.
(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 twelve months ended
December 31, 2017, included in Cost of sales.
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).
(f)
For the three and twelve months ended
December 31, 2017, primarily represents income of $1 million and $5
million, respectively, related to an insurance recovery from
commercial settlements in Mexico recorded in 2014 and 2016,
included in Other (income)/deductions—net. For the twelve months
ended December 31, 2017, also includes costs associated with
changes to our operating model of $1 million in Cost of sales and
$2 million in Selling, general and administrative expenses.
For the three and twelve months ended
December 31, 2016, represents costs associated with changes to our
operating model of $6 million and $10 million, respectively,
included in Selling, general and administrative expenses, and a
charge associated with a commercial settlement in Mexico ($14
million), included in Other (income)/deductions—net.
(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. For the three and twelve months ended December 31, 2017, also
includes (i) a provisional net tax charge of $229 million related
to the impact of the Tax Cuts and Jobs Act enacted on December 22,
2017, including a one-time mandatory deemed repatriation tax on the
company’s undistributed non-U.S. earnings, partially offset by a
tax benefit related to the remeasurement of the company’s deferred
tax assets and liabilities, as of the date of enactment, due to the
reduction in the U.S. federal corporate tax rate, (ii) a net tax
charge of approximately $3 million as a result of the
implementation of certain operational changes, and (iii) a tax
charge of approximately $2 million related to the disposal of
certain assets.
The three months ended December 31, 2016, also includes a
net tax charge of approximately $22 million as a result of the
implementation of certain operational changes. 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 remeasurement 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
remeasurement 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.
ZOETIS INC.
ADJUSTED SELECTED COSTS AND
EXPENSES(a)
(UNAUDITED)
(millions of dollars)
Fourth Quarter % Change 2017 2016 Total
Foreign Exchange Operational(b) Adjusted cost
of sales $ 454 $ 455 — % 1 % (1 )% As a percent of revenue 31.1 %
35.6 % NA NA NA Adjusted SG&A expenses $ 359 $ 348 3 % 1 % 2 %
Adjusted R&D expenses 110 107 3 % 1 % 2 % Adjusted net income
attributable to Zoetis 341 232 47 % 10 % 37 %
Full Year % Change 2017 2016 Total Foreign Exchange Operational(b)
Adjusted cost of sales $ 1,761 $ 1,624 8 % 1 % 7 % As a percent of
revenue 33.2 % 33.2 % NA NA NA Adjusted SG&A expenses $ 1,325 $
1,312 1 % — % 1 % Adjusted R&D expenses 380 374 2 % 1 % 1 %
Adjusted net income attributable to Zoetis 1,185 975 22 % 1 % 21 %
(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, 2017 and 2016 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.
2018 GUIDANCE
Selected Line Items
(millions of dollars, except per share
amounts)
Full Year 2018 Revenue $5,675 to $5,800
Operational growth(a) 5% to 7% Adjusted cost of sales
as a percentage of revenue(b) Approximately 32%
Adjusted SG&A expenses(b) $1,370 to $1,420
Adjusted R&D expenses(b) $400 to $420 Adjusted
interest expense and other (income)/deductions(b)
Approximately $190 Effective tax rate on adjusted income(b)
21% to 22% Adjusted diluted EPS(b) $2.96 to
$3.10 Adjusted net income(b) $1,450 to $1,520 Operational
growth(a)(c) 20% to 26% Certain significant items(d)
and acquisition-related costs $20 to $40
The guidance reflects foreign exchange
rates as of early February 2018.
Reconciliations of 2018 reported guidance
to 2018 adjusted guidance follows:
(millions of dollars, except per share
amounts)
Reported
Certain
significantitems(d)
andacquisition-relatedcosts
Purchaseaccounting
Adjusted(b)
Cost of sales as a percentage of revenue ~
32.5% (0.5%) ~ 32%
SG&A expenses $1,375 to $1,425
($5) $1,370 to $1,420
R&D expenses $400 to $420
$400 to $420 Interest
expense and other (income)/deductions ~ $190
~ $190
Effective tax rate 21% to 22%
21% to 22% Diluted EPS
$2.77 to $2.93 $0.04 to $0.06
$0.13 $2.96 to $3.10 Net income
attributable to Zoetis $1,355 to $1,435
$20 to $30 $65 $1,450 to $1,520
(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. 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 and other charges for the supply network strategy.
Excludes potential net gains/losses on sales of assets.
ZOETIS INC.
CONSOLIDATED REVENUE BY SEGMENT(a) AND
SPECIES
(UNAUDITED)
(millions of dollars)
Fourth Quarter % Change 2017 2016 Total
Foreign Exchange Operational(b)
Revenue: Livestock $ 891 $ 790 13 % 2 % 11 % Companion
Animal 561 477 18 % 2 % 16 % Contract Manufacturing 8 10
(20 )% 6 % (26 )%
Total Revenue $ 1,460
$ 1,277 14 % 1
% 13 % U.S. Livestock $ 374 $
336 11 % — % 11 % Companion Animal 338 295 15 % — %
15 %
Total U.S. Revenue $ 712 $
631 13 % — % 13
% International Livestock $ 517 $ 454 14 % 3 %
11 % Companion Animal 223 182 23 % 5 % 18 %
Total
International Revenue $ 740 $
636 16 % 3 % 13
% Livestock: Cattle $ 543 $ 478 14 % 2 % 12 %
Swine 166 161 3 % 2 % 1 % Poultry 122 106 15 % — % 15 % Fish 39 26
50 % 6 % 44 % Other 21 19 11 % (1 )% 12 %
Total
Livestock Revenue $ 891 $
790 13 % 2 % 11
% Companion Animal: Horses $ 47 $ 42 12 % 3 %
9 % Dogs and Cats 514 435 18 % 2 % 16 %
Total
Companion Animal Revenue $ 561 $
477 18 % 2 % 16
% * Calculation not meaningful. (a)
For a description of each segment, see
Zoetis' most recent Annual Report on Form 10-K.
(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 2017 2016 Total
Foreign Exchange Operational(b)
Revenue: Livestock $ 3,037 $ 2,881 5 % — % 5 % Companion
Animal 2,226 1,956 14 % — % 14 % Contract Manufacturing 44
51 (14 )% 1 % (15 )%
Total Revenue $
5,307 $ 4,888 9 %
1 % 8 % U.S. Livestock $
1,244 $ 1,227 1 % — % 1 % Companion Animal 1,376 1,220
13 % — % 13 %
Total U.S. Revenue $
2,620 $ 2,447 7 %
— % 7 % International
Livestock $ 1,793 $ 1,654 8 % 1 % 7 % Companion Animal 850
736 15 % (1 )% 16 %
Total International Revenue
$ 2,643 $ 2,390 11
% 1 % 10 %
Livestock: Cattle $ 1,735 $ 1,653 5 % 1 % 4 % Swine 621 602
3 % — % 3 % Poultry 479 457 5 % — % 5 % Fish 118 90 31 % 2 % 29 %
Other 84 79 6 % — % 6 %
Total Livestock
Revenue $ 3,037 $ 2,881
5 % — % 5 %
Companion Animal: Horses $ 151 $ 150 1 % — % 1 % Dogs and
Cats 2,075 1,806 15 % — % 15 %
Total Companion
Animal Revenue $ 2,226 $
1,956 14 % — % 14
% * Calculation not meaningful. (a)
For a description of each segment, see
Zoetis' most recent Annual Report on Form 10-K.
(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 2017 2016 Total
Foreign Exchange Operational(a)
Total
International $ 740 $
636 16 % 3 % 13 %
Australia 42 38 11 % 5 % 6 %
Brazil 95 83 14 % 1 % 13
%
Canada 61 53 15 % 6 % 9 %
China 37 32 16 % 3 % 13 %
France 36 28 29 % 6 % 23 %
Germany 41 35 17 % 6 % 11
%
Italy 24 20 20 % 10 % 10 %
Japan 37 31 19 % (8 )%
27 %
Mexico 26 20 30 % 10 % 20 %
Spain 26 20 30 % 13
% 17 %
United Kingdom 44 39 13 % 5 % 8 %
Other
Developed 99 79 25 % 3 % 22 %
Other Emerging 172 158 9 %
1 % 8 % Full Year % Change 2017 2016 Total Foreign Exchange
Operational(a)
Total International $
2,643 $ 2,390 11 % 1 %
10 %
Australia 176 157 12 % 3 % 9 %
Brazil 300 245 22 % 10 % 12 %
Canada 184 173 6 % 1 %
5 %
China 174 145 20 % (4 )% 24 %
France 121 117 3 %
— % 3 %
Germany 137 125 10 % 1 % 9 %
Italy 89 83 7 %
1 % 6 %
Japan 138 127 9 % (3 )% 12 %
Mexico 86 76 13
% (3 )% 16 %
Spain 93 82 13 % 2 % 11 %
United Kingdom
149 151 (1 )% (7 )% 6 %
Other Developed 339 302 12 % 1 % 11
%
Other Emerging 657 607 8 % (1 )% 9 % 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 2017 2016 Total
Foreign Exchange Operational(b)
U.S.:
Revenue $ 712 $ 631 13 % — % 13 % Cost of sales 153 149
3 % — % 3 % Gross profit 559 482 16 % — % 16 % Gross margin
78.5 % 76.4 % Operating expenses 109 95 15 % — % 15 % Other
(income)/deductions (3 ) —
*
— %
*
U.S. Earnings $ 453 $ 387
17 % — % 17 %
International:
Revenue $ 740 $ 636 16 % 3 % 13 % Cost of sales 244 235
4 % 3 % 1 % Gross profit 496 401 24 % 4 % 20 % Gross margin
67.0 % 63.1 % Operating expenses 143 140 2 % 3 % (1 )% Other
(income)/deductions — (1 ) (100 )% (30 )% (70 )%
International Earnings $ 353 $
262 35 % 4 % 31 %
Total Reportable Segments $ 806
$ 649 24 % 1 % 23
% Other business activities(c) (89 ) (90 ) (1 )%
Reconciling Items: Corporate(d) (188 ) (185 ) 2 % Purchase
accounting adjustments(e) (22 ) (20 ) 10 % Acquisition-related
costs(f) (2 ) (1 ) 100 % Certain significant items(g) (15 ) (58 )
(74 )% Other unallocated(h) (60 ) (64 ) (6 )%
Total
Earnings(i) $ 430 $ 231 86 % * Calculation
not meaningful (a) For a description of each segment,
see Zoetis' most recent Annual Report on Form 10-K. (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 2017 2016 Total
Foreign Exchange Operational(b)
U.S.:
Revenue $ 2,620 $ 2,447 7 % — % 7 % Cost of sales 565 551
3 % — % 3 % Gross profit 2,055 1,896 8 % — % 8 % Gross
margin 78.4 % 77.5 % Operating expenses 421 388 9 % — % 9 % Other
(income)/deductions (3 ) —
*
— %
*
U.S. Earnings $ 1,637 $ 1,508
9 % — % 9 %
International:
Revenue $ 2,643 $ 2,390 11 % 1 % 10 % Cost of sales 889 833
7 % 1 % 6 % Gross profit 1,754 1,557 13 % 1 % 12 % Gross
margin 66.4 % 65.1 % Operating expenses 515 501 3 % 1 % 2 % Other
(income)/deductions (1 ) 2
*
*
*
International Earnings $ 1,240 $
1,054 18 % 1 % 17
% Total Reportable Segments $
2,877 $ 2,562 12 % —
% 12 % Other business activities(c)
(313 ) (309 ) 1 % Reconciling Items: Corporate(d) (625 ) (684 ) (9
)% Purchase accounting adjustments(e) (88 ) (99 ) (11 )%
Acquisition-related costs(f) (10 ) (4 )
*
Certain significant items(g) (25 ) (57 ) (56 )% Other
unallocated(h) (291 ) (181 ) 61 %
Total Earnings(i)
$ 1,525 $ 1,228 24 % *
Calculation not meaningful (a)
For a description of each segment, see
Zoetis' most recent Annual Report on Form 10-K.
(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/20180215005538/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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