- Reports Revenue of $1.4 Billion,
Growing 12%, and Net Income of $384 Million, or $0.79 per Diluted
Share, Growing 55% and 58%, respectively, on a Reported Basis for
Second Quarter 2018
- Reports Adjusted Net Income of $375
Million, or Adjusted Diluted EPS of $0.77, for Second Quarter
2018
- Delivers 9% Operational Growth in
Revenue and 37% Operational Growth in Adjusted Net Income for
Second Quarter 2018
- Updates Full Year 2018 Revenue
Guidance to $5.700 - $5.800 Billion and Diluted EPS of $2.72 -
$2.89 on a Reported Basis, or $3.00 - $3.10 on an Adjusted
Basis
Zoetis Inc. (NYSE:ZTS) today reported its financial results for
the second quarter of 2018 and updated its guidance for full year
2018.
The company reported revenue of $1.4 billion for the second
quarter of 2018, an increase of 12% compared with the second
quarter of 2017. Net income for the second quarter of 2018 was $384
million, or $0.79 per diluted share, an increase of 55% and 58%,
respectively, on a reported basis.
Adjusted net income1 for the second quarter of 2018 was $375
million, or $0.77 per diluted share, an increase of 44% and 45%,
respectively, on a reported basis. Adjusted net income for the
second quarter of 2018 excludes the net impact for purchase
accounting adjustments, acquisition-related costs and certain
significant items.
On an operational2 basis, revenue for the second quarter of 2018
increased 9%, excluding the impact of foreign currency. Adjusted
net income for the second quarter of 2018 increased 37%
operationally, excluding the impact of foreign currency.
EXECUTIVE COMMENTARY
“We continue to perform well through the first half of 2018
primarily based on the performance of new parasiticides and
vaccines, our dermatology portfolio, as well as contributions from
the rest of our in-line portfolio,” said Juan Ramón Alaix, Chief
Executive Officer of Zoetis. “Our acquisition of Abaxis this week
also demonstrates our ongoing commitment to strategic portfolio
expansions and value creation for our customers and shareholders.
We are updating our guidance to reflect the addition of Abaxis and
changes in foreign exchange, and we are confident in our ability to
meet these goals for the full year.”
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 second quarter of 2018:
- Revenue in the International
segment was $728 million, an increase of 15% on a reported
basis and 10% operationally compared with the second quarter of
2017. Sales of companion animal products grew 24% on a reported
basis and 17% on an operational basis. Growth resulted primarily
from increased sales across multiple markets for our dermatology
portfolio, and two new parasiticide products, Simparica®
(sarolaner) for dogs and Stronghold® Plus (selamectin/sarolaner)
for cats. In China, we also saw increased sales of vaccines, as
well as our Revolution® (selamectin) parasiticide for dogs. Sales
of livestock products grew 10% on a reported basis and 6%
operationally, despite a decline in Brazil as a result of a
national trucking industry strike. All species contributed to
growth in the quarter, with cattle and swine products performing
particularly well. Growth of cattle products was driven by
favorable market conditions, with Canada, the UK and several
smaller emerging markets also contributing to growth. Growth in our
swine portfolio was largely driven by the Suvaxyn® PCV combo
vaccine that launched late last year, as well as a strong demand
for our products in other emerging markets.
- Revenue in the U.S. segment was
$677 million, an increase of 9% compared with the second quarter of
2017. Sales of companion animal products grew 15% on a reported
basis, driven primarily by our dermatology portfolio and Simparica.
This growth was partially offset by lower sales of certain in-line
products due to anticipated competition. Sales of livestock
products grew 1%, with growth in poultry and swine, offset by
cattle. Our poultry portfolio grew as a result of increased sales
of alternatives to antibiotic medicated feed additives, while
growth in our swine portfolio was the result of increased customer
adoption of the recently launched Fostera Gold® PCV MH vaccine.
Sales of cattle products declined due to increased competition for
certain medicated feed additives and unfavorable market conditions
in dairy.
Zoetis continues to drive demand and strengthen its diverse
portfolio through business development initiatives and approvals of
major products in new markets. Since our last quarterly earnings
announcement:
- Zoetis completed the acquisition of
Abaxis, Inc., a leader in the development, manufacture and
marketing of diagnostic instruments for veterinary point-of-care
services for $83 per share in cash, or approximately $2.0 billion
in aggregate. The acquisition enhances Zoetis’ presence in
veterinary diagnostics, a category of the animal health industry
with approximately 10% compound annual growth3 over the last three
years.
- The company announced a five-year
collaboration agreement with Regeneron Pharmaceuticals to
develop monoclonal antibody (mAb) therapeutics. This collaboration
exemplifies Zoetis’ commitment to lead the animal health industry
in mAb therapeutics, and will enhance the company’s R&D
platform and pipeline of monoclonal antibody therapeutics for
veterinary use.
- Zoetis continued to bring leading
companion animal products to new markets. Cytopoint®
(lokivetmab), a mAb that is part of Zoetis’ canine dermatology
portfolio, was approved in Brazil and Australia. Simparica,
an oral flea and tick medication for dogs, was approved in Costa
Rica. Additionally, Stronghold Plus/Revolution®
Plus, a topical combination parasiticide for cats was
approved in Japan, New Zealand and Serbia.
- The company continued to broaden its
Fostera® swine vaccine franchise with approval in Canada of
Fostera Gold PCV MH. This vaccine, first approved in
the U.S. earlier this year, provides livestock farmers with greater
options and flexibility in protecting pigs from porcine circovirus
(PCV2) and Mycoplasma hyopneumoniae (M. hyo).
FINANCIAL GUIDANCE
Zoetis is updating its full year 2018 guidance, which
includes:
- Revenue between $5.700 billion to
$5.800 billion
- Reported diluted EPS between $2.72 to
$2.89
- Adjusted diluted EPS between $3.00 to
$3.10
This guidance reflects foreign exchange rates as of mid-July and
includes the partial year impact of Abaxis, based on preliminary
estimates for certain significant items and purchase accounting
adjustments. 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
DETAILS
Zoetis will host a webcast and conference call at 8:30 a.m. (ET)
today, during which company executives will review second quarter
2018 results, discuss financial guidance and respond to questions
from financial analysts. Investors and the public may access the
live webcast by visiting the Zoetis website at
http://investor.zoetis.com/events-presentations. A replay of the
webcast will be archived and made available on Aug. 2, 2018.
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 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 growth excluding the impact of foreign exchange.
3 Based on internal estimates and publicly available
information.
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, expectations regarding the performance of
acquired companies and our ability to integrate new businesses,
expectations regarding the financial impact of acquisitions, 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, 2017, 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.
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME(a)
(UNAUDITED) (millions of dollars, except per share data)
Second Quarter Six Months 2018 2017 % Change 2018
2017 % Change Revenue $ 1,415 $ 1,269 12 $ 2,781 $ 2,500 11 Costs
and expenses: Cost of sales(b) 447 440 2 894 883 1 Selling, general
and administrative expenses(b) 359 336 7 697 645 8 Research and
development expenses(b) 102 86 19 199 176 13 Amortization of
intangible assets(c) 23 23 — 46 45 2 Restructuring
charges/(reversals) and certain acquisition-related costs 5 — * 7
(1 ) * Interest expense 46 41 12 93 82 13 Other
(income)/deductions–net (4 ) (2 ) 100 (9 ) (12 ) (25) Income before
provision for taxes on income 437 345 27 854 682 25 Provision for
taxes on income 55 98 (44) 122 196 (38)
Net income before allocation to noncontrolling interests 382 247 55
732 486 51 Less: Net (loss)/income attributable to noncontrolling
interests (2 ) — * (4 ) 1 * Net income attributable
to Zoetis $ 384 $ 247 55 $ 736 $ 485 52
Earnings per share—basic $ 0.79 $ 0.50 58 $
1.52 $ 0.99 54 Earnings per share—diluted $
0.79 $ 0.50 58 $ 1.51 $ 0.98 54
Weighted-average shares used to calculate earnings per share Basic
483.8 490.8 484.8 491.6 Diluted 487.5
494.0 488.6 494.6 * Calculation not
meaningful. (a) The condensed consolidated statements
of income present the three and six months ended June 30, 2018, and
July 2, 2017. Subsidiaries operating outside the United States are
included for the three and six months ended May 31, 2018 and May
28, 2017. (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 June 30, 2018
GAAP Reported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 447 $ (2 ) $ — $ (2 ) $ 443 Gross
profit
968 2 — 2 972 Selling, general and administrative
expenses(c)
359 (2 ) — — 357 Amortization of intangible
assets(d)
23 (19 ) — — 4 Restructuring charges/(reversals)
and certain acquisition-related costs
5 — — (5 ) — Income
before provision for taxes on income
437 23 — 7 467
Provision for taxes on income
55 4 — 35 94 Net income
attributable to Zoetis
384 19 — (28 ) 375 Earnings per
common share attributable to Zoetis–diluted
0.79 0.04 —
(0.06 ) 0.77 Quarter ended July 2, 2017
GAAP Reported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 440 $ (1 ) $ — $ (2 ) $ 437 Gross
profit
829 1 — 2 832 Selling, general and administrative
expenses(c)
336 (2 ) — (1 ) 333 Amortization of intangible
assets(d)
23 (18 ) — — 5 Restructuring charges/(reversals)
and certain acquisition-related costs
— — (2 ) 2 — Other
(income)/deductions–net
(2 ) — — 2 — Income before
provision for taxes on income
345 21 2 (1 ) 367 Provision
for taxes on income
98 6 1 1 106 Net income attributable to
Zoetis
247 15 1 (2 ) 261 Earnings per common share
attributable to Zoetis–diluted
0.50 0.03 — — 0.53
ZOETIS INC. RECONCILIATION OF
GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION CERTAIN LINE ITEMS
(UNAUDITED) (millions of dollars, except per share data)
Six months ended June 30, 2018
GAAP Reported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 894 $ (4 ) $ — $ (3 ) $ 887 Gross
profit
1,887 4 — 3 1,894 Selling, general and administrative
expenses(c)
697 (3 ) — (1 ) 693 Research and development
expenses(c)
199 (1 ) — — 198 Amortization of intangible
assets(d)
46 (38 ) — — 8 Restructuring charges/(reversals)
and certain acquisition-related costs
7 — (1 ) (6 ) — Income
before provision for taxes on income
854 46 1 10 911
Provision for taxes on income
122 15 — 38 175 Net income
attributable to Zoetis
736 31 1 (28 ) 740 Earnings per
common share attributable to Zoetis–diluted
1.51 0.06 —
(0.06 ) 1.51 Six months ended July 2, 2017
GAAP Reported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 883 $ (3 ) $ — $ (5 ) $ 875 Gross
profit
1,617 3 — 5 1,625 Selling, general and administrative
expenses(c)
645 (3 ) — (3 ) 639 Research and development
expenses(c)
176 (1 ) — — 175 Amortization of intangible
assets(d)
45 (36 ) — — 9 Restructuring charges/(reversals)
and certain acquisition-related costs
(1 ) — (2 ) 3 —
Other (income)/deductions–net
(12 ) — — 2 (10 )
Income before provision for taxes on income
682 43 2 3 730
Provision for taxes on income
196 9 1 1 207 Net income
attributable to Zoetis
485 34 1 2 522 Earnings per common
share attributable to Zoetis–diluted
0.98 0.07 — 0.01 1.06
(a) The condensed consolidated statements of income present
the three and six months ended June 30, 2018, and July 2, 2017.
Subsidiaries operating outside the United States are included for
the three and six months ended May 31, 2018 and May 28, 2017. (b)
Non-GAAP adjusted net income and its components and non-GAAP
adjusted diluted EPS are not, and should not be viewed as,
substitutes for U.S. GAAP net income and its components and diluted
EPS. Despite the importance of these measures to management in goal
setting and performance measurement, non-GAAP adjusted net income
and its components and non-GAAP adjusted diluted EPS are non-GAAP
financial measures that have no standardized meaning prescribed by
U.S. GAAP and, therefore, have limits in their usefulness to
investors. Because of the non-standardized definitions, non-GAAP
adjusted net income and its components and non-GAAP adjusted
diluted EPS (unlike U.S. GAAP net income and its components and
diluted EPS) may not be comparable to the calculation of similar
measures of other companies. Non-GAAP adjusted net income and its
components, and non-GAAP adjusted diluted EPS are presented solely
to permit investors to more fully understand how management
assesses performance. (c) Exclusive of amortization of intangible
assets, except as discussed in footnote (d) below. (d)
Amortization expense related to
finite-lived acquired intangible assets that contribute to our
ability to sell, manufacture, research, market and distribute
products, compounds and intellectual property is included in
Amortization of intangible assets as these intangible assets
benefit multiple business functions. Amortization expense related
to finite-lived acquired intangible assets that are associated with
a single function is included in Cost of sales, Selling, general
and administrative expenses or Research and development expenses,
as appropriate.
See Notes to Reconciliation of GAAP
Reported to Non-GAAP Adjusted Information for notes (1) and
(2).
Certain amounts may reflect rounding adjustments.
ZOETIS INC.NOTES TO RECONCILIATION OF GAAP
REPORTED TO NON-GAAP ADJUSTED INFORMATIONCERTAIN LINE
ITEMS(UNAUDITED)(millions of dollars)
(1) Acquisition-related costs include the following:
Second Quarter Six Months
2018 2017 2018 2017 Integration costs(a) $ — $ 2 $ 1
$
2
Total acquisition-related costs—pre-tax — 2 1 2 Income taxes(b) — 1
— 1 Total acquisition-related costs—net of tax $ — $ 1 $ 1 $ 1 (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/(reversals) and certain acquisition-related costs.
(b)
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.
Certain amounts may reflect rounding adjustments.
(2) Certain significant items include the following:
Second Quarter Six Months
2018 2017 2018 2017 Operational efficiency
initiative(a) $ 1 $ 6 $ 1 $ 5 Supply network strategy(b) 3 (4 ) 5
(1 ) Other restructuring charges and cost-reduction/productivity
initiatives(c) 3 — 3 — Other(d) — (3 ) 1 (1 ) Total
certain significant items—pre-tax 7 (1 ) 10 3 Income taxes(e) 35
1 38 1 Total certain significant
items—net of tax $ (28 ) $ (2 ) $ (28 ) $ 2 (a)
For both the three and six months ended
June 30, 2018, represents employee termination costs of $1 million,
included in Restructuring charges/(reversals) and certain
acquisition-related costs.
For the three months ended July 2, 2017,
represents consulting fees of $1 million, included in Selling,
general and administrative expenses, restructuring charges of $3
million related to employee termination costs ($2 million) and exit
costs ($1 million), included in Restructuring charges/(reversals)
and certain acquisition-related costs, and a net loss related to
sales of certain manufacturing sites and products of $2 million,
included in Other (income)/deductions—net. For the six months ended
July 2, 2017, represents consulting fees of $1 million, included in
Selling, general and administrative expenses, restructuring charges
of $2 million related to employee termination costs ($1 million)
and exit costs ($1 million), included in Restructuring
charges/(reversals) and certain acquisition-related costs, and a
net loss related to sales of certain manufacturing sites and
products of $2 million, included in Other
(income)/deductions—net.
(b)
For the three months ended June 30, 2018,
represents consulting fees of $2 million, included in Cost of
sales, and exit costs of $1 million, included in Restructuring
charges/(reversals) and certain acquisition-related costs. For the
six months ended June 30, 2018, represents consulting fees of $3
million, included in Cost of sales, and employee termination costs
of $1 million, and exit costs of $1 million, included in
Restructuring charges/(reversals) and certain acquisition-related
costs.
For the three months ended July 2, 2017,
represents accelerated depreciation of $1 million, included in Cost
of sales, and a reversal of previously accrued employee
terminations costs of $5 million, included in Restructuring
charges/(reversals) and certain acquisition-related costs. For the
six months ended July 2, 2017, represents accelerated depreciation
of $2 million, and consulting fees of $2 million, included in Cost
of sales, and a reversal of previously accrued employee
terminations costs of $5 million, included in Restructuring
charges/(reversals) and certain acquisition-related costs.
(c)
For the three and six months ended June
30, 2018, represents employee termination costs in Europe as a
result of initiatives to better align our organizational structure,
included in Restructuring charges/(reversals) and certain
acquisition-related costs.
(d) For the six months ended June 30, 2018, primarily represents
charges related to the implementation of new accounting guidance as
a result of the enactment of the Tax Cuts and Jobs Act.
For the three months ended July 2, 2017,
represents costs associated with changes to our operating model of
$1 million, included in Cost of sales, and income of $4 million
related to an insurance recovery from commercial settlements in
Mexico recorded in 2014 and 2016, included in Other
(income)/deductions—net. For the six months ended July 2, 2017,
represents costs associated with changes to our operating model of
$1 million, included in Cost of sales and $2 million, included in
Selling, general and administrative expenses, as well as income of
$4 million related to insurance recovery from commercial
settlements in Mexico recorded in 2014 and 2016, included in Other
(income)/deductions—net.
(e)
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 six months ended June 30, 2018, also
includes a net tax benefit of $33 million and $35 million,
respectively, related to an adjustment to the provisional one-time
mandatory deemed repatriation tax on the company's undistributed
non-U.S. earnings pursuant to the Tax Cuts and Jobs Act enacted on
December 22, 2017.
For the six months ended July 2, 2017, also includes a net tax
charge of approximately $1 million, related to 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. Certain
amounts may reflect rounding adjustments.
ZOETIS INC.
ADJUSTED SELECTED COSTS, EXPENSES AND
INCOME (a)
(UNAUDITED) (millions of dollars)
Second Quarter % Change 2018 2017 Total
ForeignExchange
Operational(b) Adjusted cost of sales $ 443 $ 437 1 % — % 1
% as a percent of revenue 31.3 % 34.4 % NA NA NA Adjusted SG&A
expenses 357 333 7 % 2 % 5 % Adjusted R&D expenses 102 86 19 %
3 % 16 % Adjusted net income attributable to Zoetis 375 261 44 % 7
% 37 % Six Months % Change 2018 2017 Total
ForeignExchange
Operational(b) Adjusted cost of sales $ 887 $ 875 1 % 1 % — % as a
percent of revenue 31.9 % 35.0 % NA NA NA Adjusted SG&A
expenses $ 693 $ 639 8 % 2 % 6 % Adjusted R&D expenses 198 175
13 % 2 % 11 % Adjusted net income attributable to Zoetis 740 522 42
% 6 % 36 % (a) Adjusted cost of sales, adjusted selling,
general, and administrative (SG&A) expenses, adjusted research
and development (R&D) expenses, and adjusted net income
attributable to Zoetis (non-GAAP financial measures) are defined as
the corresponding reported U.S. GAAP income statement line items
excluding purchase accounting adjustments, acquisition-related
costs, and certain significant items. These adjusted income
statement line item measures are not, and should not be viewed as,
substitutes for the corresponding U.S. GAAP line items. The
corresponding GAAP line items and reconciliations of reported to
adjusted information are provided in Condensed Consolidated
Statements of Operations and Reconciliation of GAAP Reported to
Non-GAAP Adjusted Information. (b) Operational growth (a non-GAAP
financial measure) is defined as growth excluding the impact of
foreign exchange.
ZOETIS INC.2018 GUIDANCE
Selected Line
Items
(millions of dollars, except per share
amounts)
Full Year 2018
Foreign exchange impact compared
to May 2018 guidance
Revenue $5,700 to $5,800 (125)
Operational growth(a) 7% to 9% Organic operational growth(b)
5% to 7% Adjusted cost of sales as a
percentage of revenue(c) Approximately 32%
Adjusted SG&A expenses(c)
$1,410 to $1,450 (25) Adjusted R&D expenses(c)
$415 to $430 (5) Adjusted interest expense and
other (income)/deductions(c) Approximately
$200 Effective tax rate on adjusted income(c)
Approximately 20% Adjusted diluted
EPS(c) $3.00 to $3.10 (.07) Adjusted
net income(c) $1,460 to $1,510 (35) Operational growth(a)(d)
23% to 27% Certain significant items and
acquisition-related costs(e) $65 to $90
This guidance reflects the inclusion of Abaxis results for the
last 5 months of the year in the U.S., and 4 months
internationally, based on our preliminary estimates including with
respect to certain significant items, acquisition-related costs and
purchase accounting adjustments. The actual impact of the
acquisition on our financial results could differ materially from
these estimates.
The guidance reflects foreign exchange rates as of mid-July
2018.
Reconciliations of 2018 reported guidance to 2018 adjusted
guidance follows:
(millions of dollars, except per share amounts)
Reported
Certain significantitems
andacquisition-relatedcosts(d)
Purchaseaccounting
Adjusted(b) Cost
of sales as a percentage of revenue ~ 32.5%
(0.5%) ~ 32% SG&A expenses
$1,417 to $1,460 ($7) to $(10)
$1,410 to $1,450 R&D expenses $415
to $430 $415 to $430 Interest
expense and other (income)/deductions ~ $200
~ $200 Effective tax rate
~ 18% ~ (2)% ~ 20%
Diluted EPS $2.72 to $2.89 $0.05 to
$0.08 $0.15 to $0.20 $3.00 to $3.10 Net income
attributable to Zoetis $1,325 to $1,410
$25 to $40 $75 to $95 $1,460 to $1,510 (a)
Operational growth (a non-GAAP financial measure) excludes the
impact of foreign exchange. (b) Organic operational growth (a
non-GAAP financial measure) excludes the impact of the acquisition
of Abaxis as well as foreign exchange. (c) 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. (d) 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. (e)
Primarily includes certain nonrecurring costs related to the
acquisition of Abaxis, restructuring and other charges for the
supply network strategy. Excludes potential net gains/losses on
sales of assets. The actual impact of the acquisition of Abaxis on
our financial results could differ materially from these estimates.
ZOETIS INC.
CONSOLIDATED REVENUE BY SEGMENT(a) AND
SPECIES
(UNAUDITED) (millions of dollars)
Second Quarter % Change 2018 2017 Total
ForeignExchange
Operational(b)
Revenue: Livestock $ 734 $ 689 7 % 3 %
4 % Companion Animal 671 568 18 % 2 % 16 % Contract Manufacturing
10 12 (17 )% (3 )% (14 )%
Total Revenue $
1,415 $ 1,269 12 % 3
% 9 % U.S.
Livestock $ 271 $ 269 1 % — % 1 % Companion Animal 406 354 15 % — %
15 %
Total U.S. Revenue $ 677 $
623 9 % — % 9 %
International Livestock $ 463 $ 420 10 % 4 % 6 %
Companion Animal 265 214 24 % 7 % 17 %
Total International
Revenue $ 728 $ 634 15
% 5 % 10 %
Livestock: Cattle $ 396 $ 382 4 % 2 % 2 % Swine 165 148 11 %
4 % 7 % Poultry 129 122 6 % 1 % 5 % Fish 24 19 26 % 13 % 13 % Other
20 18 11 % 3 % 8 %
Total Livestock Revenue $
734 $ 689 7 % 3 %
4 % Companion Animal: Dogs and Cats $
630 $ 533 18 % 2 % 16 % Horses 41 35 17 % 3 % 14 %
Total
Companion Animal Revenue $ 671 $
568 18 % 2 % 16 %
(a) For a description of each segment, see Note 18A to
Zoetis' consolidated financial statements included in Zoetis' Form
10-K for the year ended December 31, 2017. (b) Operational revenue
growth (a non-GAAP financial measure) is defined as revenue growth
excluding the impact of foreign exchange. Certain amounts
and percentages may reflect rounding adjustments.
ZOETIS INC.
CONSOLIDATED REVENUE BY SEGMENT(a) AND
SPECIES
(UNAUDITED) (millions of dollars) Six
Months % Change 2018 2017 Total
ForeignExchange
Operational(b)
Revenue: Livestock $ 1,504 $ 1,392 8 %
3 % 5 % Companion Animal 1,261 1,085 16 % 3 % 13 % Contract
Manufacturing 16 23 (30 )% 5 % (35 )%
Total Revenue $
2,781 $ 2,500 11 % 3
% 8 % U.S.
Livestock $ 563 $ 551 2 % — % 2 % Companion Animal 748 677 10 % — %
10 %
Total U.S. Revenue $ 1,311 $
1,228 7 % — % 7 %
International Livestock $ 941 $ 841 12 % 5 % 7 %
Companion Animal 513 408 26 % 8 % 18 %
Total International
Revenue $ 1,454 $ 1,249 16
% 6 % 10 %
Livestock: Cattle $ 812 $ 768 6 % 3 % 3 % Swine 340 308 10 %
4 % 6 % Poultry 265 238 11 % 2 % 9 % Fish 46 40 15 % 9 % 6 % Other
41 38 8 % 5 % 3 %
Total Livestock Revenue $
1,504 $ 1,392 8 % 3
% 5 % Companion Animal: Dogs and
Cats $ 1,179 $ 1,015 16 % 3 % 13 % Horses 82 70 17 % 4 % 13 %
Total Companion Animal Revenue $ 1,261
$ 1,085 16 % 3 %
13 % (a) For a description of each segment,
see Note 18A to Zoetis' consolidated financial statements included
in Zoetis' Form 10-K for the year ended December 31, 2017. (b)
Operational revenue growth (a non-GAAP financial measure) is
defined as revenue growth excluding the impact of foreign exchange.
Certain amounts and percentages may reflect rounding
adjustments.
ZOETIS INC. CONSOLIDATED REVENUE BY KEY INTERNATIONAL
MARKETS (UNAUDITED) (millions of dollars)
Second Quarter % Change 2018 2017 Total
ForeignExchange
Operational(a)
Total International
$ 728 $ 634
15 % 5 % 10 %
Australia 51 43 19 % 3 % 16 %
Brazil 68 73 (7 )% (7
)% — %
Canada 56 49 14 % 7 % 7 %
China 60 45 33 % 10
% 23 %
France 30 26 15 % 12 % 3 %
Germany 38 33 15 %
10 % 5 %
Italy 26 21 24 % 15 % 9 %
Japan 39 36 8 % 3
% 5 %
Mexico 26 21 24 % 2 % 22 %
Spain 30 23 30 % 14
% 16 %
United Kingdom 36 26 38 % 15 % 23 %
Other
Developed 89 76 17 % 8 % 9 %
Other Emerging 179 162 10 %
1 % 9 % Six Months % Change 2018 2017 Total
ForeignExchange
Operational(a)
Total International
$ 1,454 $ 1,249 16
% 6 % 10 %
Australia 99 83 19 % 4 % 15 %
Brazil 138 139 (1 )% (4
)% 3 %
Canada 96 83 16 % 7 % 9 %
China 124 97 28 % 10
% 18 %
France 63 55 15 % 14 % 1 %
Germany 76 61 25 %
15 % 10 %
Italy 53 43 23 % 13 % 10 %
Japan 80 70 14 %
3 % 11 %
Mexico 50 39 28 % 6 % 22 %
Spain 55 43 28 %
15 % 13 %
United Kingdom 88 69 28 % 13 % 15 %
Other
developed markets 168 144 17 % 9 % 8 %
Other emerging
markets 364 323 13 % 3 % 10 % (a) Operational revenue
growth (a non-GAAP financial measure) is defined as revenue growth
excluding the impact of foreign exchange. Certain amounts and
percentages may reflect rounding adjustments.
ZOETIS INC.
SEGMENT(a) EARNINGS
(UNAUDITED) (millions of dollars)
Second Quarter % Change 2018 2017 Total
ForeignExchange
Operational(b)
U.S.:
Revenue $ 677 $ 623 9 % —
%
9 % Cost of Sales 140 134 4 % — % 4 % Gross Profit
537 489 10 % — % 10 % Gross Margin 79.3 % 78.5 % Operating Expenses
116 113 3 % — % 3 % Other (income)/deductions — — —
%
— % — %
U.S. Earnings $ 421 $
376 12 % — % 12 %
International:
Revenue $ 728 $ 634 15 % 5 % 10 % Cost of Sales 229 219
5 % 4 % 1 % Gross Profit 499 415 20 % 5 % 15 % Gross Margin
68.5 % 65.5 % Operating Expenses 147 126 17 % 5 % 12 % Other
(income)/deductions 2 2 — % (44 )% 44 %
International Earnings $ 350 $
287 22 % 6 % 16 %
Total Reportable Segments $ 771
$ 663 16 % 2 % 14
% Other business activities(c) (82 ) (73 ) 12 %
Reconciling Items: Corporate(d) (139 ) (151 ) (8 )% Purchase
accounting adjustments(e) (23 ) (21 ) 10 % Acquisition-related
costs(f) — (2 ) (100 )% Certain significant items(g) (7 ) 1 * Other
unallocated(h) (83 ) (72 ) 15 %
Total Earnings(i)
$ 437 $ 345 27 % *
Calculation not meaningful. (a) For a description of
each segment, see Note 18A to Zoetis' consolidated financial
statements included in Zoetis' Form 10-K for the year ended
December 31, 2017. (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 costs, certain procurement
costs, 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 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
certain procurement costs. (i) Defined as income before provision
for taxes on income. Certain amounts and percentages may
reflect rounding adjustments.
ZOETIS INC.
SEGMENT(a) EARNINGS
(UNAUDITED) (millions of dollars) Six
Months % Change 2018 2017 Total
ForeignExchange
Operational(b)
U.S.:
Revenue $ 1,311 $ 1,228 7
%
— % 7 % Cost of Sales 280 271 3 % — % 3 % Gross
Profit 1,031 957 8 % — % 8 % Gross Margin 78.6 % 77.9 % Operating
Expenses 212 209 1 % — % 1 % Other (income)/deductions —
—
—
%
— %
—
%
U.S. Earnings $ 819 $ 748
9 % — % 9 %
International:
Revenue $ 1,454 $ 1,249 16 % 6 % 10 % Cost of Sales 463 432
7 % 4 % 3 % Gross Profit 991 817 21 % 7 % 14 % Gross Margin
68.2 % 65.4 % Operating Expenses 280 240 17 % 7 % 10 % Other
(income)/deductions 3 (1 ) * * *
International
Earnings $ 708 $ 578 22
% 7 % 15 % Total
Reportable Segments $ 1,527 $ 1,326
15 % 3 % 12 %
Other business activities(c) (163 ) (147 ) 11 % Reconciling Items:
Corporate(d) (292 ) (294 ) (1 )% Purchase accounting adjustments(e)
(46 ) (43 ) 7 % Acquisition-related costs(f) (1 ) (2 ) (50 )%
Certain significant items(g) (10 ) (3 ) * Other unallocated(h) (161
) (155 ) 4 %
Total Earnings(i) $ 854
$ 682 25 % * Calculation not
meaningful. (a) For a description of each segment, see Note
18A to Zoetis' consolidated financial statements included in
Zoetis' Form 10-K for the year ended December 31, 2017. (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
costs, certain procurement costs, 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 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
certain procurement costs. (i) Defined as income before provision
for taxes on income. Certain amounts and percentages may
reflect rounding adjustments.
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version on businesswire.com: https://www.businesswire.com/news/home/20180802005362/en/
Zoetis Inc.Media:Bill Price,
1-973-443-2742william.price@zoetis.comorElinore White,
1-973-443-2835elinore.y.white@zoetis.comorInvestor:Steve
Frank, 1-973-822-7141steve.frank@zoetis.com
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