- Reports Revenue of $1.5 Billion,
Growing 10%, and Net Income of $347 Million, or $0.71 per Diluted
Share, Growing 16%, on a Reported Basis for Third Quarter
2018
- Reports Adjusted Net Income of $403
Million, or Adjusted Diluted EPS of $0.83, for Third Quarter
2018
- Delivers 12% Operational Growth in
Revenue and 32% Operational Growth in Adjusted Net Income for Third
Quarter 2018
- Updates Full Year 2018 Revenue
Guidance to $5.750 - $5.800 Billion and Diluted EPS of $2.81 -
$2.90 on a Reported Basis, or $3.08 - $3.13 on an Adjusted
Basis
Zoetis Inc. (NYSE:ZTS) today reported its financial results for
the third quarter of 2018 and updated its guidance for full year
2018.
The company reported revenue of $1.5 billion for the third
quarter of 2018, an increase of 10% compared with the third quarter
of 2017. Net income for the third quarter of 2018 was $347 million,
or $0.71 per diluted share, an increase of 16% on a reported
basis.
Adjusted net income1 for the third quarter of 2018 was $403
million, or $0.83 per diluted share, an increase of 25% and 28%,
respectively, on a reported basis. Adjusted net income for the
third quarter of 2018 excludes the net impact of $56 million for
purchase accounting adjustments, acquisition-related costs and
certain significant items.
On an operational2 basis, revenue for the third quarter of 2018
increased 12%, excluding the impact of foreign currency. Adjusted
net income for the third quarter of 2018 increased 32%
operationally, excluding the impact of foreign currency.
EXECUTIVE COMMENTARY
“Zoetis continued delivering strong results in the third
quarter, with 12% operational growth in revenue and 32% operational
growth in adjusted net income,” said Juan Ramón Alaix, Chief
Executive Officer of Zoetis. “Our companion animal products
performed well, primarily based on our key dermatology brands, new
parasiticides and the addition of the Abaxis diagnostics portfolio.
Meanwhile, in livestock products, our swine, poultry and fish
portfolios each delivered double-digit growth, with more modest
growth in our cattle business. Our diverse portfolio provided us
with steady performance across markets, species and therapeutic
areas, and we continue to invest internally and externally to
support future growth.”
“We are confident in our improved guidance as we complete 2018,
and we expect to continue fulfilling our shareholder value
proposition – growing revenue in line with or faster than the
market, and growing adjusted net income faster than revenue – in
the coming years,” said Alaix.
QUARTERLY HIGHLIGHTS
Zoetis organizes and manages its commercial operations across
two regional segments: the United States (U.S.) and International.
Within these segments, the company delivers a diverse portfolio of
products for livestock and companion animals tailored to local
trends and customer needs. In the third quarter of 2018:
- Revenue in the U.S. segment was
$757 million, an increase of 11% compared with the third quarter of
2017. Sales of companion animal products grew 20% driven primarily
by our key dermatology brands, new products including Simparica®,
and the acquisition of Abaxis. Growth in companion animal products
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 largely offset by cattle. Our
poultry business grew as a result of increased sales of
alternatives to antibiotic medicated feed additives, while growth
in our swine business was the result of both promotional efforts
and increased customer adoption of our recently launched Fostera®
Gold PCV MH vaccine. Sales of cattle products declined due to
resumption of supply of a competitor vaccine, as well as
unfavorable market conditions in dairy.
- Revenue in the International
segment was $709 million, an increase of 8% on a reported basis
and 12% operationally compared with the third quarter of 2017.
Sales of companion animal products grew 16% on a reported basis and
18% on an operational basis. Growth resulted primarily from
increased sales across multiple markets for our key dermatology
brands, new parasiticides (Simparica for dogs and Stronghold® Plus
for cats), and the acquisition of Abaxis. Sales of livestock
products grew 5% on a reported basis and 10% operationally, with
each of our core species making a significant contribution to
growth. For swine, growth was largely driven by the recently
launched Suvaxyn® Circo+MH and PRRS vaccines in Europe, the timing
of customer purchases in China, as well as strong demand for our
products in other emerging markets. Growth of cattle products was
primarily driven by Brazil due to a recovery from the effects of
the national trucking industry strike in the prior quarter,
increased local consumption of beef, and increased exports. Poultry
growth was largely the result of solid performance in emerging
markets. Our fish business grew on the strength of our vaccine
portfolio in Norway and the UK, as well as increased customer
adoption of our Alpha Ject LiVac® SRS vaccine in Chile.
Zoetis continues to drive demand and strengthen its diverse
portfolio through product lifecycle innovations, as well as
expansion of key products into new geographies. Since our last
quarterly earnings announcement:
- Zoetis received approval in the U.S.
for an additional indication for Cytopoint®. This
novel monoclonal antibody (mAb) therapy for dogs is now approved to
treat allergic dermatitis in addition to atopic dermatitis.
Cytopoint is also approved in the European Union and several other
international markets.
- The company enhanced its portfolio of
equine vaccines with the introduction of Core EQ Innovator™
in the U.S., the first and only vaccine for horses to contain all
five core equine disease antigens – West Nile, Eastern and Western
Equine encephalomyelitis, tetanus and rabies – in one
combination.
- Strengthening its portfolio in the
Asia-Pacific region, Zoetis gained approvals for several key
products. Draxxin® 25 (tulathromycin), an
injectable solution to help fight swine respiratory disease in
nursery pigs, and Vanguard® Plus 5, a vaccine
to help protect dogs from five serious viruses, were both approved
in Japan. Excenel® RTU EZ (ceftiofur
hydrochloride), an anti-infective that treats respiratory diseases
in cattle, was approved in Australia, and Poulvac®
E.coli, the only commercially available modified-live E.
coli vaccine for chickens, was approved in Taiwan.
FINANCIAL GUIDANCE
Zoetis is updating its full year 2018 guidance, which
includes:
- Revenue between $5.750 billion to
$5.800 billion
- Reported diluted EPS between $2.81 to
$2.90
- Adjusted diluted EPS between $3.08 to
$3.13
This guidance reflects foreign exchange rates as of mid-October
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 third 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 Nov. 1, 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 medicines, vaccines, and
diagnostic products, which are complemented by biodevices, genetic
tests 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.
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)
Third Quarter Nine Months 2018
2017 % Change 2018 2017 % Change Revenue $ 1,480 $ 1,347 10
$ 4,261 $ 3,847 11 Costs and expenses: Cost of sales(b) 473 435 9
1,367 1,318 4 Selling, general and administrative expenses(b) 367
328 12 1,064 973 9 Research and development expenses(b) 108 96 13
307 272 13 Amortization of intangible assets(c) 32 23 39 78 68 15
Restructuring charges/(reversals) and certain acquisition-related
costs 47 8 * 54 7 * Interest expense 54 43 26 147 125 18 Other
(income)/deductions–net (19 ) 1 * (28 ) (11 ) * Income
before provision for taxes on income 418 413 1 1,272 1,095 16
Provision for taxes on income 71 117 (39) 193
313 (38) Net income before allocation to noncontrolling
interests 347 296 17 1,079 782 38 Less: Net (loss)/income
attributable to noncontrolling interests — (2 ) (100) (4 )
(1 ) * Net income attributable to Zoetis $ 347 $ 298
16 $ 1,083 $ 783 38 Earnings per share—basic $
0.72 $ 0.61 18 $ 2.24 $ 1.60 40
Earnings per share—diluted $ 0.71 $ 0.61 16 $ 2.22
$ 1.59 40 Weighted-average shares used to
calculate earnings per share Basic 482.0 489.1 483.9
490.8 Diluted 485.8 492.4 487.7
493.9 * Calculation not meaningful.
(a)
The condensed consolidated statements of
income present the three and nine months ended September 30, 2018
and October 1, 2017. Subsidiaries operating outside the United
States are included for the three and nine months ended August 31,
2018 and August 27, 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 September 30, 2018
GAAP Reported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 473 $ (9 ) $ — $ (1 ) $ 463 Gross
profit
1,007 9 — 1 1,017 Selling, general and administrative
expenses(c)
367 (11 ) — — 356 Amortization of intangible
assets(d)
32 (29 ) — — 3 Restructuring charges/(reversals)
and certain acquisition-related costs
47 — (40 ) (7 ) —
Other (income)/deductions–net
(19 ) — — 16 (3 )
Income before provision for taxes on income
418 49 40 (8 )
499 Provision for taxes on income
71 12 9 4 96 Net income
attributable to Zoetis
347 37 31 (12 ) 403 Earnings per
common share attributable to Zoetis–diluted
0.71 0.08 0.06
(0.02 ) 0.83 Quarter ended October 1, 2017
GAAP Reported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 435 $ (2 ) $ — $ (1 ) $ 432 Gross
profit
912 2 — 1 915 Selling, general and administrative
expenses(c)
328 (1 ) — — 327 Research and development
expenses(c)
96 (1 ) — — 95 Amortization of intangible
assets(d)
23 (19 ) — — 4 Restructuring charges/(reversals)
and certain acquisition-related costs
8 — (6 ) (2 ) — Other
(income)/deductions–net
1 — — (4 ) (3 ) Income before
provision for taxes on income
413 23 6 7 449 Provision for
taxes on income
117 7 2 3 129 Net income attributable to
Zoetis
298 16 4 4 322 Earnings per common share attributable
to Zoetis–diluted
0.61 0.02 0.01 0.01 0.65
ZOETIS INC. RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED
INFORMATION CERTAIN LINE ITEMS (UNAUDITED) (millions of dollars,
except per share data) Nine months ended September
30, 2018
GAAP Reported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 1,367 $ (13 ) $ — $ (4 ) $ 1,350
Gross profit
2,894 13 — 4 2,911 Selling, general and
administrative expenses(c)
1,064 (14 ) — (1 ) 1,049 Research
and development expenses(c)
307 (1 ) — — 306 Amortization of
intangible assets(d)
78 (67 ) — — 11 Restructuring
charges/(reversals) and certain acquisition-related costs
54
— (41 ) (13 ) — Other (income)/deductions–net
(28 ) —
— 16 (12 ) Income before provision for taxes on income
1,272
95 41 2 1,410 Provision for taxes on income
193 27 9 42 271
Net income attributable to Zoetis
1,083 68 32 (40 ) 1,143
Earnings per common share attributable to Zoetis–diluted
2.22 0.14 0.06 (0.08 ) 2.34 Nine months ended October
1, 2017
GAAP Reported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 1,318 $ (5 ) $ — $ (6 ) $ 1,307
Gross profit
2,529 5 — 6 2,540 Selling, general and
administrative expenses(c)
973 (4 ) — (3 ) 966 Research and
development expenses(c)
272 (2 ) — — 270 Amortization of
intangible assets(d)
68 (55 ) — — 13 Restructuring
charges/(reversals) and certain acquisition-related costs
7
— (8 ) 1 — Other (income)/deductions–net
(11 ) — — (2
) (13 ) Income before provision for taxes on income
1,095 66
8 10 1,179 Provision for taxes on income
313 16 3 4 336 Net
income attributable to Zoetis
783 50 5 6 844 Earnings per
common share attributable to Zoetis–diluted
1.59 0.10 0.01
0.01 1.71
(a)
The condensed consolidated statements of
income present the three and nine months ended September 30, 2018
and October 1, 2017. Subsidiaries operating outside the United
States are included for the three and nine months ended August 31,
2018 and August 27, 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 INFORMATION CERTAIN LINE ITEMS (UNAUDITED)
(millions of dollars) (1) Acquisition-related costs include
the following: Third Quarter Nine Months 2018
2017 2018 2017 Transaction costs(a) $ 21 $ — $ 21 $ —
Integration costs(b) 9 2 10 4 Restructuring charges(c) 10 4 10 4
Total acquisition-related costs—pre-tax 40 6 41 8 Income taxes(d) 9
2 9 3 Total acquisition-related costs—net of tax $ 31 $ 4 $ 32 $ 5
(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/(reversals) 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/(reversals) and certain acquisition-related costs.
(c)
Represents employee termination costs
related to the acquisition of Abaxis in the third quarter of 2018
and the acquisition of an Irish biologic therapeutics company in
the third quarter of 2017, included in Restructuring
charges/(reversals) and certain acquisition-related costs.
(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 three and nine months ended September 30, 2018, also
includes a tax charge related to the non-deductibility of certain
costs associated with the acquisition of Abaxis.
Certain amounts may reflect rounding adjustments.
(2) Certain significant items include the
following:
Third Quarter Nine Months 2018 2017 2018
2017 Operational efficiency initiative(a) $ (1 ) $ (1 ) $ —
$ 4 Supply network strategy(a) 3 8 8 7 Other restructuring charges
and cost-reduction/productivity initiatives(b) 8 — 11 — Other(c)
(18 ) — (17 ) (1 ) Total certain significant items—pre-tax
(8 ) 7 2 10 Income taxes(d) 4 3 42 4
Total certain significant items—net of tax $ (12 ) $ 4 $ (40
) $ 6 (a) Represents consulting fees and
product transfer costs, included in Cost of sales, employee
termination costs and exit costs, included in Restructuring
charges/(reversals) and certain acquisition-related costs, and net
(gains)/losses on sales of certain manufacturing sites and
products, included in Other (income)/deductions—net, related to
cost-reduction and productivity initiatives. (b) For the three and
nine months ended September 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. (c) For
the three and nine months ended September 30, 2018, primarily
represents a net gain related to the relocation of a manufacturing
site in China, included in Other (income)/deductions—net. For the
nine months ended October 1, 2017, primarily represents costs
associated with changes to our operating model, included in Cost of
sales and Selling, general and administrative expenses, offset by
income related to an insurance recovery from commercial settlements
in Mexico recorded in 2014 and 2016, 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 three and nine months ended September
30, 2018, also includes a net tax benefit related to a
measurement-period 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 nine months ended October 1, 2017, also includes
a net tax charge related to 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. Certain amounts may
reflect rounding adjustments. ZOETIS INC.
ADJUSTED SELECTED COSTS, EXPENSES AND
INCOME(a)
(UNAUDITED) (millions of dollars) Third Quarter
% Change 2018 2017 Total
ForeignExchange
Operational(b) Adjusted cost of sales $ 463 $ 432 7% 1% 6%
as a percent of revenue 31.3 % 32.1 % NA NA NA Adjusted SG&A
expenses 356 327 9% (1)% 10% Adjusted R&D expenses 108 95 14%
1% 13% Adjusted net income attributable to Zoetis 403 322 25% (7)%
32% Nine Months % Change 2018 2017 Total
ForeignExchange
Operational(b) Adjusted cost of sales $ 1,350 $ 1,307 3% 1% 2% as a
percent of revenue 31.7 % 34.0 % NA NA NA Adjusted SG&A
expenses 1,049 966 9% 2% 7% Adjusted R&D expenses 306 270 13%
1% 12% Adjusted net income attributable to Zoetis 1,143 844 35% 1%
34% (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
Revenue $5,750 to $5,800 Operational growth(a) 8% to 9% Organic
operational growth(b) 6% to 7% Adjusted cost of sales as a
percentage of revenue(c) Approximately 32% Adjusted SG&A
expenses(c) $1,425 to $1,450 Adjusted R&D expenses(c)
$420 to $430 Adjusted interest expense and other
(income)/deductions(c) Approximately $200 Effective tax rate
on adjusted income(c) Approximately 19% Adjusted diluted
EPS(c) $3.08 to $3.13 Adjusted net income(c) $1,500 to
$1,525 Operational growth(a)(d) 27% to 30% Certain
significant items and acquisition-related costs(e) $35 to
$45
This guidance reflects the inclusion of Abaxis results for the
last 5 months of the year in the U.S., Canada and Latin America,
and 4 months in all other international markets. Amounts related to
Abaxis purchase accounting are subject to final valuation.
The guidance reflects foreign exchange rates as of mid-October
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(c)
Cost of sales as a percentage of revenue ~ 33%
~ (0.2%) ~ (0.5%) ~ 32% SG&A
expenses $1,455 to $1,490
($30) to $(40) $1,425 to $1,450 R&D
expenses $422 to $432
$(2) $420 to $430 Interest expense and other
(income)/deductions ~ $142 ~ $59
~ $200 Effective tax rate
~ 16% ~ 2% ~ 1% ~ 19%
Diluted EPS $2.81 to $2.90 $(0.02) to
$0.00 $0.25 to $0.27 $3.08 to $3.13 Net
income attributable to Zoetis $1,370 to $1,415
$(10) to $0 $120 to $130 $1,500
to $1,525 (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,
net gains/losses on sales of assets, and restructuring and other
charges for the supply network strategy. 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) Third Quarter
% Change 2018 2017 Total
ForeignExchange
Operational(b)
Revenue: Livestock $ 778 $ 754 3% (3)%
6% Companion Animal 688 580 19% —% 19% Contract Manufacturing &
Human Health Diagnostics 14 13 8% (3)% 11%
Total
Revenue $ 1,480 $ 1,347
10% (2)% 12%
U.S. Livestock $ 322 $ 319 1% —% 1% Companion Animal 435
361 20% —% 20%
Total U.S. Revenue $
757 $ 680 11% —%
11% International Livestock $ 456 $ 435 5%
(5)% 10% Companion Animal 253 219 16% (2)% 18%
Total International Revenue $ 709
$ 654 8% (4)% 12%
Livestock: Cattle $ 417 $ 424 (2)% (4)% 2%
Swine 160 147 9% (1)% 10% Poultry 130 119 9% (3)% 12% Fish 46 39
18% (3)% 21% Other 25 25 —% (4)% 4%
Total
Livestock Revenue $ 778 $
754 3% (3)% 6%
Companion Animal: Dogs and Cats $ 653 $ 546 20% (1)% 21%
Horses 35 34 3% 1% 2%
Total Companion Animal
Revenue $ 688 $ 580
19% —% 19% (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) Nine Months
% Change 2018 2017 Total
ForeignExchange
Operational(b)
Revenue: Livestock $ 2,282 $ 2,146 6%
1% 5% Companion Animal 1,949 1,665 17% 2% 15% Contract
Manufacturing & Human Health Diagnostics 30 36
(17)% 1% (18)%
Total Revenue $ 4,261
$ 3,847 11% 2% 9%
U.S. Livestock $ 885 $ 870 2% —% 2% Companion
Animal 1,183 1,038 14% —% 14%
Total U.S.
Revenue $ 2,068 $ 1,908
8% —% 8% International
Livestock $ 1,397 $ 1,276 9% 1% 8% Companion Animal 766 627
22% 4% 18%
Total International Revenue $
2,163 $ 1,903 14%
3% 11% Livestock: Cattle
$ 1,229 $ 1,192 3% —% 3% Swine 500 455 10% 3% 7% Poultry 395 357
11% 1% 10% Fish 92 79 16% 3% 13% Other 66 63 5% 2% 3%
Total Livestock Revenue $ 2,282
$ 2,146 6% 1% 5%
Companion Animal: Dogs and Cats $ 1,832 $ 1,561 17% 1% 16%
Horses 117 104 13% 4% 9%
Total Companion Animal
Revenue $ 1,949 $ 1,665
17% 2% 15%
(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)
Third Quarter % Change 2018 2017 Total
ForeignExchange
Operational(a)
Total International $
709 $ 654 8% (4)%
12% Australia 53 51 4% (5)% 9%
Brazil
72 66 9% (22)% 31%
Canada 42 40 5% (5)% 10%
China 46
40 15% —% 15%
France 29 30 (3)% 2% (5)%
Germany 36 35
3% 2% 1%
Italy 27 22 23% 6% 17%
Japan 34 31 10% 1% 9%
Mexico 24 21 14% (4)% 18%
Spain 28 24 17% 1% 16%
United Kingdom 47 36 31% 1% 30%
Other developed
markets 98 96 2% —% 2%
Other emerging markets 173 162 7%
(6)% 13% Nine Months % Change 2018 2017 Total
ForeignExchange
Operational(a)
Total International $
2,163 $ 1,903 14%
3% 11% Australia 152 134 13% —% 13%
Brazil 210 205 2% (10)% 12%
Canada 138 123 12% 3% 9%
China 170 137 24% 7% 17%
France 92 85 8% 9% (1)%
Germany 112 96 17% 10% 7%
Italy 80 65 23% 11% 12%
Japan 114 101 13% 3% 10%
Mexico 74 60 23% 2% 21%
Spain 83 67 24% 10% 14%
United Kingdom 135 105 29% 9%
20%
Other developed markets 266 240 11% 5% 6%
Other
emerging markets 537 485 11% —% 11% (a) Operational
revenue growth (a non-GAAP financial measure) is defined as revenue
growth excluding the impact of foreign exchange. Certain
amounts and percentages may reflect rounding adjustments.
ZOETIS INC.
SEGMENT(a) EARNINGS
(UNAUDITED) (millions of dollars) Third Quarter
% Change 2018 2017 Total
ForeignExchange
Operational(b)
U.S.:
Revenue $ 757 $ 680 11% —% 11% Cost of Sales 151 141
7% —% 7% Gross Profit 606 539 12% —% 12% Gross Margin 80.1 % 79.3 %
Operating Expenses 116 103 13% —% 13% Other (income)/deductions —
— —% —% —%
U.S. Earnings $ 490
$ 436 12% —% 12%
International:
Revenue $ 709 $ 654 8% (4)% 12% Cost of Sales 226 213
6% (3)% 9% Gross Profit 483 441 10% (4)% 14% Gross Margin 68.1 %
67.4 % Operating Expenses 131 132 (1)% (4)% 3% Other
(income)/deductions (1 ) — * * *
International
Earnings $ 353 $ 309 14%
(5)% 19% Total Reportable Segments
$ 843 $ 745 13% (2)%
15% Other business activities(c) (84 ) (77 ) 9%
Reconciling Items: Corporate(d) (178 ) (143 ) 24% Purchase
accounting adjustments(e) (49 ) (23 ) —% Acquisition-related
costs(f) (40 ) (6 ) —% Certain significant items(g) 8 (7 ) —% Other
unallocated(h) (82 ) (76 ) 8%
Total Earnings(i)
$ 418 $ 413 1% *
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 and
human health diagnostics 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 includes 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) Nine Months %
Change 2018 2017 Total
ForeignExchange
Operational(b)
U.S.:
Revenue $ 2,068 $ 1,908 8% —% 8% Cost of Sales 431 412
5% —% 5% Gross Profit 1,637 1,496 9% —% 9% Gross Margin 79.2
% 78.4 % Operating Expenses 328 312 5% —% 5% Other
(income)/deductions — — —% —% —%
U.S. Earnings
$ 1,309 $ 1,184 11% —%
11%
International:
Revenue $ 2,163 $ 1,903 14% 3% 11% Cost of Sales 689 645
7% 2% 5% Gross Profit 1,474 1,258 17% 3% 14% Gross Margin
68.1 % 66.1 % Operating Expenses 411 372 10% 2% 8% Other
(income)/deductions 2 (1 ) * * *
International
Earnings $ 1,061 $ 887 20%
3% 17% Total Reportable Segments
$ 2,370 $ 2,071 14% 1%
13% Other business activities(c) (247 ) (224 ) 10%
Reconciling Items: Corporate(d) (470 ) (437 ) 8% Purchase
accounting adjustments(e) (95 ) (66 ) 44% Acquisition-related
costs(f) (41 ) (8 ) —% Certain significant items(g) (2 ) (10 )
(80)% Other unallocated(h) (243 ) (231 ) 5%
Total
Earnings(i) $ 1,272 $
1,095 16% * 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 and human health diagnostic 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 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181101005506/en/
Zoetis Inc.Media:Elinore White, 1-973-443-2835
(o)elinore.y.white@zoetis.comorKristen Seely, 1-973-443-2777
(o)kristen.seely@zoetis.comorInvestors:Steve Frank,
1-973-822-7141 (o)steve.frank@zoetis.comorMarissa Patel,
1-973-443-2996 (o)marissa.patel@zoetis.com
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