- Reports Revenue of $1.6 Billion, Growing 7%, and Net Income
of $433 Million, or $0.90 per Diluted Share, Increasing 25% and
27%, Respectively, on a Reported Basis for Third Quarter
2019
- Reports Adjusted Net Income of $455 Million, or Adjusted
Diluted EPS of $0.94, for Third Quarter 2019
- Delivers 9% Operational Growth in Revenue and 10%
Operational Growth in Adjusted Net Income for Third Quarter
2019
- Updates Full Year 2019 Revenue Guidance to $6.200 - $6.250
Billion and Diluted EPS of $2.99 - $3.08 on a Reported Basis, or
$3.57 - $3.62 on an Adjusted Basis
Zoetis Inc. (NYSE: ZTS) today reported its financial results for
the third quarter of 2019 and updated its guidance for full year
2019.
The company reported revenue of $1.6 billion for the third
quarter of 2019, an increase of 7% compared with the third quarter
of 2018. Net income for the third quarter of 2019 was $433 million,
or $0.90 per diluted share, an increase of 25% and 27%,
respectively, on a reported basis.
Adjusted net income1 for the third quarter of 2019 was $455
million, or $0.94 per diluted share, an increase of 13%, on a
reported basis. Adjusted net income for the third quarter of 2019
excludes the net impact of $22 million for purchase accounting
adjustments, acquisition-related costs and certain significant
items.
On an operational2 basis, revenue for the third quarter of 2019
increased 9%, excluding the impact of foreign currency. Adjusted
net income for the third quarter of 2019 increased 10%
operationally, excluding the impact of foreign currency.
EXECUTIVE COMMENTARY
“Our strong performance continues, with 9% operational revenue
growth in the third quarter,” said Juan Ramón Alaix, Chief
Executive Officer at Zoetis. “Our companion animal portfolio is
once again the main driver of our results, growing 23%
operationally based on strong sales of our parasiticide products,
our key dermatology portfolio, and diagnostic revenue from the
Abaxis acquisition. Livestock sales declined 4% operationally due
to lower product sales in cattle, swine and fish, which were
partially offset by growth in poultry.”
“We remain confident that our diverse portfolio, innovations,
and core business are performing well and will continue to drive
growth in the future. On a personal note, as I retire at the end of
this year, I feel very positive about what lies ahead for Zoetis.
Under the leadership of Kristin Peck, who has been named our next
CEO, I know that our talented colleagues and experienced management
team will continue to capitalize on growth opportunities to create
significant value for our company, customers and shareholders,”
said Alaix.
QUARTERLY HIGHLIGHTS
Zoetis organizes and manages its commercial operations across
two segments: United States (U.S.) and International. Within these
segments, the company delivers a diverse portfolio of products for
companion animals and livestock, tailored to local trends and
customer needs. In the third quarter of 2019:
- Revenue in the U.S. segment was $844 million, an
increase of 11% compared with the third quarter of 2018. Sales of
companion animal products increased 26%, driven primarily by growth
in the company’s parasiticides portfolio across the ProHeart®,
Revolution® and Simparica® franchises, including new product
introductions, notably Revolution Plus for cats and ProHeart 12 for
dogs. Increased sales across our key dermatology portfolio and
revenue from the acquisition of Abaxis also contributed to growth.
Sales of livestock products declined 9%, as a result of continued
weakness across both the beef and dairy cattle sectors, as well as
the timing of promotional activities in swine. Growth in poultry
products was driven primarily by increased sales of alternatives to
antibiotics in medicated feed additives.
- Revenue in the International segment was $721 million,
an increase of 2% on a reported basis and an increase of 5%
operationally compared with the third quarter of 2018. Sales of
companion animal products grew 12% on a reported basis and 16% on
an operational basis. Growth resulted primarily from increased
sales across our key dermatology portfolio, the acquisition of
Abaxis, and parasiticides including Simparica and Stronghold® Plus.
Sales of livestock products declined 4% on a reported basis and 1%
operationally. This decline was the result of the ongoing impact of
African Swine Fever in China, and, to a lesser extent, other
markets in Asia, which more than offset growth in the cattle and
poultry portfolios. Growth in cattle products was driven by
favorable market conditions in key markets including Mexico, the
U.K. and Canada, but was negatively impacted by an unfavorable
comparison to the prior year, which benefited from the end of the
national trucking strike in Brazil. Growth in poultry products was
the result of increased sales in key markets, including China,
Australia and Brazil.
INVESTMENTS IN GROWTH
Zoetis diversifies and grows its business through the
introduction of new products, lifecycle innovations, business
development initiatives, and entries into new markets and
technologies. The company is increasingly focused on developing
integrated solutions for pet owners, veterinarians and farmers that
span the continuum of animal healthcare - helping to predict,
prevent, detect and treat diseases.
Since our last quarterly earnings announcement, Zoetis received
approval in the European Union and Canada for its three-way
combination parasiticide for dogs, Simparica Trio™
(sarolaner/moxidectin/pyrantel) chewable tablets and anticipates
launching in these markets in the first quarter of 2020. Regulatory
reviews are also underway in the U.S., Australia, Brazil and Japan,
with further submissions expected globally.
The company also continues to enhance its vaccine portfolio for
livestock. In October, Zoetis received United States Department of
Agriculture (USDA) approval for Poulvac® Procerta™ HVT-ND,
the company’s first vector vaccine that will help protect against
Marek’s disease and Newcastle disease, highly contagious viral
infections affecting poultry. The product is the first in what the
company expects to become an important new global poultry vaccine
franchise over the next several years. In cattle, the company
continues to expand the Bovi-Shield® vaccine franchise in
important markets with the approval of Bovi-Shield Gold One
Shot™ in Brazil. This vaccine, approved in the U.S. in
2013, as well as in Canada and Mexico, helps prevent certain bovine
respiratory diseases.
In addition to new product approvals and lifecycle innovations,
Zoetis continues to support future growth through business
development activities. The company announced last week that it has
completed the acquisition of Phoenix Lab as an entry to the
veterinary reference laboratory space. The acquisition will further
build upon Zoetis’ 2018 purchase of Abaxis, a leading provider of
veterinary point-of-care diagnostic instruments. Headquartered near
Seattle, Phoenix Lab brings Zoetis a reference laboratory highly
valued by veterinarians for quality assurance and customer
care.
FINANCIAL GUIDANCE
Zoetis is updating its full year 2019 guidance, which
includes:
- Revenue between $6.200 billion and $6.250 billion
- Reported diluted EPS between $2.99 and $3.08
- Adjusted diluted EPS between $3.57 and $3.62
This guidance reflects foreign exchange rates as of late
October. 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
2019 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. 7, 2019.
About Zoetis
Zoetis is the leading animal health company, dedicated to
supporting its customers and their businesses. Building on more
than 65 years of experience in animal health, Zoetis discovers,
develops, manufactures and commercializes 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 2018, the company generated annual revenue of $5.8
billion with approximately 10,000 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,
product approvals or products under development, expected timing of
product launches, 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, 2018, 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)
Quarter Ended
Nine Months Ended
September 30,
September 30,
2019
2018
% Change
2019
2018
% Change
Revenue
$
1,584
$
1,480
7
$
4,586
$
4,261
8
Costs and expenses:
Cost of sales
479
473
1
1,462
1,367
7
Selling, general and administrative
expenses
391
367
7
1,166
1,064
10
Research and development expenses
112
108
4
325
307
6
Amortization of intangible assets
38
32
19
115
78
47
Restructuring charges and certain
acquisition-related costs
6
47
(87)
33
54
(39)
Interest expense
56
54
4
167
147
14
Other (income)/deductions–net
(26
)
(19
)
37
(46
)
(28
)
64
Income before provision for taxes on
income
528
418
26
1,364
1,272
7
Provision for taxes on income
95
71
34
248
193
28
Net income before allocation to
noncontrolling interests
433
347
25
1,116
1,079
3
Less: Net loss attributable to
noncontrolling interests
—
—
—
—
(4
)
*
Net income attributable to Zoetis
$
433
$
347
25
$
1,116
$
1,083
3
Earnings per share—basic
$
0.91
$
0.72
26
$
2.33
$
2.24
4
Earnings per share—diluted
$
0.90
$
0.71
27
$
2.31
$
2.22
4
Weighted-average shares used to calculate
earnings per share
Basic
477.8
482.0
478.7
483.9
Diluted
481.5
485.8
482.3
487.7
(a)
The condensed consolidated statements of income present the
quarter and nine months ended September 30, 2019 and September 30,
2018. Subsidiaries operating outside the United States are included
for the quarter and nine months ended August 31, 2019 and August
31, 2018.
* Calculation not meaningful.
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,
2019
GAAP Reported(a)
Purchase Accounting
Adjustments
Acquisition- Related Costs(1)
Certain Significant Items(2)
Non-GAAP Adjusted(b)
Cost of sales
$
479
$
(3
)
$
—
$
(3
)
$
473
Gross profit
1,105
3
—
3
1,111
Selling, general and administrative
expenses
391
(18
)
—
—
373
Amortization of intangible assets
38
(34
)
—
—
4
Restructuring charges and certain
acquisition-related costs
6
—
(6
)
—
—
Other (income)/deductions–net
(26
)
—
—
20
(6
)
Income before provision for taxes on
income
528
55
6
(17
)
572
Provision for taxes on income
95
26
1
(5
)
117
Net income attributable to Zoetis
433
29
5
(12
)
455
Earnings per common share attributable to
Zoetis–diluted
0.90
0.06
0.01
(0.03
)
0.94
Quarter Ended September 30,
2018
GAAP Reported(a)
Purchase Accounting
Adjustments
Acquisition- Related Costs(1)
Certain Significant Items(2)
Non-GAAP Adjusted(b)
Cost of sales
$
473
$
(9
)
$
—
$
(1
)
$
463
Gross profit
1,007
9
—
1
1,017
Selling, general and administrative
expenses
367
(11
)
—
—
356
Amortization of intangible assets
32
(29
)
—
—
3
Restructuring charges 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
(a)
The condensed consolidated statements of income present the
quarter and nine months ended September 30, 2019 and September 30,
2018. Subsidiaries operating outside the United States are included
for the quarter and nine months ended August 31, 2019 and August
31, 2018.
(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.
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.
RECONCILIATION OF GAAP REPORTED
TO NON-GAAP ADJUSTED INFORMATION
CERTAIN LINE ITEMS -
Continued
(UNAUDITED)
(millions of dollars, except per
share data)
Nine Months Ended September 30,
2019
GAAP Reported(a)
Purchase Accounting
Adjustments
Acquisition- Related Costs(1)
Certain Significant Items(2)
Non-GAAP Adjusted(b)
Cost of sales
$
1,462
$
(22
)
$
—
$
(76
)
$
1,364
Gross profit
3,124
22
—
76
3,222
Selling, general and administrative
expenses
1,166
(54
)
—
—
1,112
Research and development expenses
325
(1
)
—
—
324
Amortization of intangible assets
115
(102
)
—
—
13
Restructuring charges and certain
acquisition-related costs
33
—
(33
)
—
—
Other (income)/deductions–net
(46
)
—
—
20
(26
)
Income before provision for taxes on
income
1,364
179
33
56
1,632
Provision for taxes on income
248
59
6
4
317
Net income attributable to Zoetis
1,116
120
27
52
1,315
Earnings per common share attributable to
Zoetis–diluted
2.31
0.25
0.06
0.11
2.73
Nine Months Ended September 30,
2018
GAAP Reported(a)
Purchase Accounting
Adjustments
Acquisition- Related Costs(1)
Certain Significant Items(2)
Non-GAAP Adjusted(b)
Cost of sales
$
1,367
$
(13
)
$
—
$
(4
)
$
1,350
Gross profit
2,894
13
—
4
2,911
Selling, general and administrative
expenses
1,064
(14
)
—
(1
)
1,049
Research and development expenses
307
(1
)
—
—
306
Amortization of intangible assets
78
(67
)
—
—
11
Restructuring charges 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
(a)
The condensed consolidated statements of income present the
quarter and nine months ended September 30, 2019 and September 30,
2018. Subsidiaries operating outside the United States are included
for the quarter and nine months ended August 31, 2019 and August
31, 2018.
(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.
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:
Quarter Ended
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
Transaction costs(a)
$
—
$
21
$
—
$
21
Integration costs(b)
4
9
13
10
Restructuring charges(c)
2
10
20
10
Total acquisition-related
costs—pre-tax
6
40
33
41
Income taxes(d)
1
9
6
9
Total acquisition-related costs—net of
tax
$
5
$
31
$
27
$
32
(a)
Transaction costs represent external costs directly related
to acquiring businesses and primarily include expenditures for
banking, legal, accounting and other similar services. Included in
Restructuring charges and certain acquisition-related costs.
(b)
Integration costs represent external, incremental costs
directly related to integrating acquired businesses and primarily
include expenditures for consulting and the integration of systems
and processes. Included in Restructuring charges and certain
acquisition-related costs.
(c)
Represents employee termination costs, included in
Restructuring charges 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 quarter 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:
Quarter Ended
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
Operational efficiency initiative(a)
$
(20
)
$
(1
)
$
(20
)
$
—
Supply network strategy(b)
2
3
7
8
Other restructuring charges and
cost-reduction/productivity initiatives(c)
—
8
—
11
Other(d)
1
(18
)
69
(17
)
Total certain significant
items—pre-tax
(17
)
(8
)
56
2
Income taxes(e)
(5
)
4
4
42
Total certain significant items—net of
tax
$
(12
)
$
(12
)
$
52
$
(40
)
(a)
For the quarter and nine months ended September 30, 2019,
primarily includes income resulting from a contingent payment
received pursuant to an agreement related to the 2016 sale of
certain U.S. manufacturing sites.
(b)
Represents consulting fees and product transfer costs,
included in Cost of sales, and employee termination costs and exit
costs, included in Restructuring charges and certain
acquisition-related costs, related to cost-reduction and
productivity initiatives
(c)
For the quarter 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 and certain acquisition-related costs.
(d)
For the nine months ended September 30, 2019, primarily
represents a change in estimate related to inventory costing,
included in Cost of sales. For the quarter 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.
(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 quarter 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.
Certain amounts may reflect rounding
adjustments.
ZOETIS INC.
ADJUSTED SELECTED COSTS, EXPENSES
AND INCOME(a)
(UNAUDITED)
(millions of dollars)
Quarter Ended
September 30,
% Change
2019
2018
Total
Foreign Exchange
Operational(b)
Adjusted cost of sales
$
473
$
463
2
%
(6
)%
8
%
as a percent of revenue
29.9
%
31.3
%
NA
NA
NA
Adjusted SG&A expenses
373
356
5
%
(2
)%
7
%
Adjusted R&D expenses
112
108
4
%
—
%
4
%
Adjusted net income attributable to
Zoetis
455
403
13
%
3
%
10
%
Nine Months Ended
September 30,
% Change
2019
2018
Total
Foreign Exchange
Operational(b)
Adjusted cost of sales
$
1,364
$
1,350
1
%
(7
)%
8
%
as a percent of revenue
29.7
%
31.7
%
NA
NA
NA
Adjusted SG&A expenses
1,112
1,049
6
%
(3
)%
9
%
Adjusted R&D expenses
324
306
6
%
(1
)%
7
%
Adjusted net income attributable to
Zoetis
1,315
1,143
15
%
—
%
15
%
(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 Income 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.
2019 GUIDANCE
Selected Line Items
(millions of dollars, except per share
amounts)
Full Year 2019
Revenue
$6,200 to $6,250
Operational growth(a)
9.0% to 10.0%
Organic operational growth(b)
6.0% to 7.0%
Adjusted cost of sales as a percentage of
revenue(c)
Approximately 30%
Adjusted SG&A expenses(c)
$1,525 to $1,550
Adjusted R&D expenses(c)
$445 to $455
Adjusted interest expense and other
(income)/deductions(c)
Approximately $190
Effective tax rate on adjusted
income(c)
Approximately 20%
Adjusted diluted EPS(c)
$3.57 to $3.62
Adjusted net income(c)
$1,720 to $1,745
Operational growth(a)(d)
11% to 14%
Certain significant items and
acquisition-related costs(e)
$110 to $130
The guidance reflects foreign exchange rates as of late October
2019.
Reconciliations of 2019 reported guidance to 2019 adjusted
guidance follows:
(millions of dollars, except per share
amounts)
Reported
Certain significant items and
acquisition-related costs(e)
Purchase accounting
Adjusted(c)
Cost of sales as a percentage of
revenue
~ 31.8%
~ (1.3%)
~ (0.5%)
~ 30.0%
SG&A expenses
$1,605 to $1,630
~ ($5)
($75)
$1,525 to $1,550
R&D expenses
$447 to $457
($2)
$445 to $455
Interest expense and other
(income)/deductions
~ $170
$20
~ $190
Effective tax rate
~ 19%
~ 1%
~ 20%
Diluted EPS
$2.99 to $3.08
$0.19 to $0.23
$0.35
$3.57 to $3.62
Net income attributable to Zoetis
$1,440 to $1,485
$90 to $110
~ $170
$1,720 to $1,745
(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 and other charges.
ZOETIS INC.
CONSOLIDATED REVENUE BY
SEGMENT(a) AND SPECIES
(UNAUDITED)
(millions of dollars)
Quarter Ended
September 30,
% Change
2019
2018
Total
Foreign Exchange
Operational(b)
Revenue:
Livestock
$
731
$
778
(6
)%
(2
)%
(4
)%
Companion Animal
834
688
21
%
(2
)%
23
%
Contract Manufacturing & Human
Health
19
14
36
%
*
*
Total Revenue
$
1,584
$
1,480
7
%
(2
)%
9
%
U.S.
Livestock
$
294
$
322
(9
)%
—
%
(9
)%
Companion Animal
550
435
26
%
—
%
26
%
Total U.S. Revenue
$
844
$
757
11
%
—
%
11
%
International
Livestock
$
437
$
456
(4
)%
(3
)%
(1
)%
Companion Animal
284
253
12
%
(4
)%
16
%
Total International Revenue
$
721
$
709
2
%
(3
)%
5
%
Livestock:
Cattle
$
389
$
417
(7
)%
(2
)%
(5
)%
Swine
142
160
(11
)%
(1
)%
(10
)%
Poultry
135
130
4
%
(1
)%
5
%
Fish
42
46
(9
)%
(4
)%
(5
)%
Other
23
25
(8
)%
(7
)%
(1
)%
Total Livestock Revenue
$
731
$
778
(6
)%
(2
)%
(4
)%
Companion Animal:
Dogs and Cats
$
789
$
653
21
%
(1
)%
22
%
Horses
45
35
29
%
(5
)%
34
%
Total Companion Animal Revenue
$
834
$
688
21
%
(2
)%
23
%
(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.
*Calculation not meaningful.
Certain amounts and percentages may
reflect rounding adjustments.
ZOETIS INC.
CONSOLIDATED REVENUE BY
SEGMENT(a) AND SPECIES - Continued
(UNAUDITED)
(millions of dollars)
Nine Months Ended
September 30,
% Change
2019
2018
Total
Foreign Exchange
Operational(b)
Revenue:
Livestock
$
2,162
$
2,282
(5
)%
(4
)%
(1
)%
Companion Animal
2,361
1,949
21
%
(3
)%
24
%
Contract Manufacturing & Human
Health
63
30
*
*
*
Total Revenue
$
4,586
$
4,261
8
%
(3
)%
11
%
U.S.
Livestock
$
847
$
885
(4
)%
—
%
(4
)%
Companion Animal
1,495
1,183
26
%
—
%
26
%
Total U.S. Revenue
$
2,342
$
2,068
13
%
—
%
13
%
International
Livestock
$
1,315
$
1,397
(6
)%
(6
)%
—
%
Companion Animal
866
766
13
%
(7
)%
20
%
Total International Revenue
$
2,181
$
2,163
1
%
(6
)%
7
%
Livestock:
Cattle
$
1,148
$
1,229
(7
)%
(4
)%
(3
)%
Swine
449
500
(10
)%
(3
)%
(7
)%
Poultry
417
395
6
%
(3
)%
9
%
Fish
90
92
(2
)%
(3
)%
1
%
Other
58
66
(12
)%
(6
)%
(6
)%
Total Livestock Revenue
$
2,162
$
2,282
(5
)%
(4
)%
(1
)%
Companion Animal:
Dogs and Cats
$
2,231
$
1,832
22
%
(2
)%
24
%
Horses
130
117
11
%
(5
)%
16
%
Total Companion Animal Revenue
$
2,361
$
1,949
21
%
(3
)%
24
%
(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.
*Calculation not meaningful.
Certain amounts and percentages may
reflect rounding adjustments.
ZOETIS INC.
CONSOLIDATED REVENUE BY KEY
INTERNATIONAL MARKETS
(UNAUDITED)
(millions of dollars)
Quarter Ended
September 30,
% Change
2019
2018
Total
Foreign Exchange
Operational(a)
Total International
$
720.7
$
708.8
2
%
(3
)%
5
%
Australia
52.7
53.3
(1
)%
(7
)%
6
%
Brazil
71.8
72.2
(1
)%
(2
)%
1
%
Canada
46.7
42.4
10
%
(1
)%
11
%
China
40.2
46.1
(13
)%
(4
)%
(9
)%
France
23.6
28.8
(18
)%
(3
)%
(15
)%
Germany
35.1
36.0
(3
)%
(4
)%
1
%
Italy
26.2
26.5
(1
)%
(4
)%
3
%
Japan
39.2
34.1
15
%
3
%
12
%
Mexico
29.2
23.9
22
%
—
%
22
%
Spain
29.1
27.8
5
%
(4
)%
9
%
United Kingdom
46.4
46.9
(1
)%
(6
)%
5
%
Other developed markets
97.5
97.7
—
%
(4
)%
4
%
Other emerging markets
183.0
173.1
6
%
(4
)%
10
%
Nine Months Ended
September 30,
% Change
2019
2018
Total
Foreign Exchange
Operational(a)
Total International
$
2,180.6
$
2,162.6
1
%
(6
)%
7
%
Australia
149.5
151.8
(2
)%
(9
)%
7
%
Brazil
206.1
210.1
(2
)%
(10
)%
8
%
Canada
141.5
138.4
2
%
(4
)%
6
%
China
155.7
170.1
(8
)%
(5
)%
(3
)%
France
83.0
91.5
(9
)%
(6
)%
(3
)%
Germany
110.7
111.9
(1
)%
(6
)%
5
%
Italy
81.9
79.5
3
%
(6
)%
9
%
Japan
117.6
114.1
3
%
—
%
3
%
Mexico
87.2
73.8
18
%
(2
)%
20
%
Spain
86.2
83.1
4
%
(6
)%
10
%
United Kingdom
145.4
135.1
8
%
(6
)%
14
%
Other developed markets
269.4
265.9
1
%
(6
)%
7
%
Other emerging markets
546.4
537.3
2
%
(8
)%
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)
Quarter Ended
September 30,
% Change
2019
2018
Total
Foreign Exchange
Operational(b)
U.S.:
Revenue
$
844
$
757
11
%
—
%
11
%
Cost of Sales
163
151
8
%
—
%
8
%
Gross Profit
681
606
12
%
—
%
12
%
Gross Margin
80.7
%
80.1
%
Operating Expenses
130
116
12
%
—
%
12
%
Other (income)/deductions
—
—
—
%
—
%
—
%
U.S. Earnings
$
551
$
490
12
%
—
%
12
%
International:
Revenue
$
721
$
709
2
%
(3
)%
5
%
Cost of Sales
234
226
4
%
(7
)%
11
%
Gross Profit
487
483
1
%
(1
)%
2
%
Gross Margin
67.5
%
68.1
%
Operating Expenses
134
131
2
%
(4
)%
6
%
Other (income)/deductions
—
(1
)
*
*
*
International Earnings
$
353
$
353
—
%
(1
)%
1
%
Total Reportable Segments
$
904
$
843
7
%
(1
)%
8
%
Other business activities(c)
(87
)
(84
)
4
%
Reconciling Items:
Corporate(d)
(172
)
(178
)
(3
)%
Purchase accounting adjustments(e)
(55
)
(49
)
12
%
Acquisition-related costs(f)
(6
)
(40
)
(85
)%
Certain significant items(g)
17
8
*
Other unallocated(h)
(73
)
(82
)
(11
)%
Total Earnings(i)
$
528
$
418
26
%
(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 and
human health 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, 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.
* Calculation not meaningful.
Certain amounts and percentages may
reflect rounding adjustments.
ZOETIS INC.
SEGMENT(a) EARNINGS -
Continued
(UNAUDITED)
(millions of dollars)
Nine Months Ended
September 30,
% Change
2019
2018
Total
Foreign Exchange
Operational(b)
U.S.:
Revenue
$
2,342
$
2,068
13
%
—
%
13
%
Cost of Sales
468
431
9
%
—
%
9
%
Gross Profit
1,874
1,637
14
%
—
%
14
%
Gross Margin
80.0
%
79.2
%
Operating Expenses
367
328
12
%
—
%
12
%
Other (income)/deductions
—
—
—
%
—
%
—
%
U.S. Earnings
$
1,507
$
1,309
15
%
—
%
15
%
International:
Revenue
$
2,181
$
2,163
1
%
(6
)%
7
%
Cost of Sales
662
689
(4
)%
(10
)%
6
%
Gross Profit
1,519
1,474
3
%
(5
)%
8
%
Gross Margin
69.6
%
68.1
%
Operating Expenses
412
411
—
%
(7
)%
7
%
Other (income)/deductions
—
2
*
*
*
International Earnings
$
1,107
$
1,061
4
%
(5
)%
9
%
Total Reportable Segments
$
2,614
$
2,370
10
%
(2
)%
12
%
Other business activities(c)
(246
)
(247
)
—
%
Reconciling Items:
Corporate(d)
(512
)
(470
)
9
%
Purchase accounting adjustments(e)
(179
)
(95
)
88
%
Acquisition-related costs(f)
(33
)
(41
)
(20
)%
Certain significant items(g)
(56
)
(2
)
*
Other unallocated(h)
(224
)
(243
)
(8
)%
Total Earnings(i)
$
1,364
$
1,272
7
%
(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 and
human health 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, 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.
* Calculation not meaningful.
Certain amounts and percentages may
reflect rounding adjustments.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191107005497/en/
Media: Bill Price 1-973-443-2742
(o) william.price@zoetis.com Kristen Seely 1-973-443-2777 (o)
kristen.seely@zoetis.com Investors:
Steve Frank 1-973-822-7141 (o) steve.frank@zoetis.com Marissa Patel
1-973-443-2996 (o) marissa.patel@zoetis.com
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