- Reports Revenue of $1.3 Billion,
Growing 9%, and Net Income of $298 Million, or $0.61 per Diluted
Share, Growing 25% and 27%, Respectively, on a Reported Basis for
Third Quarter 2017
- Reports Adjusted Net Income of $322
Million, or Adjusted Diluted EPS of $0.65, for Third Quarter
2017
- Delivers 8% Operational Growth in
Revenue and 25% Operational Growth in Adjusted Net Income,
Excluding Foreign Exchange, for Third Quarter 2017
- Raises Full Year 2017 Revenue
Guidance to $5.225 - $5.275 Billion and Diluted EPS to $2.16 -
$2.23 on a Reported Basis, or $2.34 - $2.39 on an Adjusted
Basis
Zoetis Inc. (NYSE:ZTS) today reported its financial results for
the third quarter of 2017 and raised its full year guidance for
revenue and net income.
The company reported revenue of $1.3 billion for the third
quarter of 2017, an increase of 9% compared with the third quarter
of 2016. Net income for the third quarter of 2017 was $298 million,
or $0.61 per diluted share, an increase of 25% and 27%,
respectively, on a reported basis.
Adjusted net income1 for the third quarter of 2017 was $322
million, or $0.65 per diluted share, an increase of 25%, on a
reported basis. Adjusted net income for the third quarter of 2017
excludes the net impact of $24 million for purchase accounting
adjustments, acquisition-related costs and certain significant
items.
On an operational2 basis, revenue for the third quarter of 2017
increased 8%, excluding the impact of foreign currency. Adjusted
net income for the third quarter of 2017 increased 25%
operationally, excluding the impact of foreign currency.
EXECUTIVE COMMENTARY
“In the third quarter, we delivered strong operational revenue
and adjusted earnings growth of 8% and 25%, respectively,” said
Juan Ramón Alaix, Chief Executive Officer at Zoetis. “Our companion
animal portfolio grew 19% operationally, led by our industry
leading dermatology products and increased adoption of our oral
parasiticide, Simparica. On the livestock side of our business, we
grew 2% operationally, with growth in our fish and poultry products
that support the world’s fastest growing sources of protein. This
growth in livestock was offset primarily by lower sales in cattle
and swine products in the U.S., due to lower disease incidence and
shifts in treatment protocols related to the Veterinary Feed
Directive implementation.”
“As expected, in the third quarter, our focus on cost of goods
and expenses enabled us to improve our margins and grow adjusted
earnings significantly faster than sales,” said Glenn David,
Executive Vice President and Chief Financial Officer at Zoetis.
“With one quarter left in 2017, we are raising our full year
guidance for revenue and net income, and we expect to continue
delivering steady, profitable growth based on the performance of
our diverse portfolio and investments in innovation.”
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 2017:
- Revenue in the U.S. segment was $680
million, an increase of 6% compared with the third quarter of 2016.
Sales of companion animal products grew 21%, driven by increased
sales in our dermatology portfolio, in addition to several other
new products, primarily Simparica® (sarolaner), our oral
parasiticide. Sales of livestock products declined 6% driven
primarily by decreased sales of cattle products due to the impact
of promotional activities in the prior year and continued lower
disease risk and incidence in the feedlot sector. In addition,
certain medicated feed additive products for cattle and swine were
negatively impacted by livestock producers’ continued
implementation of the Veterinary Feed Directive. The decline in
cattle and swine products was partially offset by increased sales
of poultry medicated feed additive products.
- Revenue in the International segment
was $654 million, an increase of 12% on a reported basis and 11%
operationally compared with the third quarter of 2016. Sales of
companion animal products grew 15% on both a reported and
operational basis, resulting primarily from increased sales of
Simparica and Apoquel® (oclacitinib tablet). Sales also benefited
from growth in companion animal vaccines in China. Sales of
livestock products grew 10% on a reported basis and 9% on an
operational basis, driven by increased sales of fish products and
balanced growth across other species. Fish product sales grew due
to a new product in Norway, as well as in-line product growth
across various markets, including Chile. Cattle product growth
reflects favorable performance in Brazil, Argentina and Australia,
and swine growth was driven by new products across Europe and
Asia.
Zoetis continues to drive demand and strengthen its diverse
portfolio through the introduction of new products, lifecycle
innovations, business development initiatives, strong customer
relationships and entry into new markets and technologies. In the
third quarter of 2017, Zoetis received approvals for new
indications and formulations and expanded major product lines into
new geographies.
- In August 2017, the European Commission
granted Zoetis approval for Suvaxyn® PRRS MLV, a new addition to
the Suvaxyn/Fostera® family of vaccines for swine. This modified
live vaccine helps protect pigs against porcine respiratory and
reproductive syndrome, one of the most common diseases affecting
swine herds.
- Also in August, Zoetis extended the
breadth and reach of its poultry portfolio with the approval in
Korea of Poulvac® Maternavac IBD-REO for the revaccination of
chickens to help prevent locally prevalent strains of infectious
bursal disease and avian reovirus. The company also brought its
poultry diagnostics products ProFlok® and FluDetect® into major
European markets in July. The point-of-care diagnostic kits deliver
accurate, fast and clear results facilitating timely and informed
diagnoses for a range of diseases.
- Zoetis also gained new approvals for
its oral flea and tick medication Simparica during September 2017
in Japan and Taiwan. Simparica delivers fast and persistent
protection from fleas and ticks in dogs, with effectiveness that
lasts for a full 35 days, without losing efficacy at the end of the
month.
FINANCIAL GUIDANCE
Zoetis raised its guidance for the full year 2017, which
includes:
- Revenue between $5.225 billion to
$5.275 billion
- Reported diluted EPS between $2.16 to
$2.23 per share
- Adjusted diluted EPS between $2.34 to
$2.39 per share
This guidance reflects foreign exchange rates as of late
October. Additional guidance on other items such as expenses and
tax rate is included in the financial tables and will be discussed
on the company's conference call this morning.
WEBCAST & CONFERENCE CALL
DETAILS
Zoetis will host a webcast and conference call at 8:30 a.m. (ET)
today, during which company executives will review third quarter
2017 results, discuss financial guidance and respond to questions
from financial analysts. Investors and the public may access the
live webcast by visiting the Zoetis website at
http://investor.zoetis.com/events-presentations. A replay of the
webcast will be archived and made available on November 2,
2017.
About Zoetis
Zoetis (NYSE:ZTS) is the leading animal health company,
dedicated to supporting its customers and their businesses.
Building on more than 60 years of experience in animal health,
Zoetis discovers, develops, manufactures and markets veterinary
vaccines and medicines, complemented by diagnostic products,
genetic tests, biodevices and a range of services. Zoetis serves
veterinarians, livestock producers and people who raise and care
for farm and companion animals with sales of its products in more
than 100 countries. In 2016, the company generated annual revenue
of $4.9 billion with approximately 9,000 employees. For more
information, visit www.zoetis.com.
1 Adjusted net income and its components and adjusted diluted
earnings per share (non-GAAP financial measures) are defined as
reported net income attributable to Zoetis and reported diluted
earnings per share, excluding purchase accounting adjustments,
acquisition-related costs and certain significant items.
2 Operational revenue growth (a non-GAAP financial measure) is
defined as revenue growth excluding the impact of foreign
exchange.
DISCLOSURE NOTICES
Forward-Looking
Statements: This press release contains forward-looking
statements, which reflect the current views of Zoetis with respect
to business plans or prospects, future operating or financial
performance, future guidance, future operating models, expectations
regarding products, future use of cash and dividend payments, tax
rate and tax regimes, changes in the tax regimes and
laws in other jurisdictions, and other future events.
These statements are not guarantees of future performance or
actions. Forward-looking statements are subject to risks and
uncertainties. If one or more of these risks or uncertainties
materialize, or if management's underlying assumptions prove to be
incorrect, actual results may differ materially from those
contemplated by a forward-looking statement. Forward-looking
statements speak only as of the date on which they are made. Zoetis
expressly disclaims any obligation to update or revise any
forward-looking statement, whether as a result of new information,
future events or otherwise. A further list and description of
risks, uncertainties and other matters can be found in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2016,
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 2017 2016 %
Change 2017 2016 % Change Revenue $ 1,347 $ 1,241 9 $ 3,847
$ 3,611 7 Costs and expenses: Cost of sales(b) 435 410 6 1,318
1,198 10 Selling, general and administrative expenses(b) 328 345
(5) 973 1,003 (3) Research and development expenses(b) 96 90 7 272
268 1 Amortization of intangible assets(c) 23 21 10 68 64 6
Restructuring charges/(reversals) and certain acquisition-related
costs 8 4 100 7 (15 ) * Interest expense 43 41 5 125 125 — Other
(income)/deductions–net 1 (3 ) * (11 ) (29 ) (62) Income
before provision for taxes on income 413 333 24 1,095 997 10
Provision for taxes on income 117 96 22 313
332 (6) Net income before allocation to noncontrolling
interests 296 237 25 782 665 18 Less: Net loss attributable to
noncontrolling interests (2 ) (2 ) — (1 ) (2 ) (50) Net income
attributable to Zoetis $ 298 $ 239 25 $ 783 $
667 17 Earnings per share—basic $ 0.61 $ 0.48
27 $ 1.60 $ 1.34 19 Earnings per
share—diluted $ 0.61 $ 0.48 27 $ 1.59 $ 1.34
19 Weighted-average shares used to calculate earnings
per share Basic 489.1 495.2 490.8 496.3
Diluted 492.4 497.9 493.9 498.8 *
Calculation not meaningful. (a) The condensed consolidated
statements of income present the three and nine months ended
October 1, 2017, and October 2, 2016. Subsidiaries operating
outside the United States are included for the three and nine
months ended August 27, 2017 and August 28, 2016. (b)
Exclusive of amortization of intangible assets, except as discussed
in footnote (c) below. (c)
Amortization expense related to
finite-lived acquired intangible assets that contribute to our
ability to sell, manufacture, research, market and distribute
products, compounds and intellectual property is included in
Amortization of intangible assets as these intangible assets
benefit multiple business functions. Amortization expense related
to finite-lived acquired intangible assets that are associated with
a single function is included in Cost of sales, Selling, general
and administrative expenses or Research and development expenses,
as appropriate.
Certain amounts and percentages may reflect rounding
adjustments.
ZOETIS INC.
RECONCILIATION OF GAAP REPORTED TO
NON-GAAP ADJUSTED INFORMATION
CERTAIN LINE ITEMS
(UNAUDITED)
(millions of dollars, except per share
data)
Quarter ended October 1, 2017
GAAPReported(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 Quarter
ended October 2, 2016
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 410 $ (7 ) $ — $ — $ 403 Gross
profit
831 7 — — 838 Selling, general and administrative
expenses(c)
345 (1 ) — (11 ) 333 Amortization of intangible
assets(d)
21 (17 ) — — 4 Restructuring charges/(reversals)
and certain acquisition-related costs
4 — — (4 ) — Other
(income)/deductions–net
(3 ) — — (1 ) (4 ) Income
before provision for taxes on income
333 25 — 16 374
Provision for taxes on income
96 7 — 15 118 Net income
attributable to Zoetis
239 18 — 1 258 Earnings per common
share attributable to Zoetis–diluted
0.48 0.04 — — 0.52
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 October 1, 2017
GAAPReported(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 Nine months ended October 2, 2016
GAAPReported(a)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(1)
CertainSignificantItems(2)
Non-GAAPAdjusted(b)
Cost of sales(c)
$ 1,198 $ (22 ) $ — $ (7 ) $ 1,169
Gross profit
2,413 22 — 7 2,442 Selling, general and
administrative expenses(c)
1,003 (4 ) — (35 ) 964 Research
and development expenses(c)
268 (1 ) — — 267 Amortization of
intangible assets(d)
64 (52 ) — — 12 Restructuring
charges/(reversals) and certain acquisition-related costs
(15 ) — (2 ) 17 — Other (income)/deductions–net
(29 ) — (1 ) 26 (4 ) Income before provision for
taxes on income
997 79 3 (1 ) 1,078 Provision for taxes on
income
332 34 (1 ) (28 ) 337 Net income attributable to
Zoetis
667 45 4 27 743 Earnings per common share
attributable to Zoetis–diluted
1.34 0.09 0.01 0.05 1.49 (a)
The condensed consolidated statements of income present the
three and nine months ended October 1, 2017, and October 2, 2016.
Subsidiaries operating outside the United States are included for
the three and nine months ended August 27, 2017 and August 28,
2016. (b) Non-GAAP adjusted net income and its components
and non-GAAP adjusted diluted EPS are not, and should not be viewed
as, substitutes for U.S. GAAP net income and its components and
diluted EPS. Despite the importance of these measures to management
in goal setting and performance measurement, non-GAAP adjusted net
income and its components and non-GAAP adjusted diluted EPS are
non-GAAP financial measures that have no standardized meaning
prescribed by U.S. GAAP and, therefore, have limits in their
usefulness to investors. Because of the non-standardized
definitions, non-GAAP adjusted net income and its components and
non-GAAP adjusted diluted EPS (unlike U.S. GAAP net income and its
components and diluted EPS) may not be comparable to the
calculation of similar measures of other companies. Non-GAAP
adjusted net income and its components, and non-GAAP adjusted
diluted EPS are presented solely to permit investors to more fully
understand how management assesses performance. (c)
Exclusive of amortization of intangible assets, except as discussed
in footnote (d) below. (d)
Amortization expense related to
finite-lived acquired intangible assets that contribute to our
ability to sell, manufacture, research, market and distribute
products, compounds and intellectual property is included in
Amortization of intangible assets as these intangible assets
benefit multiple business functions. Amortization expense related
to 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 2017 2016 2017 2016
Integration costs(a) $ 2 $ — $ 4 $ 2 Restructuring charges(b) 4 — 4
— Other(c) — — — 1 Total
acquisition-related costs—pre-tax 6 — 8 3 Income taxes(d) 2
— 3 (1 ) Total acquisition-related costs—net of tax $
4 $ — $ 5 $ 4 (a)
Integration costs represent external,
incremental costs directly related to integrating acquired
businesses and primarily include expenditures for consulting and
the integration of systems and processes. Included in Restructuring
charges/(reversals) and certain acquisition-related costs.
(b)
Represents employee termination costs
related to the acquisition of an Irish biologic therapeutics
company in the third quarter of 2017, included in Restructuring
charges/(reversals) and certain acquisition-related costs.
(c)
Included in Other
(income)/deductions—net.
(d)
Included in Provision for taxes on income.
Income taxes include the tax effect of the associated pre-tax
amounts, calculated by determining the jurisdictional location of
the pre-tax amounts and applying that jurisdiction's applicable tax
rate. The nine months ended October 2, 2016, also includes a tax
charge related to the acquisition of certain assets of Abbott
Animal Health.
Certain amounts may reflect rounding adjustments.
(2) Certain significant items include the following:
Third Quarter Nine Months 2017 2016
2017 2016 Operational efficiency initiative(a) $ (1 )
$ 9 $ 4 $ (36 ) Supply network strategy(b) 8 2 7 13 Other
restructuring charges and cost-reduction/productivity
initiatives(c) — — — (1 ) Certain asset impairment charges(d) — 1 —
1 Stand-up costs(e) — 1 — 18 Other(f) — 3 (1 ) 4
Total certain significant items—pre-tax 7 16 10 (1 ) Income
taxes(g) 3 15 4 (28 ) Total certain
significant items—net of tax $ 4 $ 1 $ 6 $ 27
(a)
For the three months ended October 1,
2017, represents employee termination costs of $1 million, and a
reversal of $1 million related to exit costs, included in
Restructuring charges/(reversals) and certain acquisition-related
costs, and an adjustment to the net gain related to sales of
certain manufacturing sites and products of $1 million, included in
Other (income)/deductions—net. For the nine months ended October 1,
2017, represents consulting fees of $1 million, included in
Selling, general and administrative expenses, employee termination
costs of $2 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 $1 million,
included in Other (income)/deductions—net.
For the three months ended October 2,
2016, represents inventory write-offs of $1 million, included in
Cost of sales, consulting fees of $4 million, included in Selling,
general and administrative expenses, and employee termination costs
of $3 million and exit costs of $1 million, included in
Restructuring charges/(reversals) and certain acquisition-related
costs. For the nine months ended October 2, 2016, represents
inventory write-offs of $1 million, included in Cost of sales,
accelerated depreciation of $1 million and consulting fees of $11
million, included in Selling, general and administrative expenses,
a reversal of previously accrued employee termination costs of $26
million and an increase in exit costs of $4 million, included in
Restructuring charges/(reversals) and certain acquisition-related
costs, and a $27 million net gain related to sales of certain
manufacturing sites and products, included in Other
(income)/deductions—net.
(b)
For the three months ended October 1,
2017, represents consulting fees of $2 million, and an adjustment
of $1 million related to the requirement to cease depreciation of
assets, located at our manufacturing site in Guarulhos Brazil, that
are currently classified as held for sale, included in Cost of
sales, employee termination costs of $2 million, included in
Restructuring charges/(reversals) and certain acquisition-related
costs, and a net loss related to sales of certain manufacturing
sites and products, including the anticipated disposal of our
manufacturing site in Guarulhos, Brazil, of $5 million, included in
Other (income)/deductions—net. For the nine months ended October 1,
2017, represents accelerated depreciation of $2 million, consulting
fees of $4 million, and an adjustment of $1 million related to the
requirement to cease depreciation of assets, located at our
manufacturing site in Guarulhos Brazil, that are currently
classified as held for sale, included in Cost of sales, a reversal
of previously accrued employee terminations costs of $3 million,
included in Restructuring charges/(reversals) and certain
acquisition-related costs, and a net loss related to sales of
certain manufacturing sites and products, including the anticipated
disposal of our manufacturing site in Guarulhos, Brazil, of $5
million, included in Other (income)/deductions—net.
For the three months ended October 2, 2016, represents
accelerated depreciation of $2 million, included in Cost of sales.
For the nine months ended October 2, 2016, represents accelerated
depreciation of $4 million and consulting fees of $3 million,
included in Cost of sales, and employee termination costs of $6
million, included in Restructuring charges/(reversals) and certain
acquisition-related costs. (c) Included in Restructuring
charges/(reversals) and certain acquisition-related costs.
(d) For the three and nine months ended October 2, 2016, represents
an impairment of finite-lived trademarks related to a canine pain
management product, included in Other (income)/deductions—net.
(e) Represents certain nonrecurring costs related to
becoming an independent public company, such as the creation of
standalone systems and infrastructure, site separation, new
branding (including changes to the manufacturing process for
required new packaging), and certain legal registration and patent
assignment costs. For the three and nine months ended October 2,
2016, included in Cost of sales ($3 million benefit and $1 million
benefit, respectively) and Selling, general and administrative
expenses ($4 million and $19 million, respectively). (f) For
the nine months ended October 1, 2017, primarily 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, 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 three and nine months ended
October 2, 2016, represents costs associated with changes to our
operating model in Selling, general and administrative expenses.
(g) Included in Provision for taxes on income. Income taxes
include the tax effect of the associated pre-tax amounts,
calculated by determining the jurisdictional location of the
pre-tax amounts and applying that jurisdiction's applicable tax
rate. For the nine months ended October 1, 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. For the nine months ended October 2, 2016, also
includes (i) a net tax benefit of approximately $7 million related
to a revaluation of the company’s deferred tax assets and
liabilities using the tax rates expected to be in place going
forward as a result of the implementation of certain operational
changes and (ii) a net tax charge of approximately $38 million
related to the impact of the European Commission’s negative
decision on the excess profits rulings in Belgium. This net charge
represents the recovery of prior tax benefits for the periods 2013
through 2015 offset by the revaluation of the company’s deferred
tax assets and liabilities, using the rates expected to be in place
at the time of the reversal, and does not include any benefits
associated with a successful appeal of the decision.
Certain amounts may reflect rounding
adjustments.
ZOETIS INC.
ADJUSTED SELECTED COSTS, EXPENSES AND
INCOME (a)
(UNAUDITED)
(millions of dollars)
Third Quarter % Change 2017 2016
Total
ForeignExchange
Operational(b) Adjusted cost of sales $ 432 $ 403 7 % —% 7%
as a percent of revenue 32.1 % 32.5 % NA NA NA Adjusted SG&A
expenses $ 327 $ 333 (2 )% —% (2)% Adjusted R&D expenses 95 90
6 % —% 6% Adjusted net income attributable to Zoetis 322 258 25 %
—% 25% Nine Months % Change 2017 2016
Total
ForeignExchange
Operational(b) Adjusted cost of sales $ 1,307 $ 1,169
12 % 2 %
10%
as a percent of revenue 34.0 % 32.4 % NA NA NA Adjusted SG&A
expenses $ 966 $ 964 — % — %
—%
Adjusted R&D expenses 270 267 1 % — %
1%
Adjusted net income attributable to Zoetis 844 743 14 % (2 )%
16%
(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. Reconciliations of certain
reported to adjusted information for the three and nine months
ended October 1, 2017, and October 2, 2016, are provided in the
materials accompanying this report. These adjusted income statement
line item measures are not, and should not be viewed as,
substitutes for the corresponding U.S. GAAP line items. For the
corresponding GAAP line items, see 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.
2017 GUIDANCE
Selected Line Items
(millions of dollars, except per share
amounts)
Full Year 2017 Revenue $5,225 to $5,275
Operational growth(a) 7% to 8% Adjusted cost
of sales as a percentage of revenue(b)
Approximately 33% Adjusted SG&A expenses(b)
$1,310 to $1,335 Adjusted R&D expenses(b)
$375 to $385 Adjusted interest expense and other
(income)/deductions(b) Approximately $160
Adjusted EBIT margin(b) 34% to 34.5% Effective
tax rate on adjusted income(b) Approximately
29% Adjusted diluted EPS(b) $2.34 to $2.39
Adjusted net income(b) $1,155 to $1,180 Operational growth(a)(c)
18% to 21% Certain significant items(d) and
acquisition-related costs $20 to $40
The guidance reflects foreign exchange rates as of late October
2017.
Reconciliations of 2017 reported guidance to 2017 adjusted
guidance follows:
(millions of dollars, except per share amounts)
Reported
Certain significantitems(d)
andacquisition-relatedcosts
Purchaseaccounting
Adjusted(b)
Cost of sales as a
percentage of revenue ~ 33.5%
(0.5%) ~
33% SG&A expenses $1,320 to $1,345
($5) ($5)
$1,310 to $1,335 R&D expenses $375 to $385
$375 to $385 Interest expense and other
(income)/deductions ~ $165
($5) ~ $160
EBIT margin 32% to 32.5%
0.5% to 1% 1.5% 34% to
34.5% Effective tax rate ~ 29%
~
29% Diluted EPS $2.16 to $2.23
$0.03 to $0.05 $0.13
$2.34 to $2.39 Net income attributable to Zoetis
$1,065 to $1,100 $15 to $25
$65 $1,155 to $1,180 (a)
Operational growth (a non-GAAP financial measure) excludes
the impact of foreign exchange. (b) Adjusted net income and
its components and adjusted diluted EPS are defined as reported
U.S. 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 SG&A expenses, adjusted R&D expenses, adjusted
interest expense, and adjusted other (income)/deductions are income
statement line items prepared on the same basis, and, therefore,
components of the overall adjusted income measure. Adjusted
earnings before interest and taxes (EBIT) is defined as reported
EBIT excluding purchase accounting adjustments, acquisition-related
costs and certain significant items. Despite the importance of
these measures to management in goal setting and performance
measurement, adjusted net income and its components and adjusted
diluted earnings per share (EPS) are non-GAAP financial measures
that have no standardized meaning prescribed by U.S. GAAP and,
therefore, have limits in their usefulness to investors. Because of
the non-standardized definitions, adjusted net income and its
components and adjusted diluted EPS (unlike U.S. GAAP net income
and its components and diluted EPS) may not be comparable to the
calculation of similar measures of other companies. Adjusted net
income and its components and adjusted diluted EPS are presented
solely to permit investors to more fully understand how management
assesses performance. Adjusted net income and its components and
adjusted diluted EPS are not, and should not be viewed as,
substitutes for U.S. GAAP net income and its components and diluted
EPS. (c) We do not provide a reconciliation of
forward-looking non-GAAP adjusted net income operational growth to
the most directly comparable GAAP reported financial measure
because we are unable to calculate with reasonable certainty the
foreign exchange impact of unusual gains and losses,
acquisition-related expenses, potential future asset impairments
and other certain significant items, without unreasonable effort.
The foreign exchange impacts of these items are uncertain, depend
on various factors, and could have a material impact on GAAP
reported results for the guidance period. (d) Primarily
includes certain nonrecurring costs related to restructuring, net
gains/losses on sales of assets, and other charges for the
operational efficiency initiative and supply network strategy.
ZOETIS INC.
CONSOLIDATED REVENUE BY SEGMENT(a) AND
SPECIES
(UNAUDITED)
(millions of dollars)
Third Quarter % Change 2017 2016
Total
ForeignExchange
Operational(b)
Revenue: Livestock $ 754 $ 735
3 % 1% 2% Companion Animal 580 490 18 % (1)% 19% Contract
Manufacturing 13 16 (19 )% 3% (22)%
Total
Revenue $ 1,347 $ 1,241
9 % 1% 8%
U.S. Livestock $ 319 $ 341 (6 )% —% (6)% Companion Animal
361 299 21 % —% 21%
Total U.S. Revenue
$ 680 $ 640 6
% —% 6% International Livestock
$ 435 $ 394 10 % 1% 9% Companion Animal 219 191 15 %
—% 15%
Total International Revenue $ 654
$ 585 12 % 1%
11% Livestock: Cattle $ 424 $
432 (2 )% —% (2)% Swine 147 145 1 % —% 1% Poultry 119 111 7 % —% 7%
Fish 39 25 56 % 4% 52% Other 25 22 14 % 4% 10%
Total Livestock Revenue $ 754 $
735 3 % 1% 2%
Companion Animal: Horses $ 34 $ 33 3 % (3)% 6% Dogs and Cats
546 457 19 % (1)% 20%
Total Companion Animal
Revenue $ 580 $ 490
18 % (1)% 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, 2016. (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 2017 2016
Total
ForeignExchange
Operational(b)
Revenue: Livestock $ 2,146 $
2,091 3 % —% 3% Companion Animal 1,665 1,479 13 % —% 13% Contract
Manufacturing 36 41 (12 )% —% (12)%
Total
Revenue $ 3,847 $ 3,611
7 % —% 7%
U.S. Livestock $ 870 $ 891 (2 )% —% (2)% Companion Animal
1,038 925 12 % —% 12%
Total U.S. Revenue
$ 1,908 $ 1,816 5
% —% 5% International Livestock
$ 1,276 $ 1,200 6 % —% 6% Companion Animal 627 554 13
% (2)% 15%
Total International Revenue $ 1,903
$ 1,754 8 % (1)%
9% Livestock: Cattle $ 1,192 $
1,175 1 % —% 1% Swine 455 441 3 % —% 3% Poultry 357 351 2 % —% 2%
Fish 79 64 23 % —% 23% Other 63 60 5 % 1% 4%
Total
Livestock Revenue $ 2,146 $
2,091 3 % —% 3%
Companion Animal: Horses $ 104 $ 108 (4 )% (2)% (2)% Dogs
and Cats 1,561 1,371 14 % —% 14%
Total Companion
Animal Revenue $ 1,665 $
1,479 13 % —% 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, 2016. (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 2017
2016 Total
ForeignExchange
Operational(a)
Total International $ 654
$ 585 12 % 1% 11%
Australia 51 42 21 % 2% 19%
Brazil 66 56 18 % 4% 14%
Canada 40 39 3 % 1% 2%
China 40 33 21 % (1)% 22%
France 30 28 7 % 5% 2%
Germany 35 29 21 % 5% 16%
Italy 22 21 5 % 1% 4%
Japan 31 34 (9 )% (6)% (3)%
Mexico 21 17 24 % 6% 18%
Spain 24 20 20 % 5% 15%
United Kingdom 36 35 3 % (4)% 7%
Other Developed 96
80 20 % 2% 18%
Other Emerging 162 151 7 % (2)% 9%
Nine Months % Change 2017 2016 Total
ForeignExchange
Operational(a)
Total International $ 1,903
$ 1,754 8 % (1)% 9%
Australia 134 119 13 % 3% 10%
Brazil 205 162
27 % 15% 12%
Canada 123 120 3 % —% 3%
China 137 113
21 % (6)% 27%
France 85 89 (4 )% —% (4)%
Germany 96
90 7 % (1)% 8%
Italy 65 63 3 % (2)% 5%
Japan 101 96 5
% (2)% 7%
Mexico 60 56 7 % (7)% 14%
Spain 67 62 8 %
(1)% 9%
United Kingdom 105 112 (6 )%
(11)%
5%
Other Developed 240 223 8 % 1% 7%
Other Emerging
485 449 8 % (2)% 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)
Third Quarter % Change 2017 2016 Total
ForeignExchange
Operational(b)
U.S.: Revenue $
680 $ 640 6 % —% 6% Cost of Sales 141 137 3 % —% 3%
Gross Profit 539 503 7 % —% 7% Gross Margin 79.3 % 78.6 % Operating
Expenses 103 101 2 % —% 2% Other (income)/deductions —
—
—%
—%
—%
U.S. Earnings $ 436 $ 402
8 % —% 8%
International: Revenue $ 654 $ 585 12 % 1% 11%
Cost of Sales 213 201 6 % —% 6% Gross Profit 441 384
15 % 1% 14% Gross Margin 67.4 % 65.6 % Operating Expenses 132 128 3
% 1% 2% Other (income)/deductions — —
—%
—%
—%
International Earnings $ 309 $
256 21 % 2% 19% Total
Reportable Segments $ 745 $ 658
13 % —% 13% Other business
activities(c) (77 ) (71 ) 8 % Reconciling Items: Corporate(d) (143
) (159 ) (10 )% Purchase accounting adjustments(e) (23 ) (25 ) (8
)% Acquisition-related costs(f) (6 ) — * Certain significant
items(g) (7 ) (16 ) (56 )% Other unallocated(h) (76 ) (54 ) 41 %
Total Earnings(i) $ 413 $
333 24 % * 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, 2016. (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 certain costs related to becoming an independent
public company, restructuring charges and implementation costs
associated with our cost-reduction/productivity initiatives that
are not associated with an acquisition, costs associated with the
operational efficiency initiative and supply network strategy,
certain legal and commercial settlements, and the impact of
divestiture-related gains and losses. (h) Includes overhead
expenses associated with our manufacturing and supply operations
not directly attributable to an operating segment, as well as
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 2017 2016
Total
ForeignExchange
Operational(b)
U.S.: Revenue $
1,908 $ 1,816 5 % —% 5% Cost of Sales 412 402 2 % —%
2% Gross Profit 1,496 1,414 6 % —% 6% Gross Margin 78.4 % 77.9 %
Operating Expenses 312 293 6 % —% 6% Other (income)/deductions —
—
—%
—%
—%
U.S. Earnings $ 1,184 $ 1,121
6 % —% 6%
International: Revenue $ 1,903 $ 1,754 8 % (1)%
9% Cost of Sales 645 598 8 % —% 8% Gross Profit 1,258
1,156 9 % (1)% 10% Gross Margin 66.1 % 65.9 % Operating Expenses
372 361 3 % —% 3% Other (income)/deductions (1 ) 3 * * *
International Earnings $ 887 $
792 12 % (1)% 13%
Total Reportable Segments $ 2,071 $
1,913 8 % (1)% 9% Other
business activities(c) (224 ) (219 ) 2 % Reconciling Items:
Corporate(d) (437 ) (499 ) (12 )% Purchase accounting
adjustments(e) (66 ) (79 ) (16 )% Acquisition-related costs(f) (8 )
(3 ) * Certain significant items(g) (10 ) 1 * Other unallocated(h)
(231 ) (117 ) 97 %
Total Earnings(i) $
1,095 $ 997 10 % * 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, 2016.
(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 certain costs related
to becoming an independent public company, restructuring charges
and implementation costs associated with our
cost-reduction/productivity initiatives that are not associated
with an acquisition, costs associated with the operational
efficiency initiative and supply network strategy, certain legal
and commercial settlements, and the impact of divestiture-related
gains and losses. (h) Includes overhead expenses associated
with our manufacturing and supply operations not directly
attributable to an operating segment, as well as 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: http://www.businesswire.com/news/home/20171102005705/en/
Zoetis Inc.MediaBill Price,
1-973-443-2742 (o)william.price@zoetis.comorElinore White,
1-973-443-2835 (o)elinore.y.white@zoetis.comorInvestorsSteve Frank, 1-973-822-7141
(o)steve.frank@zoetis.com
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