- Reports Revenue of $1.2 Billion, Growing 6%, and Net Income of $238 Million, or $0.48 per Diluted Share, Growing 17% on a Reported Basis for First Quarter 2017
- Reports Adjusted Net Income of $261 Million, or Adjusted Diluted EPS of $0.53, for First Quarter 2017
- Delivers 6% Operational Growth in Revenue and 10% Operational Growth in Adjusted Net Income, Excluding Foreign Exchange, for First Quarter 2017
- Reaffirms Full Year 2017 Revenue Guidance of $5.100 - $5.225 Billion and Diluted EPS of $2.08 - $2.20 on a Reported Basis, or $2.26 - $2.36 on an Adjusted Basis
Zoetis
Inc. (NYSE:ZTS) today reported its financial results for the first
quarter of 2017 and reaffirmed its guidance for full year 2017.
The company reported revenue of $1.2 billion for the first quarter of
2017, an increase of 6% compared with the first quarter of 2016. Net
income for the first quarter of 2017 was $238 million, or $0.48 per
diluted share, an increase of 17% on a reported basis.
Adjusted net income1 for the first quarter of 2017 was $261
million, or $0.53 per diluted share, an increase of 9% and 10%,
respectively, on a reported basis. Adjusted net income for the first
quarter of 2017 excludes the net impact of $23 million for purchase
accounting adjustments, acquisition-related costs and certain
significant items.
On an operational2 basis, revenue for the first quarter of
2017 increased 6%, excluding the impact of foreign currency. Adjusted
net income for the first quarter of 2017 increased 10% operationally,
excluding the impact of foreign currency.
EXECUTIVE COMMENTARY
“In the first quarter of 2017, we continue to see positive results from
our diverse portfolio, innovative new companion animal products, and a
more efficient cost structure,” said Juan Ramón Alaix, Chief Executive
Officer at Zoetis. “Our revenue grew 6% operationally in the first
quarter, driven largely by sales of companion animal products such as
Simparica, Apoquel and Cytopoint, and our livestock portfolio featured
growth in swine, cattle and fish across our international markets. We
posted 10% operational growth in adjusted net income – once again faster
than revenue growth – as we continue delivering steady profitable
results.”
“As costs for our one-time initiatives are largely complete, we were
able to deliver 17% growth in reported EPS and continue to focus our
investments on the ongoing business,” said Glenn David, Executive Vice
President and Chief Financial Officer at Zoetis. “We see a good runway
for continued growth, based on our diverse portfolio and recently
launched products, and we are reaffirming our full-year 2017 guidance.”
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 first quarter of 2017:
-
Revenue in the U.S. segment was $605 million, an increase of 4%
compared with the first quarter of 2016. Sales of companion animal
products grew 10%, driven primarily by new product launches,
particularly Simparica® and Cytopoint™, and increased sales
of Apoquel®. This growth was tempered by the prior year’s
initial sales of other products into expanded distribution
relationships. Sales of livestock products declined 2% due to
decreased sales of swine and cattle products. Sales of swine products
were impacted by timing of customer purchases and increased
competition, while cattle product sales were impacted by lower disease
risk and incidence in the feedlot sector due to mild weather and
heavier animals. Both cattle and swine feed additive product sales
were negatively impacted by livestock producers’ implementation of the
Veterinary Feed Directive in the first quarter. Increased sales of
poultry medicated feed additives partially offset this decline.
-
Revenue in the International segment was $615 million, an
increase of 8% on a reported basis and 9% operationally compared with
the first quarter of 2016. Sales of companion animal products grew 13%
on a reported basis and 15% operationally, primarily due to increased
sales of Apoquel, in addition to new product launches, particularly
Simparica. Sales also benefited from increased demand for the
company’s companion animal vaccines portfolio in China as a result of
field force expansion and increasing medicalization rates. Sales of
livestock products grew 7% both on a reported and operational basis
driven primarily by increased sales of swine products in China and
Vietnam, and cattle products in Brazil. Favorable market conditions
contributed to swine performance in China as well as cattle product
sales in Brazil, while swine product sales in Vietnam were driven by
timing of customer purchases. Poultry and swine product sales were
negatively impacted by product rationalizations, which partially
offset the overall growth of livestock products.
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 first quarter of 2017:
-
The company strengthened its canine dermatology portfolio with the
approval of Cytopoint in the European Union (April 2017) and
Canada (March 2017). Cytopoint is the first monoclonal antibody (mAb)
therapy approved to help provide a reduction in the clinical signs
associated with atopic dermatitis such as itching in dogs. The product
was first approved in the U.S. in December 2016.
-
Zoetis received European Commission approval for Stronghold
®
Plus (selamectin/sarolaner), a topical combination product that
treats ticks, fleas, ear mites, lice and gastrointestinal worms and
prevents heartworm disease in cats. This product builds on the
company’s sarolaner platform in the $4.2 billion global companion
animal parasiticide market.3
-
Zoetis announced an agreement to purchase Nexvet Biopharma plc,
an innovator in monoclonal antibody therapies for companion animals in
management of chronic pain and other therapeutic areas. The
acquisition is expected to strengthen Zoetis’ R&D pipeline in
monoclonal antibodies and help sustain the company’s category
leadership in chronic pain management for companion animals, an area
poised for innovation with new mAb therapies.
-
In its pursuit of lifecycle innovations, Zoetis received approvals for
new indications and formulations of key livestock products, and
expanded major products into new geographies.
-
In Canada, the company received approvals for Bovi-Shield
®
IBR, which helps prevent respiratory disease caused
by infectious bovine rhinotracheitis (IBR) virus in cattle, and Lutalyse
®
HighCon, a reproductive product for use in both beef
and dairy cattle. Bovi-Shield IBR was first approved in the U.S.
in 1998, and Lutalyse HighCon was first approved in the U.S. in
2015.
-
In Japan, Zoetis expanded its injectable line of anti-infectives
with approvals of Excenel
®
(ceftiofur
hydrochloride) RTU for use in cattle and swine and Excede
®
(ceftiofur crystalline free acid) for use in swine. Excenel RTU
was first approved in the U.S. in 2004, and Excede was first
approved in the U.S. in 2003.
-
The company also grew its Fostera
® swine vaccine
franchise with the approval of the Fostera Porcine Reproductive
and Respiratory Syndrome (PRRS) vaccine in Taiwan. Fostera PRRS
was first approved in the U.S. in 2012.
-
Zoetis also continued to grow its diagnostics business with new
approvals in the U.S. for its Witness
®
and Serelisa
®
lines of diagnostic test kits. Witness Lepto is a rapid, point-of-care
test that detects leptospirosis, a zoonotic, infectious disease of
dogs. Serelisa diagnostic test kits help detect gastrointestinal
viruses in both cattle and swine, allowing our customers to better
detect these life-threatening infections.
FINANCIAL GUIDANCE
Zoetis reaffirmed its guidance for the full year 2017, which includes:
-
Revenue of between $5.100 billion to $5.225 billion
-
Reported diluted EPS for the full year of between $2.08 to $2.20 per
share
-
Adjusted diluted EPS for the full year between $2.26 to $2.36 per share
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 first 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 May 4,
2017.
About Zoetis
Zoetis
is the leading animal health company, dedicated to supporting its
customers and their businesses. Building on more than 60 years of
experience in animal health, Zoetis discovers, develops, manufactures
and markets veterinary vaccines and medicines, complemented by
diagnostic products, genetic tests, biodevices and a range of services.
Zoetis serves veterinarians, livestock producers and people who raise
and care for farm and companion animals with sales of its products in
more than 100 countries. In 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.
3
Vetnosis, Animal Health Service: Parasiticides
Report (Sept. 2016)
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
% Change
|
|
Revenue
|
|
|
|
$
|
1,231
|
|
|
$
|
1,162
|
|
|
6
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of sales(b)
|
|
|
|
443
|
|
|
389
|
|
|
14
|
|
Selling, general and administrative expenses(b)
|
|
|
|
309
|
|
|
315
|
|
|
(2)
|
|
Research and development expenses(b)
|
|
|
|
90
|
|
|
90
|
|
|
—
|
|
Amortization of intangible assets(c)
|
|
|
|
22
|
|
|
21
|
|
|
5
|
|
Restructuring charges/(reversals) and certain acquisition-related
costs
|
|
|
|
(1
|
)
|
|
2
|
|
|
*
|
|
Interest expense
|
|
|
|
41
|
|
|
43
|
|
|
(5)
|
|
Other (income)/deductions–net
|
|
|
|
(10
|
)
|
|
(30
|
)
|
|
(67)
|
|
Income before provision for taxes on income
|
|
|
|
337
|
|
|
332
|
|
|
2
|
|
Provision for taxes on income
|
|
|
|
98
|
|
|
128
|
|
|
(23)
|
|
Net income before allocation to noncontrolling interests
|
|
|
|
239
|
|
|
204
|
|
|
17
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
1
|
|
|
—
|
|
|
*
|
|
Net income attributable to Zoetis
|
|
|
|
$
|
238
|
|
|
$
|
204
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share—basic
|
|
|
|
$
|
0.48
|
|
|
$
|
0.41
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share—diluted
|
|
|
|
$
|
0.48
|
|
|
$
|
0.41
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used to calculate earnings per share
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
492.4
|
|
|
497.4
|
|
|
|
|
Diluted
|
|
|
|
495.3
|
|
|
499.5
|
|
|
|
* Calculation not meaningful.
|
(a)
|
|
|
The condensed consolidated statements of income present the first
quarter ended April 2, 2017, and April 3, 2016. Subsidiaries
operating outside the United States are included for the first
quarter ended February 26, 2017 and February 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 April 2, 2017
|
|
|
|
|
GAAP Reported
(a)
|
|
Purchase Accounting Adjustments
|
|
Acquisition- Related Costs(1)
|
|
Certain Significant Items(2)
|
|
Non-GAAP Adjusted(b)
|
|
Cost of sales(c)
|
|
|
$
|
443
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
438
|
|
Gross profit
|
|
|
788
|
|
|
2
|
|
|
—
|
|
|
3
|
|
|
793
|
|
Selling, general and administrative expenses(c)
|
|
|
309
|
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
|
306
|
|
Research and development expenses(c)
|
|
|
90
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
89
|
|
Amortization of intangible assets(d)
|
|
|
22
|
|
|
(18
|
)
|
|
—
|
|
|
—
|
|
|
4
|
|
Restructuring charges/(reversals) and certain acquisition-related
costs
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Income before provision for taxes on income
|
|
|
337
|
|
|
22
|
|
|
—
|
|
|
4
|
|
|
363
|
|
Provision for taxes on income
|
|
|
98
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
101
|
|
Net income attributable to Zoetis
|
|
|
238
|
|
|
19
|
|
|
—
|
|
|
4
|
|
|
261
|
|
Earnings per common share attributable to Zoetis–diluted
|
|
|
0.48
|
|
|
0.04
|
|
|
—
|
|
|
0.01
|
|
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended April 3, 2016
|
|
|
|
|
GAAP Reported
(a)
|
|
Purchase Accounting Adjustments
|
|
Acquisition- Related Costs(1)
|
|
Certain Significant Items(2)
|
|
Non-GAAP Adjusted(b)
|
|
Cost of sales(c)
|
|
|
$
|
389
|
|
|
$
|
(7
|
)
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
378
|
|
Gross profit
|
|
|
773
|
|
|
7
|
|
|
—
|
|
|
4
|
|
|
784
|
|
Selling, general and administrative expenses(c)
|
|
|
315
|
|
|
(1
|
)
|
|
—
|
|
|
(14
|
)
|
|
300
|
|
Research and development expenses(c)
|
|
|
90
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
89
|
|
Amortization of intangible assets(d)
|
|
|
21
|
|
|
(17
|
)
|
|
—
|
|
|
—
|
|
|
4
|
|
Restructuring charges/(reversals) and certain acquisition-related
costs
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
Other (income)/deductions–net
|
|
|
(30
|
)
|
|
—
|
|
|
(1
|
)
|
|
33
|
|
|
2
|
|
Income before provision for taxes on income
|
|
|
332
|
|
|
26
|
|
|
1
|
|
|
(13
|
)
|
|
346
|
|
Provision for taxes on income
|
|
|
128
|
|
|
17
|
|
|
(2
|
)
|
|
(36
|
)
|
|
107
|
|
Net income attributable to Zoetis
|
|
|
204
|
|
|
9
|
|
|
3
|
|
|
23
|
|
|
239
|
|
Earnings per common share attributable to Zoetis–diluted
|
|
|
0.41
|
|
|
0.02
|
|
|
0.01
|
|
|
0.04
|
|
|
0.48
|
|
(a)
|
|
|
The condensed consolidated statements of income present the first
quarter ended April 2, 2017, and April 3, 2016. Subsidiaries
operating outside the United States are included for the first
quarter ended February 26, 2017 and February 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:
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Other(a)
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
Total acquisition-related costs—pre-tax
|
|
|
—
|
|
|
1
|
|
|
Income taxes(b)
|
|
|
—
|
|
|
(2
|
)
|
|
Total acquisition-related costs—net of tax
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
(a)
|
|
|
Included in Other (income)/deductions—net.
|
|
(b)
|
|
|
Included in Provision for taxes on income. Income taxes
include the tax effect of the associated pre-tax amounts,
calculated by determining the jurisdictional location of the
pre-tax amounts and applying that jurisdiction's applicable tax
rate. For the first quarter of 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Operational efficiency initiative(a)
|
|
|
|
$
|
(1
|
)
|
|
$
|
(28
|
)
|
|
Supply network strategy(b)
|
|
|
|
3
|
|
|
3
|
|
|
Stand-up costs(c)
|
|
|
|
—
|
|
|
12
|
|
|
Other(d)
|
|
|
|
2
|
|
|
—
|
|
|
Total certain significant items—pre-tax
|
|
|
|
4
|
|
|
(13
|
)
|
|
Income taxes(e)
|
|
|
|
—
|
|
|
(36
|
)
|
|
Total certain significant items—net of tax
|
|
|
|
$
|
4
|
|
|
$
|
23
|
|
|
(a)
|
|
|
For the first quarter ended April 2, 2017, represents a net
reversal of previously accrued employee termination costs,
included in Restructuring charges/(reversals) and certain
acquisition-related costs.
|
|
|
|
|
For the first quarter ended April 3, 2016, represents
restructuring charges of $2 million related to employee
termination costs ($1 million) and exit costs ($1 million),
included in Restructuring charges/(reversals) and certain
acquisition-related costs, consulting fees of $3 million,
included in Selling, general and administrative expenses,
and a $33 million net gain related to the sale of certain
manufacturing sites and products, included in Other
(income)/deductions—net.
|
|
(b)
|
|
|
For the first quarter ended April 2, 2017, represents accelerated
depreciation charges of $1 million and consulting fees of $2
million, included in Cost of sales.
|
|
|
|
|
For the first quarter ended April 3, 2016, represents accelerated
depreciation charges of $1 million and consulting fees of $2
million, included in Cost of sales.
|
|
(c)
|
|
|
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 first quarter ended April 3, 2016, included in Cost
of sales ($1 million), and Selling, general and
administrative expenses ($11 million).
|
|
(d)
|
|
|
For the quarter ended April 2, 2017, represents costs associated
with changes to our operating model, included in Selling,
general and administrative expenses.
|
|
(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 first quarter ended April 2, 2017, also includes a
net tax charge of approximately $1 million related to the
revaluation of the company's deferred tax assets and liabilities,
using the rates expected to be in place at the time of the
reversal. For the first quarter ended April 3, 2016, also includes
a net tax charge of approximately $35 million related to the
impact of the European Commission’s negative decision on the
excess profits rulings in Belgium. This net charge relates to 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. This net tax charge does not include any benefits
associated with a successful appeal of the decision, nor does it
reflect guidance we expect to receive from the Belgian government
on the methodology and timing of the recovery of prior tax
benefits.
|
|
|
|
|
|
|
Certain amounts may reflect rounding adjustments.
|
|
|
|
|
|
|
|
|
|
ZOETIS INC.
ADJUSTED SELECTED COSTS, EXPENSES AND INCOME (a)
(UNAUDITED)
(millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
% Change
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Total
|
|
|
Foreign
Exchange
|
|
Operational(b)
|
|
Adjusted cost of sales
|
|
|
|
$
|
438
|
|
|
$
|
378
|
|
|
16
|
%
|
|
|
2
|
%
|
|
14
|
%
|
|
as a percent of revenue
|
|
|
|
35.6
|
%
|
|
32.5
|
%
|
|
NA
|
|
|
NA
|
|
NA
|
|
Adjusted SG&A expenses
|
|
|
|
306
|
|
|
300
|
|
|
2
|
%
|
|
|
—
|
%
|
|
2
|
%
|
|
Adjusted R&D expenses
|
|
|
|
89
|
|
|
89
|
|
|
—
|
%
|
|
|
—
|
%
|
|
—
|
%
|
|
Adjusted net income attributable to Zoetis
|
|
|
|
261
|
|
|
239
|
|
|
9
|
%
|
|
|
(1
|
)%
|
|
10
|
%
|
|
(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 first quarter ended April 2, 2017, and April 3,
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
|
|
|
|
$5,100 to $5,225
|
|
Operational growth
(a)
|
|
|
|
5.5% to 7.5%
|
|
Adjusted cost of sales as a percentage of revenue(b)
|
|
|
|
32% to 33%
|
|
Adjusted SG&A expenses(b)
|
|
|
|
$1,265 to $1,325
|
|
Adjusted R&D expenses(b)
|
|
|
|
$360 to $380
|
|
Adjusted interest expense and other (income)/deductions(b)
|
|
|
|
Approximately $160
|
|
Adjusted EBIT margin(b)
|
|
|
|
34% to 35%
|
|
Effective tax rate on adjusted income(b)
|
|
|
|
Approximately 30%
|
|
Adjusted diluted EPS(b)
|
|
|
|
$2.26 to $2.36
|
|
Adjusted net income(b)
|
|
|
|
$1,120 to $1,170
|
|
Operational growth
(a)(c)
|
|
|
|
15% to 20%
|
|
Certain significant items(d) and acquisition-related costs
|
|
|
|
$30 to $50
|
The guidance reflects foreign exchange rates as of late April 2017.
Reconciliations of 2017 reported guidance to 2017 adjusted guidance
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(millions of dollars, except per share amounts)
|
|
|
|
Reported
|
|
|
|
Certain significant items(d) and acquisition-related costs
|
|
|
|
Purchase accounting
|
|
|
|
Adjusted(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales as a percentage of revenue
|
|
|
|
33% to 34%
|
|
|
|
(1%)
|
|
|
|
|
|
|
|
32% to 33%
|
|
|
SG&A expenses
|
|
|
|
$1,275 to $1,335
|
|
|
|
($5)
|
|
|
|
($5)
|
|
|
|
$1,265 to $1,325
|
|
|
R&D expenses
|
|
|
|
$360 to $380
|
|
|
|
|
|
|
|
|
|
|
|
$360 to $380
|
|
|
Interest expense and other (income)/deductions
|
|
|
|
~ $160
|
|
|
|
|
|
|
|
|
|
|
|
~ $160
|
|
|
EBIT margin
|
|
|
|
32% to 33%
|
|
|
|
0.5% to 1%
|
|
|
|
1.5%
|
|
|
|
34% to 35%
|
|
|
Effective tax rate
|
|
|
|
~ 30%
|
|
|
|
|
|
|
|
|
|
|
|
~ 30%
|
|
|
Diluted EPS
|
|
|
|
$2.08 to $2.20
|
|
|
|
$0.05 to $0.07
|
|
|
|
$0.11
|
|
|
|
$2.26 to $2.36
|
|
|
Net income attributable to Zoetis
|
|
|
|
$1,030 to $1,090
|
|
|
|
$25 to $35
|
|
|
|
$55
|
|
|
|
$1,120 to $1,170
|
|
|
(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)
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
% Change
|
|
|
|
2017
|
|
|
2016
|
|
|
Total
|
|
|
Foreign
Exchange
|
|
Operational(b)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Livestock
|
|
$
|
703
|
|
|
$
|
683
|
|
|
3
|
%
|
|
|
—
|
%
|
|
3
|
%
|
|
Companion Animal
|
|
517
|
|
|
466
|
|
|
11
|
%
|
|
|
(1
|
)%
|
|
12
|
%
|
|
Contract Manufacturing
|
|
11
|
|
|
13
|
|
|
(15
|
)%
|
|
|
(7
|
)%
|
|
(8
|
)%
|
|
Total Revenue
|
|
$
|
1,231
|
|
|
$
|
1,162
|
|
|
6
|
%
|
|
|
—
|
%
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
Livestock
|
|
$
|
282
|
|
|
$
|
288
|
|
|
(2
|
)%
|
|
|
—
|
%
|
|
(2
|
)%
|
|
Companion Animal
|
|
323
|
|
|
294
|
|
|
10
|
%
|
|
|
—
|
%
|
|
10
|
%
|
|
Total U.S. Revenue
|
|
$
|
605
|
|
|
$
|
582
|
|
|
4
|
%
|
|
|
—
|
%
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Livestock
|
|
$
|
421
|
|
|
$
|
395
|
|
|
7
|
%
|
|
|
—
|
%
|
|
7
|
%
|
|
Companion Animal
|
|
194
|
|
|
172
|
|
|
13
|
%
|
|
|
(2
|
)%
|
|
15
|
%
|
|
Total International Revenue
|
|
$
|
615
|
|
|
$
|
567
|
|
|
8
|
%
|
|
|
(1
|
)%
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Livestock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cattle
|
|
$
|
386
|
|
|
$
|
377
|
|
|
2
|
%
|
|
|
(1
|
)%
|
|
3
|
%
|
|
Swine
|
|
160
|
|
|
146
|
|
|
10
|
%
|
|
|
1
|
%
|
|
9
|
%
|
|
Poultry
|
|
116
|
|
|
122
|
|
|
(5
|
)%
|
|
|
—
|
%
|
|
(5
|
)%
|
|
Fish
|
|
21
|
|
|
17
|
|
|
24
|
%
|
|
|
10
|
%
|
|
14
|
%
|
|
Other
|
|
20
|
|
|
21
|
|
|
(5
|
)%
|
|
|
(1
|
)%
|
|
(4
|
)%
|
|
Total Livestock Revenue
|
|
$
|
703
|
|
|
$
|
683
|
|
|
3
|
%
|
|
|
—
|
%
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Companion Animal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Horses
|
|
$
|
35
|
|
|
$
|
39
|
|
|
(10
|
)%
|
|
|
(2
|
)%
|
|
(8
|
)%
|
|
Dogs and Cats
|
|
482
|
|
|
427
|
|
|
13
|
%
|
|
|
—
|
%
|
|
13
|
%
|
|
Total Companion Animal Revenue
|
|
$
|
517
|
|
|
$
|
466
|
|
|
11
|
%
|
|
|
(1
|
)%
|
|
12
|
%
|
|
(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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
% Change
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Total
|
|
|
Foreign
Exchange
|
|
Operational(a)
|
|
Total International
|
|
|
|
$
|
615
|
|
|
$
|
567
|
|
|
8
|
%
|
|
|
(1
|
)%
|
|
9
|
%
|
|
Australia
|
|
|
|
40
|
|
|
35
|
|
|
14
|
%
|
|
|
4
|
%
|
|
10
|
%
|
|
Brazil
|
|
|
|
66
|
|
|
46
|
|
|
43
|
%
|
|
|
28
|
%
|
|
15
|
%
|
|
Canada
|
|
|
|
34
|
|
|
33
|
|
|
3
|
%
|
|
|
3
|
%
|
|
—
|
%
|
|
China
|
|
|
|
52
|
|
|
38
|
|
|
37
|
%
|
|
|
(10
|
)%
|
|
47
|
%
|
|
France
|
|
|
|
29
|
|
|
36
|
|
|
(19
|
)%
|
|
|
(4
|
)%
|
|
(15
|
)%
|
|
Germany
|
|
|
|
28
|
|
|
29
|
|
|
(3
|
)%
|
|
|
(2
|
)%
|
|
(1
|
)%
|
|
Italy
|
|
|
|
22
|
|
|
20
|
|
|
10
|
%
|
|
|
(1
|
)%
|
|
11
|
%
|
|
Japan
|
|
|
|
34
|
|
|
31
|
|
|
10
|
%
|
|
|
3
|
%
|
|
7
|
%
|
|
Mexico
|
|
|
|
18
|
|
|
19
|
|
|
(5
|
)%
|
|
|
(15
|
)%
|
|
10
|
%
|
|
Spain
|
|
|
|
20
|
|
|
19
|
|
|
5
|
%
|
|
|
(4
|
)%
|
|
9
|
%
|
|
United Kingdom
|
|
|
|
43
|
|
|
50
|
|
|
(14
|
)%
|
|
|
(14
|
)%
|
|
—
|
%
|
|
Other Developed
|
|
|
|
68
|
|
|
68
|
|
|
—
|
%
|
|
|
1
|
%
|
|
(1
|
)%
|
|
Other Emerging
|
|
|
|
161
|
|
|
143
|
|
|
13
|
%
|
|
|
(1
|
)%
|
|
14
|
%
|
|
(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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
% Change
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Total
|
|
|
Foreign
Exchange
|
|
Operational(b)
|
|
U.S.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
$
|
605
|
|
|
$
|
582
|
|
|
4
|
%
|
|
|
—
|
%
|
|
4
|
%
|
|
Cost of Sales
|
|
|
|
|
137
|
|
|
131
|
|
|
5
|
%
|
|
|
—
|
%
|
|
5
|
%
|
|
Gross Profit
|
|
|
|
|
468
|
|
|
451
|
|
|
4
|
%
|
|
|
—
|
%
|
|
4
|
%
|
|
Gross Margin
|
|
|
|
|
77.4
|
%
|
|
77.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
96
|
|
|
92
|
|
|
4
|
%
|
|
|
—
|
%
|
|
4
|
%
|
|
Other (income)/deductions
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
|
—
|
%
|
|
—
|
%
|
|
U.S. Earnings
|
|
|
|
|
$
|
372
|
|
|
$
|
359
|
|
|
4
|
%
|
|
|
—
|
%
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
$
|
615
|
|
|
$
|
567
|
|
|
8
|
%
|
|
|
(1
|
)%
|
|
9
|
%
|
|
Cost of Sales
|
|
|
|
|
213
|
|
|
196
|
|
|
9
|
%
|
|
|
—
|
%
|
|
9
|
%
|
|
Gross Profit
|
|
|
|
|
402
|
|
|
371
|
|
|
8
|
%
|
|
|
(1
|
)%
|
|
9
|
%
|
|
Gross Margin
|
|
|
|
|
65.4
|
%
|
|
65.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
114
|
|
|
109
|
|
|
5
|
%
|
|
|
1
|
%
|
|
4
|
%
|
|
Other (income)/deductions
|
|
|
|
|
(3
|
)
|
|
2
|
|
|
|
*
|
|
|
|
*
|
|
|
*
|
|
International Earnings
|
|
|
|
|
$
|
291
|
|
|
$
|
260
|
|
|
12
|
%
|
|
|
—
|
%
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reportable Segments
|
|
|
|
|
$
|
663
|
|
|
$
|
619
|
|
|
7
|
%
|
|
|
—
|
%
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other business activities(c)
|
|
|
|
|
(74
|
)
|
|
(74
|
)
|
|
—
|
%
|
|
|
|
|
|
|
|
|
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate(d)
|
|
|
|
|
(143
|
)
|
|
(169
|
)
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
Purchase accounting adjustments(e)
|
|
|
|
|
(22
|
)
|
|
(26
|
)
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
Acquisition-related costs(f)
|
|
|
|
|
—
|
|
|
(1
|
)
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
Certain significant items(g)
|
|
|
|
|
(4
|
)
|
|
13
|
|
|
|
*
|
|
|
|
|
|
|
|
|
Other unallocated(h)
|
|
|
|
|
(83
|
)
|
|
(30
|
)
|
|
|
*
|
|
|
|
|
|
|
|
|
Total Earnings
(i)
|
|
|
|
|
$
|
337
|
|
|
$
|
332
|
|
|
2
|
%
|
|
|
|
|
|
|
|
* 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.
Media:
Bill Price, 1-973-443-2742 (o)
william.price@zoetis.com
or
Elinore White, 1-973-443-2835 (o)
elinore.y.white@zoetis.com
or
Investors:
Steve Frank, 1-973-822-7141 (o)
steve.frank@zoetis.com