- Reports Revenue of $1.4 Billion, Growing 11%, and Net Income of $352 Million, or $0.72 per Diluted Share, Growing 48% and 50%, respectively, on a Reported Basis for First Quarter 2018
- Reports Adjusted Net Income of $365 Million, or Adjusted Diluted EPS of $0.75, for First Quarter 2018
- Delivers 7% Operational Growth in Revenue and 34% Operational Growth in Adjusted Net Income for First Quarter 2018
- Reaffirms Full Year 2018 Revenue Guidance of $5.675 - $5.800 Billion and Diluted EPS of $2.77 - $2.93 on a Reported Basis, or $2.96 - $3.10 on an Adjusted Basis
Zoetis
Inc. (NYSE:ZTS) today reported its financial results for the first
quarter of 2018 and reaffirmed its guidance for full year 2018.
The company reported revenue of $1.4 billion for the first quarter of
2018, an increase of 11% compared with the first quarter of 2017. Net
income for the first quarter of 2018 was $352 million, or $0.72 per
diluted share, an increase of 48% and 50%, respectively, on a reported
basis. This increase includes the benefit of a lower effective tax rate
in 2018 as a result of the new tax legislation enacted in the U.S. last
year.
Adjusted net income1 for the first quarter of 2018 was $365
million, or $0.75 per diluted share, an increase of 40% and 42%,
respectively, on a reported basis. Adjusted net income for the first
quarter of 2018 excludes the net impact of $13 million for purchase
accounting adjustments, acquisition-related costs and certain
significant items.
On an operational2 basis, revenue for the first quarter of
2018 increased 7%, excluding the impact of foreign currency. Adjusted
net income for the first quarter of 2018 increased 34% operationally,
excluding the impact of foreign currency.
EXECUTIVE COMMENTARY
“We continue generating profitable revenue growth thanks to the quality
and diversity of our portfolio, the innovations we bring to the market
and the value we deliver to our customers,” said Juan Ramón Alaix, Chief
Executive Officer of Zoetis. “We remain confident in the strength of our
company and our ability to offer customers more integrated solutions
across the entire cycle of healthcare -- from prediction and prevention
to detection and treatment. With this approach and our proven business
model, we can generate long-term growth for Zoetis and value for our
shareholders.”
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 2018:
-
Revenue in the International segment was $726 million, an
increase of 18% on a reported basis and 11% operationally compared
with the first quarter of 2017. Sales of companion animal products
grew 28% on a reported basis and 19% on an operational basis,
resulting primarily from increased sales across multiple international
markets of our dermatology portfolio and new products including
Simparica® (sarolaner), our oral parasiticide, as well as
growth in vaccines in China. Sales of livestock products grew 14% on a
reported basis and 7% on an operational basis, driven by strong
performance in poultry and cattle. Growth in poultry products was
driven by increased sales of medicated feed additives, primarily in
emerging markets. Cattle products grew due to the colder weather
increasing treatments and strong demand for vaccines in Mexico. Strong
demand in other emerging markets also contributed to growth.
-
Revenue in the U.S. segment was $634 million, an increase of 5%
compared with the first quarter of 2017. Sales of companion animal
products grew 6% driven by increased sales in our dermatology
portfolio, as well as new products. This growth was partially offset
by lower sales of certain in-line products due to expected
competition. Sales of livestock products grew 4%, led by cattle and
poultry and a return to growth in our swine business. Growth of cattle
products was driven by favorable conditions in the beef market,
including higher feedlot placements and variable weather conditions,
which drove higher disease risk and incidence. Growth was partially
offset by unfavorable market conditions in dairy, including declining
producer profitability due to low milk prices. For poultry products,
growth was driven by increased sales of medicated feed additive
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 2018:
-
Zoetis broadened its Fostera
®
swine vaccine
franchise with approval in the U.S. of Fostera Gold PCV MH.
This is the first vaccine to contain both genotypes of porcine
circovirus type 2 (PCV2) – 2a and 2b – and a study showed it provided
cross protection against the leading 2d genotype. It also provides 23
weeks of immunity for PCV and Mycoplasma hyopneumoniae (M. hyo), the
longest duration for commercial PCV2 combination vaccines.
-
The company continued to bring leading companion animal products to
new markets. Cytopoint
®
(lokivetmab), part of
Zoetis’ canine dermatology portfolio, was approved in Mexico and
Switzerland. Additionally, Simparica, an oral parasiticide, was
approved in Thailand and Serbia. 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.
-
Zoetis also received approvals in new geographies for several major
cattle products. Inforce™ 3, the first and only intranasal
vaccine that prevents respiratory disease caused by Bovine Respiratory
Syncytial Virus while also aiding in the prevention of Infectious
Bovine Rhinotracheitis and Parainfluenza Virus 3, was approved in
Korea and Egypt. Additionally, Spectramast
®
DC, which helps treat mastitis in dairy cows, was approved in
China.
FINANCIAL GUIDANCE
Zoetis is reaffirming its full year 2018 guidance, which includes:
-
Revenue between $5.675 billion to $5.800 billion
-
Reported diluted EPS between $2.77 to $2.93
-
Adjusted diluted EPS between $2.96 to $3.10
This guidance reflects foreign exchange rates as of mid-April.
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 first quarter 2018 results,
discuss financial guidance and respond to questions from financial
analysts. Investors and the public may access the live webcast by
visiting the Zoetis website at http://investor.zoetis.com/events-presentations.
A replay of the webcast will be archived and made available on May 2,
2018.
About Zoetis
Zoetis
is the leading animal health company, dedicated to supporting its
customers and their businesses. Building on more than 60 years of
experience in animal health, Zoetis discovers, develops, manufactures
and markets veterinary vaccines and medicines, complemented by
diagnostic products, genetic tests, biodevices and a range of services.
Zoetis serves veterinarians, livestock producers and people who raise
and care for farm and companion animals with sales of its products in
more than 100 countries. In 2017, the company generated annual revenue
of $5.3 billion with approximately 9,000 employees. For more
information, visit www.zoetis.com.
1
Adjusted net income and its components and
adjusted diluted earnings per share (non-GAAP financial measures) are
defined as reported net income attributable to Zoetis and reported
diluted earnings per share, excluding purchase accounting adjustments,
acquisition-related costs and certain significant items.
2
Operational revenue growth (a non-GAAP financial
measure) is defined as growth excluding the impact of foreign exchange.
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,
2017, including in the sections thereof captioned “Forward-Looking
Statements and Factors That May Affect Future Results” and “Item 1A.
Risk Factors,” in our Quarterly Reports on Form 10-Q and in our Current
Reports on Form 8-K. These filings and subsequent filings are available
online at
www.sec.gov
,
www.zoetis.com
,
or on request from Zoetis.
Use of Non-GAAP Financial Measures
:
We use non-GAAP financial measures, such as adjusted net income,
adjusted diluted earnings per share and operational results (which
exclude the impact of foreign exchange), to assess and analyze our
results and trends and to make financial and operational decisions. We
believe these non-GAAP financial measures are also useful to investors
because they provide greater transparency regarding our operating
performance. The non-GAAP financial measures included in this press
release should not be considered alternatives to measurements required
by GAAP, such as net income, operating income, and earnings per share,
and should not be considered measures of liquidity. These non-GAAP
financial measures are unlikely to be comparable with non-GAAP
information provided by other companies. Reconciliation of non-GAAP
financial measures and GAAP financial measures are included in the
tables accompanying this press release and are posted on our website at
www.zoetis.com
.
Internet Posting of Information
:
We routinely post information that may be important to investors in the
'Investors' section of our website at
www.zoetis.com
,
on our Facebook page at
http://www.facebook.com/zoetis
and on
Twitter
@zoetis
. We encourage investors and potential investors to
consult our website regularly and to follow us on Facebook and Twitter
for important information about us.
|
|
|
|
|
|
ZOETIS INC.
|
|
CONDENSED CONSOLIDATED STATEMENTS OF INCOME(a)
|
|
(UNAUDITED)
|
|
(millions of dollars, except per share data)
|
|
|
|
|
|
|
First Quarter
|
|
|
2018
|
|
2017
|
|
% Change
|
|
Revenue
|
$
|
1,366
|
|
|
$
|
1,231
|
|
|
11
|
|
Costs and expenses:
|
|
|
|
|
|
|
Cost of sales(b)
|
447
|
|
|
443
|
|
|
1
|
|
Selling, general and administrative expenses(b)
|
338
|
|
|
309
|
|
|
9
|
|
Research and development expenses(b)
|
97
|
|
|
90
|
|
|
8
|
|
Amortization of intangible assets(c)
|
23
|
|
|
22
|
|
|
5
|
|
Restructuring charges/(reversals) and certain acquisition-related
costs
|
2
|
|
|
(1
|
)
|
|
*
|
|
Interest expense
|
47
|
|
|
41
|
|
|
15
|
|
Other (income)/deductions–net
|
(5
|
)
|
|
(10
|
)
|
|
(50)
|
|
Income before provision for taxes on income
|
417
|
|
|
337
|
|
|
24
|
|
Provision for taxes on income
|
67
|
|
|
98
|
|
|
(32)
|
|
Net income before allocation to noncontrolling interests
|
350
|
|
|
239
|
|
|
46
|
|
Less: Net loss attributable to noncontrolling interests
|
(2
|
)
|
|
1
|
|
|
*
|
|
Net income attributable to Zoetis
|
$
|
352
|
|
|
$
|
238
|
|
|
48
|
|
|
|
|
|
|
|
|
Earnings per share—basic
|
$
|
0.72
|
|
|
$
|
0.48
|
|
|
50
|
|
|
|
|
|
|
|
|
Earnings per share—diluted
|
$
|
0.72
|
|
|
$
|
0.48
|
|
|
50
|
|
|
|
|
|
|
|
|
Weighted-average shares used to calculate earnings per share
|
|
|
|
|
|
|
Basic
|
485.9
|
|
|
492.4
|
|
|
|
|
Diluted
|
489.8
|
|
|
495.3
|
|
|
|
|
* Calculation not meaningful.
|
|
|
|
(a)
|
|
The condensed consolidated statements of income present the first
quarter ended March 31, 2018, and April 2, 2017. Subsidiaries
operating outside the United States are included for the first
quarter ended February 28, 2018 and February 26, 2017.
|
|
|
|
|
|
(b)
|
|
Exclusive of amortization of intangible assets, except as discussed
in footnote (c) below.
|
|
|
|
|
|
(c)
|
|
Amortization expense related to finite-lived acquired intangible
assets that contribute to our ability to sell, manufacture,
research, market and distribute products, compounds and
intellectual property is included in Amortization of intangible
assets as these intangible assets benefit multiple business
functions. Amortization expense related to finite-lived acquired
intangible assets that are associated with a single function is
included in Cost of sales, Selling, general and administrative
expenses or Research and development expenses, as
appropriate.
|
|
|
|
|
|
Certain amounts and percentages may reflect rounding adjustments.
|
|
|
|
|
|
|
ZOETIS INC.
|
|
RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION
|
|
CERTAIN LINE ITEMS
|
|
(UNAUDITED)
|
|
(millions of dollars, except per share data)
|
|
|
|
|
Quarter ended March 31, 2018
|
|
|
GAAP
Reported
(a)
|
|
Purchase
Accounting
Adjustments
|
|
Acquisition-
Related
Costs(1)
|
|
Certain
Significant
Items(2)
|
|
Non-GAAP
Adjusted(b)
|
|
Cost of sales(c)
|
$
|
447
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
444
|
|
|
Gross profit
|
919
|
|
|
2
|
|
|
—
|
|
|
1
|
|
|
922
|
|
|
Selling, general and administrative expenses(c)
|
338
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
336
|
|
|
Research and development expenses(c)
|
97
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
96
|
|
|
Amortization of intangible assets(d)
|
23
|
|
|
(19
|
)
|
|
—
|
|
|
—
|
|
|
4
|
|
|
Restructuring charges/(reversals) and certain acquisition-related
costs
|
2
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
Other (income)/deductions–net
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
Income before provision for taxes on income
|
417
|
|
|
23
|
|
|
1
|
|
|
3
|
|
|
444
|
|
|
Provision for taxes on income
|
67
|
|
|
11
|
|
|
—
|
|
|
3
|
|
|
81
|
|
|
Net income attributable to Zoetis
|
352
|
|
|
12
|
|
|
1
|
|
|
—
|
|
|
365
|
|
|
Earnings per common share attributable to Zoetis–diluted
|
0.72
|
|
|
0.03
|
|
|
—
|
|
|
—
|
|
|
0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(a)
|
|
The condensed consolidated statements of income present the first
quarter ended March 31, 2018, and April 2, 2017. Subsidiaries
operating outside the United States are included for the first
quarter ended February 28, 2018 and February 26, 2017.
|
|
|
|
|
|
(b)
|
|
Non-GAAP adjusted net income and its components and non-GAAP
adjusted diluted EPS are not, and should not be viewed as,
substitutes for U.S. GAAP net income and its components and diluted
EPS. Despite the importance of these measures to management in goal
setting and performance measurement, non-GAAP adjusted net income
and its components and non-GAAP adjusted diluted EPS are non-GAAP
financial measures that have no standardized meaning prescribed by
U.S. GAAP and, therefore, have limits in their usefulness to
investors. Because of the non-standardized definitions, non-GAAP
adjusted net income and its components and non-GAAP adjusted diluted
EPS (unlike U.S. GAAP net income and its components and diluted EPS)
may not be comparable to the calculation of similar measures of
other companies. Non-GAAP adjusted net income and its components,
and non-GAAP adjusted diluted EPS are presented solely to permit
investors to more fully understand how management assesses
performance.
|
|
|
|
|
|
(c)
|
|
Exclusive of amortization of intangible assets, except as discussed
in footnote (d) below.
|
|
|
|
|
|
(d)
|
|
Amortization expense related to finite-lived acquired intangible
assets that contribute to our ability to sell, manufacture,
research, market and distribute products, compounds and
intellectual property is included in Amortization of intangible
assets as these intangible assets benefit multiple business
functions. Amortization expense related to finite-lived acquired
intangible assets that are associated with a single function is
included in Cost of sales, Selling, general and administrative
expenses or Research and development expenses, as
appropriate.
|
|
See Notes to Reconciliation of GAAP Reported to Non-GAAP Adjusted
Information for notes (1) and (2).
|
|
|
|
Certain amounts may reflect rounding adjustments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ZOETIS INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED
INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CERTAIN LINE ITEMS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Acquisition-related costs include the following:
|
|
|
|
|
First Quarter
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Integration costs(a)
|
|
|
$
|
1
|
|
|
|
|
$
|
—
|
|
Total acquisition-related costs—pre-tax
|
|
|
1
|
|
|
|
|
—
|
|
Income taxes(b)
|
|
|
—
|
|
|
|
|
—
|
|
Total acquisition-related costs—net of tax
|
|
|
$
|
1
|
|
|
|
|
$
|
—
|
|
(a)
|
|
Integration costs represent external, incremental costs directly
related to integrating acquired businesses and primarily include
expenditures for consulting and the integration of systems and
processes. Included in Restructuring charges/(reversals) and
certain acquisition-related costs.
|
|
|
|
|
|
(b)
|
|
Included in Provision for taxes on income. Income taxes
include the tax effect of the associated pre-tax amounts,
calculated by determining the jurisdictional location of the
pre-tax amounts and applying that jurisdiction's applicable tax
rate.
|
|
|
|
|
|
Certain amounts may reflect rounding adjustments.
|
(2) Certain significant items include the following:
|
|
|
|
First Quarter
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Operational efficiency initiative(a)
|
|
|
$
|
—
|
|
|
|
|
$
|
(1
|
)
|
|
Supply network strategy(b)
|
|
|
2
|
|
|
|
|
3
|
|
|
Other(c)
|
|
|
1
|
|
|
|
|
2
|
|
|
Total certain significant items—pre-tax
|
|
|
3
|
|
|
|
|
4
|
|
|
Income taxes(d)
|
|
|
3
|
|
|
|
|
—
|
|
|
Total certain significant items—net of tax
|
|
|
$
|
—
|
|
|
|
|
$
|
4
|
|
|
(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.
|
|
|
|
|
|
(b)
|
|
For the first quarter ended March 31, 2018, represents consulting
fees of $1 million, included in Cost of sales, and employee
termination costs of $1 million, included in Restructuring
charges/(reversals) and certain acquisition-related costs.
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
(c)
|
|
For the first quarter ended March 31, 2018, primarily represents
charges related to the implementation of new accounting guidance as
a result of the enactment of the Tax Cuts and Jobs Act.
|
|
|
|
|
|
|
|
For the first quarter ended April 2, 2017, represents costs
associated with changes to our operating model, included in Selling,
general and administrative expenses.
|
|
|
|
|
|
(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 first quarter ended March 31, 2018, also includes a
net tax benefit of $2 million related to an adjustment to the
provisional one-time mandatory deemed repatriation tax on the
company's undistributed non-U.S. earnings pursuant to the Tax Cuts
and Jobs Act enacted on December 22, 2017.
|
|
|
|
|
|
|
|
For the 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.
|
|
|
|
|
|
Certain amounts may reflect rounding adjustments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ZOETIS INC.
|
|
ADJUSTED SELECTED COSTS, EXPENSES AND INCOME (a)
|
|
(UNAUDITED)
|
|
(millions of dollars)
|
|
|
|
|
|
|
|
|
First Quarter
|
|
% Change
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Total
|
|
|
|
Foreign
Exchange
|
|
|
Operational(b)
|
|
|
Adjusted cost of sales
|
|
$
|
444
|
|
|
$
|
438
|
|
|
1
|
%
|
|
|
2
|
%
|
|
(1
|
)%
|
|
as a percent of revenue
|
|
32.5
|
%
|
|
35.6
|
%
|
|
NA
|
|
|
|
NA
|
|
|
NA
|
|
|
Adjusted SG&A expenses
|
|
$
|
336
|
|
|
$
|
306
|
|
|
10
|
%
|
|
|
4
|
%
|
|
6
|
%
|
|
Adjusted R&D expenses
|
|
96
|
|
|
89
|
|
|
8
|
%
|
|
|
2
|
%
|
|
6
|
%
|
|
Adjusted net income attributable to Zoetis
|
|
365
|
|
|
261
|
|
|
40
|
%
|
|
|
6
|
%
|
|
34
|
%
|
|
(a)
|
|
Adjusted cost of sales, adjusted selling, general, and
administrative (SG&A) expenses, adjusted research and development
(R&D) expenses, and adjusted net income attributable to Zoetis
(non-GAAP financial measures) are defined as the corresponding
reported U.S. GAAP income statement line items excluding purchase
accounting adjustments, acquisition-related costs, and certain
significant items. These adjusted income statement line item
measures are not, and should not be viewed as, substitutes for the
corresponding U.S. GAAP line items. The corresponding GAAP line
items and reconciliations of reported to adjusted information are
provided in Condensed Consolidated Statements of Operations and
Reconciliation of GAAP Reported to Non-GAAP Adjusted Information.
|
|
|
|
|
|
(b)
|
|
Operational growth (a non-GAAP financial measure) is defined as
growth excluding the impact of foreign exchange.
|
|
|
|
|
|
|
|
|
|
ZOETIS INC.
|
|
2018 GUIDANCE
|
|
|
|
Selected Line Items
(millions of dollars, except per share amounts)
|
|
|
|
Full Year 2018
|
|
Revenue
|
|
|
|
$5,675 to $5,800
|
|
Operational growth
(a)
|
|
|
|
5% to 7%
|
|
Adjusted cost of sales as a percentage of revenue(b)
|
|
|
|
Approximately 32%
|
|
Adjusted SG&A expenses(b)
|
|
|
|
$1,370 to $1,420
|
|
Adjusted R&D expenses(b)
|
|
|
|
$400 to $420
|
|
Adjusted interest expense and other (income)/deductions(b)
|
|
|
|
Approximately $190
|
|
Effective tax rate on adjusted income(b)
|
|
|
|
21% to 22%
|
|
Adjusted diluted EPS(b)
|
|
|
|
$2.96 to $3.10
|
|
Adjusted net income(b)
|
|
|
|
$1,450 to $1,520
|
|
Operational growth
(a)(c)
|
|
|
|
20% to 26%
|
|
Certain significant items(d) and acquisition-related costs
|
|
|
|
$20 to $40
|
The guidance reflects foreign exchange rates as of mid-April 2018.
Reconciliations of 2018 reported guidance to 2018 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
|
|
~ 32.5%
|
|
(0.5%)
|
|
|
|
~ 32%
|
|
SG&A expenses
|
|
$1,375 to $1,425
|
|
|
|
($5)
|
|
$1,370 to $1,420
|
|
R&D expenses
|
|
$400 to $420
|
|
|
|
|
|
$400 to $420
|
|
Interest expense and other (income)/deductions
|
|
~ $190
|
|
|
|
|
|
~ $190
|
|
Effective tax rate
|
|
21% to 22%
|
|
|
|
|
|
21% to 22%
|
|
Diluted EPS
|
|
$2.77 to $2.93
|
|
$0.04 to $0.06
|
|
$0.13
|
|
$2.96 to $3.10
|
|
Net income attributable to Zoetis
|
|
$1,355 to $1,435
|
|
$20 to $30
|
|
$65
|
|
$1,450 to $1,520
|
|
(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. 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.
|
|
|
|
|
|
(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 and other charges for the supply network strategy.
Excludes potential net gains/losses on sales of assets.
|
|
|
|
|
|
|
|
ZOETIS INC.
|
|
|
|
CONSOLIDATED REVENUE BY SEGMENT(a) AND SPECIES
|
|
|
|
(UNAUDITED)
|
|
|
|
(millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
% Change
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Total
|
|
|
Foreign
Exchange
|
|
Operational(b)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Livestock
|
|
|
|
$
|
770
|
|
|
$
|
703
|
|
|
10%
|
|
|
4%
|
|
6%
|
|
Companion Animal
|
|
|
|
590
|
|
|
517
|
|
|
14%
|
|
|
3%
|
|
11%
|
|
Contract Manufacturing
|
|
|
|
6
|
|
|
11
|
|
|
(45)%
|
|
|
10%
|
|
(55)%
|
|
Total Revenue
|
|
|
|
$
|
1,366
|
|
|
$
|
1,231
|
|
|
11%
|
|
|
4%
|
|
7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Livestock
|
|
|
|
$
|
292
|
|
|
$
|
282
|
|
|
4%
|
|
|
—%
|
|
4%
|
|
Companion Animal
|
|
|
|
342
|
|
|
323
|
|
|
6%
|
|
|
—%
|
|
6%
|
|
Total U.S. Revenue
|
|
|
|
$
|
634
|
|
|
$
|
605
|
|
|
5%
|
|
|
—%
|
|
5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Livestock
|
|
|
|
$
|
478
|
|
|
$
|
421
|
|
|
14%
|
|
|
7%
|
|
7%
|
|
Companion Animal
|
|
|
|
248
|
|
|
194
|
|
|
28%
|
|
|
9%
|
|
19%
|
|
Total International Revenue
|
|
|
|
$
|
726
|
|
|
$
|
615
|
|
|
18%
|
|
|
7%
|
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Livestock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cattle
|
|
|
|
$
|
416
|
|
|
$
|
386
|
|
|
8%
|
|
|
3%
|
|
5%
|
|
Swine
|
|
|
|
175
|
|
|
160
|
|
|
9%
|
|
|
5%
|
|
4%
|
|
Poultry
|
|
|
|
136
|
|
|
116
|
|
|
17%
|
|
|
3%
|
|
14%
|
|
Fish
|
|
|
|
22
|
|
|
21
|
|
|
5%
|
|
|
5%
|
|
—%
|
|
Other
|
|
|
|
21
|
|
|
20
|
|
|
5%
|
|
|
7%
|
|
(2)%
|
|
Total Livestock Revenue
|
|
|
|
$
|
770
|
|
|
$
|
703
|
|
|
10%
|
|
|
4%
|
|
6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Companion Animal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dogs and Cats
|
|
|
|
549
|
|
|
482
|
|
|
14%
|
|
|
3%
|
|
11%
|
|
Horses
|
|
|
|
$
|
41
|
|
|
$
|
35
|
|
|
17%
|
|
|
5%
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Companion Animal Revenue
|
|
|
|
$
|
590
|
|
|
$
|
517
|
|
|
14%
|
|
|
3%
|
|
11%
|
|
(a)
|
|
For a description of each segment, see Note 18A to Zoetis'
consolidated financial statements included in Zoetis' Form 10-K for
the year ended December 31, 2017.
|
|
|
|
|
|
(b)
|
|
Operational revenue growth (a non-GAAP financial measure) is defined
as revenue growth excluding the impact of foreign exchange.
|
|
|
|
|
|
Certain amounts and percentages may reflect rounding adjustments.
|
|
|
|
|
|
|
|
|
|
ZOETIS INC.
|
|
CONSOLIDATED REVENUE BY KEY INTERNATIONAL MARKETS
|
|
(UNAUDITED)
|
|
(millions of dollars)
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
% Change
|
|
|
|
2018
|
|
|
2017
|
|
|
Total
|
|
|
Foreign
Exchange
|
|
Operational(a)
|
|
Total International
|
|
$
|
726
|
|
|
$
|
615
|
|
|
18%
|
|
|
7%
|
|
11%
|
|
Australia
|
|
48
|
|
|
40
|
|
|
20%
|
|
|
6%
|
|
14%
|
|
Brazil
|
|
70
|
|
|
66
|
|
|
6%
|
|
|
(1)%
|
|
7%
|
|
Canada
|
|
40
|
|
|
34
|
|
|
18%
|
|
|
5%
|
|
13%
|
|
China
|
|
64
|
|
|
52
|
|
|
23%
|
|
|
9%
|
|
14%
|
|
France
|
|
33
|
|
|
29
|
|
|
14%
|
|
|
15%
|
|
(1)%
|
|
Germany
|
|
38
|
|
|
28
|
|
|
36%
|
|
|
19%
|
|
17%
|
|
Italy
|
|
27
|
|
|
22
|
|
|
23%
|
|
|
13%
|
|
10%
|
|
Japan
|
|
41
|
|
|
34
|
|
|
21%
|
|
|
4%
|
|
17%
|
|
Mexico
|
|
24
|
|
|
18
|
|
|
33%
|
|
|
10%
|
|
23%
|
|
Spain
|
|
25
|
|
|
20
|
|
|
25%
|
|
|
15%
|
|
10%
|
|
United Kingdom
|
|
52
|
|
|
43
|
|
|
21%
|
|
|
11%
|
|
10%
|
|
Other Developed Markets
|
|
79
|
|
|
68
|
|
|
16%
|
|
|
9%
|
|
7%
|
|
Other Emerging Markets
|
|
185
|
|
|
161
|
|
|
15%
|
|
|
5%
|
|
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)
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
% Change
|
|
|
|
2018
|
|
|
2017
|
|
|
Total
|
|
|
Foreign
Exchange
|
|
Operational(b)
|
|
U.S.:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
634
|
|
|
$
|
605
|
|
|
5
|
%
|
|
|
—%
|
|
5%
|
|
Cost of Sales
|
|
140
|
|
|
137
|
|
|
2
|
%
|
|
|
—%
|
|
2%
|
|
Gross Profit
|
|
494
|
|
|
468
|
|
|
6
|
%
|
|
|
—%
|
|
6%
|
|
Gross Margin
|
|
77.9
|
%
|
|
77.4
|
%
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
96
|
|
|
96
|
|
|
—
|
%
|
|
|
—%
|
|
—%
|
|
Other (income)/deductions
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
|
—%
|
|
—%
|
|
U.S. Earnings
|
|
$
|
398
|
|
|
$
|
372
|
|
|
7
|
%
|
|
|
—%
|
|
7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
726
|
|
|
$
|
615
|
|
|
18
|
%
|
|
|
7%
|
|
11%
|
|
Cost of Sales
|
|
234
|
|
|
213
|
|
|
10
|
%
|
|
|
6%
|
|
4%
|
|
Gross Profit
|
|
492
|
|
|
402
|
|
|
22
|
%
|
|
|
8%
|
|
14%
|
|
Gross Margin
|
|
67.8
|
%
|
|
65.4
|
%
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
133
|
|
|
114
|
|
|
17
|
%
|
|
|
8%
|
|
9%
|
|
Other (income)/deductions
|
|
1
|
|
|
(3
|
)
|
|
*
|
|
|
*
|
|
*
|
|
International Earnings
|
|
$
|
358
|
|
|
$
|
291
|
|
|
23
|
%
|
|
|
8%
|
|
15%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reportable Segments
|
|
$
|
756
|
|
|
$
|
663
|
|
|
14
|
%
|
|
|
3%
|
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other business activities(c)
|
|
(81
|
)
|
|
(74
|
)
|
|
9
|
%
|
|
|
|
|
|
|
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate(d)
|
|
(153
|
)
|
|
(143
|
)
|
|
7
|
%
|
|
|
|
|
|
|
Purchase accounting adjustments(e)
|
|
(23
|
)
|
|
(22
|
)
|
|
5
|
%
|
|
|
|
|
|
|
Acquisition-related costs(f)
|
|
(1
|
)
|
|
—
|
|
|
*
|
|
|
|
|
|
|
Certain significant items(g)
|
|
(3
|
)
|
|
(4
|
)
|
|
(25
|
)%
|
|
|
|
|
|
|
Other unallocated(h)
|
|
(78
|
)
|
|
(83
|
)
|
|
(6
|
)%
|
|
|
|
|
|
|
Total Earnings
(i)
|
|
$
|
417
|
|
|
$
|
337
|
|
|
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, 2017.
|
|
|
|
|
|
(b)
|
|
Operational growth (a non-GAAP financial measure) is defined as
growth excluding the impact of foreign exchange.
|
|
|
|
|
|
(c)
|
|
Other business activities reflect the research and development costs
managed by our Research and Development organization as well as our
contract manufacturing business.
|
|
|
|
|
|
(d)
|
|
Corporate includes, among other things, administration expenses,
interest expense, certain compensation costs, certain procurement
costs, and other costs not charged to our operating segments.
|
|
|
|
|
|
(e)
|
|
Purchase accounting adjustments include certain charges related to
the amortization of fair value adjustments to inventory, intangible
assets and property, plant and equipment not charged to our
operating segments.
|
|
|
|
|
|
(f)
|
|
Acquisition-related costs can include costs associated with
acquiring and integrating newly acquired businesses, such as
transaction costs and integration costs.
|
|
|
|
|
|
(g)
|
|
Certain significant items includes substantive, unusual items that,
either as a result of their nature or size, would not be expected to
occur as part of our normal business on a regular basis. Such items
primarily include restructuring charges and implementation costs
associated with our cost-reduction/productivity initiatives that are
not associated with an acquisition, costs associated with the
operational efficiency initiative and supply network strategy,
certain legal and commercial settlements, and the impact of
divestiture-related gains and losses.
|
|
|
|
|
|
(h)
|
|
Includes overhead expenses associated with our manufacturing and
supply operations not directly attributable to an operating segment,
as well as certain procurement costs.
|
|
|
|
|
|
(i)
|
|
Defined as income before provision for taxes on income.
|
|
|
|
|
|
Certain amounts and percentages may reflect rounding adjustments.
|
Zoetis Inc.
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