Zoetis announces second quarter 2019 results
Parsippany, n.j.--(business wire)--zoetis inc. (nyse: zts) today reported its financial results for the second quarter of 2019 and raised its guidance for full year 2019. the company reported revenue of $1.5 billion for the second quarter of 2019, an increase of 9% compared with the second quarter of 2018. net income for the second quarter of 2019 was $371 million, or $0.77 per diluted share, a decrease of 3%, on a reported basis. adjusted net income1 for the second quarter of 2019 was $436 million, or $0.90 per diluted share, an increase of 16% and 17%, respectively, on a reported basis. adjusted net income for the second quarter of 2019 excludes the net impact of $65 million for purchase accounting adjustments, acquisition-related costs and certain significant items. on an operational2 basis, revenue for the second quarter of 2019 increased 14%, excluding the impact of foreign currency. adjusted net income for the second quarter of 2019 increased 17% operationally, excluding the impact of foreign currency. executive commentary “we continued our strong performance through the first half of the year, with 14% operational revenue growth in the second quarter,” said juan ramÓn alaix, chief executive officer at zoetis. “our companion animal portfolio is continuing its positive momentum, with 22% operational revenue growth, based on diagnostic sales from the abaxis acquisition, strong sales of our key dermatology products, and parasiticides. livestock product sales returned to growth in the second quarter at 3% operationally, with increases across all species.” “we remain confident that our latest innovations combined with our core business will spur future growth and profitability, and i am pleased to report that we have increased our full-year guidance for 2019,” said alaix. quarterly highlights zoetis organizes and manages its commercial operations across two segments: united states (u.s.) and international. within these segments, the company delivers a diverse portfolio of products for livestock and companion animals, tailored to local trends and customer needs. in the second quarter of 2019: revenue in the u.s. segment was $780 million, an increase of 15% compared with the second quarter of 2018. sales of companion animal products grew 23% driven primarily by the acquisition of abaxis, key dermatology products, and a number of our in-line products including simparica®, clavamox®, cerenia® and proheart® 6. sales of livestock products grew 3% in the quarter, driven primarily by poultry products from increased sales of alternatives to antibiotics in medicated feed additives. promotional activity resulted in modest growth in our swine portfolio, which was offset by a modest decline in cattle products due to continued weakness in both the dairy and beef sectors. revenue in the international segment was $742 million, an increase of 2% on a reported basis and an increase of 10% operationally, compared with the second quarter of 2018. sales of companion animal products grew 12% on a reported basis and 21% on an operational basis. growth resulted primarily from increased sales across our key dermatology portfolio, parasiticides, including simparica and stronghold® plus, and the acquisition of abaxis. sales of livestock products declined 4% on a reported basis, but increased 4% operationally. growth in our poultry portfolio was driven by increased sales of vaccines and medicated feed additives. growth in cattle product sales was the result of a favorable comparison to the prior year which was negatively impacted by a national trucking strike in brazil. sales of swine products were flat compared to the prior year, with growth in vaccines, including new products, offset by the ongoing impact of african swine fever in china. investments in growth zoetis diversifies and grows its business through the introduction of new products, lifecycle innovations, business development initiatives, and entries into new markets and technologies. the company is increasingly focused on developing integrated solutions for veterinarians and farmers that span the continuum of animal healthcare – helping to predict, prevent, detect and treat diseases. zoetis is strengthening its parasiticide portfolio for companion animals with new internal innovations. in july, the company received a positive opinion from the european medicines agency's committee for medicinal products for veterinary use (cvmp) for our three-way combination parasiticide for dogs, and looks forward to the final decision from the european commission later this year. regulatory reviews are also underway in the u.s., canada, australia, brazil and japan, with further submissions expected in china and mexico this year. if approved, zoetis anticipates this product coming to market in europe and the u.s. in 2020. the company also recently gained u.s. food and drug administration (fda) approval of proheart 12 (moxidectin), the industry’s only once-yearly injection to prevent heartworm disease in dogs 12 months of age and older. in the second quarter, zoetis expanded its fostera® swine vaccine franchise with approvals of different formulations in new geographies. fostera gold pcv mh was approved in brazil. this vaccine, currently commercially available in the u.s., canada and several other markets, provides livestock farmers with greater options and flexibility in protecting pigs from porcine circovirus (pcv2) and mycoplasma hyopneumoniae (m. hyo). fostera pcv, a single-dose vaccine that aids in the prevention of pcv2, was also approved in china. in addition to new product approvals and lifecycle innovations, zoetis continues to support future growth through business development activities. the company recently announced plans to acquire platinum performance, a privately held, nutrition-focused animal heath company. platinum’s premium nutritional product formulas and unique approach to the field of scientific wellness for horses, dogs and cats will further strengthen and diversify zoetis’ portfolio in the equine and petcare markets. the acquisition is expected to be completed in the third quarter of 2019 after customary closing conditions are met. the company also signed an agreement with colorado state university (csu) to establish a research lab at csu that will explore the livestock immune system and target new immunotherapies that could serve as alternatives to antibiotics in food production animals. financial guidance zoetis is raising its full year 2019 guidance, which includes: revenue between $6.175 billion and $6.275 billion reported diluted eps between $2.93 and $3.04 adjusted diluted eps between $3.53 and $3.60 this increased guidance reflects the ongoing strength and performance of our business, as well as foreign exchange rates as of late july. 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 second quarter 2019 results, discuss financial guidance and respond to questions from financial analysts. investors and the public may access the live webcast by visiting the zoetis website at http://investor.zoetis.com/events-presentations. a replay of the webcast will be archived and made available on aug. 6, 2019. about zoetis zoetis is the leading animal health company, dedicated to supporting its customers and their businesses. building on more than 65 years of experience in animal health, zoetis discovers, develops, manufactures and commercializes medicines, vaccines and diagnostic products, which are complemented by biodevices, genetic tests and a range of services. zoetis serves veterinarians, livestock producers and people who raise and care for farm and companion animals with sales of its products in more than 100 countries. in 2018, the company generated annual revenue of $5.8 billion with approximately 10,000 employees. for more information, visit www.zoetis.com. 1 adjusted net income and its components and adjusted diluted earnings per share (non-gaap financial measures) are defined as reported net income attributable to zoetis and reported diluted earnings per share, excluding purchase accounting adjustments, acquisition-related costs and certain significant items. 2 operational revenue growth (a non-gaap financial measure) is defined as growth excluding the impact of foreign exchange. disclosure notices forward-looking statements: this press release contains forward-looking statements, which reflect the current views of zoetis with respect to business plans or prospects, future operating or financial performance, future guidance, future operating models, expectations regarding products, product approvals or products under development, expected timing of product launches, expectations regarding the performance of acquired companies and our ability to integrate new businesses, expectations regarding the financial impact of acquisitions, future use of cash and dividend payments, tax rate and tax regimes, changes in the tax regimes and laws in other jurisdictions, and other future events. these statements are not guarantees of future performance or actions. forward-looking statements are subject to risks and uncertainties. if one or more of these risks or uncertainties materialize, or if management's underlying assumptions prove to be incorrect, actual results may differ materially from those contemplated by a forward-looking statement. forward-looking statements speak only as of the date on which they are made. zoetis expressly disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. a further list and description of risks, uncertainties and other matters can be found in our annual report on form 10-k for the fiscal year ended december 31, 2018, including in the sections thereof captioned “forward-looking statements and factors that may affect future results” and “item 1a. risk factors,” in our quarterly reports on form 10-q and in our current reports on form 8-k. these filings and subsequent filings are available online at www.sec.gov, www.zoetis.com, or on request from zoetis. use of non-gaap financial measures: we use non-gaap financial measures, such as adjusted net income, adjusted diluted earnings per share and operational results (which exclude the impact of foreign exchange), to assess and analyze our results and trends and to make financial and operational decisions. we believe these non-gaap financial measures are also useful to investors because they provide greater transparency regarding our operating performance. the non-gaap financial measures included in this press release should not be considered alternatives to measurements required by gaap, such as net income, operating income, and earnings per share, and should not be considered measures of liquidity. these non-gaap financial measures are unlikely to be comparable with non-gaap information provided by other companies. reconciliation of non-gaap financial measures and gaap financial measures are included in the tables accompanying this press release and are posted on our website at www.zoetis.com. internet posting of information: we routinely post information that may be important to investors in the 'investors' section of our website at www.zoetis.com, on our facebook page at http://www.facebook.com/zoetis and on twitter @zoetis. we encourage investors and potential investors to consult our website regularly and to follow us on facebook and twitter for important information about us. zoetis inc. condensed consolidated statements of income(a) (unaudited) (millions of dollars, except per share data) quarter ended six months ended june 30, june 30, 2019 2018 % change 2019 2018 % change revenue $ 1,547 $ 1,415 9 $ 3,002 $ 2,781 8 costs and expenses: cost of sales 465 447 4 983 894 10 selling, general and administrative expenses 406 359 13 775 697 11 research and development expenses 111 102 9 213 199 7 amortization of intangible assets 39 23 70 77 46 67 restructuring charges and certain acquisition-related costs 22 5 * 27 7 * interest expense 55 46 20 111 93 19 other (income)/deductions–net (6 ) (4 ) 50 (20 ) (9 ) * income before provision for taxes on income 455 437 4 836 854 (2) provision for taxes on income 84 55 53 153 122 25 net income before allocation to noncontrolling interests 371 382 (3) 683 732 (7) less: net loss attributable to noncontrolling interests — (2 ) (100) — (4 ) (100) net income attributable to zoetis $ 371 $ 384 (3) $ 683 $ 736 (7) earnings per share—basic $ 0.77 $ 0.79 (3) $ 1.43 $ 1.52 (6) earnings per share—diluted $ 0.77 $ 0.79 (3) $ 1.41 $ 1.51 (7) weighted-average shares used to calculate earnings per share basic 478.8 483.8 479.2 484.8 diluted 482.3 487.5 482.7 488.6 (a) the condensed consolidated statements of income present the quarter and six months ended june 30, 2019 and june 30, 2018. subsidiaries operating outside the united states are included for the quarter and six months ended may 31, 2019 and may 31, 2018. * calculation not meaningful. certain amounts and percentages may reflect rounding adjustments. zoetis inc. reconciliation of gaap reported to non-gaap adjusted information certain line items (unaudited) (millions of dollars, except per share data) quarter ended june 30, 2019 gaap reported(a) purchase accounting adjustments acquisition- related costs(1) certain significant items(2) non-gaap adjusted(b) cost of sales $ 465 $ (5 ) $ — $ (3 ) $ 457 gross profit 1,082 5 — 3 1,090 selling, general and administrative expenses 406 (18 ) — — 388 research and development expenses 111 (1 ) — — 110 amortization of intangible assets 39 (34 ) — — 5 restructuring charges and certain acquisition-related costs 22 — (22 ) — — income before provision for taxes on income 455 58 22 3 538 provision for taxes on income 84 13 4 1 102 net income attributable to zoetis 371 45 18 2 436 earnings per common share attributable to zoetis–diluted 0.77 0.09 0.04 — 0.90 quarter ended june 30, 2018 gaap reported(a) purchase accounting adjustments acquisition- related costs(1) certain significant items(2) non-gaap adjusted(b) cost of sales $ 447 $ (2 ) $ — $ (2 ) $ 443 gross profit 968 2 — 2 972 selling, general and administrative expenses 359 (2 ) — — 357 amortization of intangible assets 23 (19 ) — — 4 restructuring charges and certain acquisition-related costs 5 — — (5 ) — income before provision for taxes on income 437 23 — 7 467 provision for taxes on income 55 4 — 35 94 net income attributable to zoetis 384 19 — (28 ) 375 earnings per common share attributable to zoetis–diluted 0.79 0.04 — (0.06 ) 0.77 (a) the condensed consolidated statements of income present the quarter and six months ended june 30, 2019 and june 30, 2018. subsidiaries operating outside the united states are included for the quarter and six months ended may 31, 2019 and may 31, 2018. (b) non-gaap adjusted net income and its components and non-gaap adjusted diluted eps are not, and should not be viewed as, substitutes for u.s. gaap net income and its components and diluted eps. despite the importance of these measures to management in goal setting and performance measurement, non-gaap adjusted net income and its components and non-gaap adjusted diluted eps are non-gaap financial measures that have no standardized meaning prescribed by u.s. gaap and, therefore, have limits in their usefulness to investors. because of the non-standardized definitions, non-gaap adjusted net income and its components and non-gaap adjusted diluted eps (unlike u.s. gaap net income and its components and diluted eps) may not be comparable to the calculation of similar measures of other companies. non-gaap adjusted net income and its components, and non-gaap adjusted diluted eps are presented solely to permit investors to more fully understand how management assesses performance. see notes to reconciliation of gaap reported to non-gaap adjusted information for notes (1) and (2). certain amounts may reflect rounding adjustments. zoetis inc. reconciliation of gaap reported to non-gaap adjusted information certain line items - continued (unaudited) (millions of dollars, except per share data) six months ended june 30, 2019 gaap reported(a) purchase accounting adjustments acquisition- related costs(1) certain significant items(2) non-gaap adjusted(b) cost of sales $ 983 $ (19 ) $ — $ (73 ) $ 891 gross profit 2,019 19 — 73 2,111 selling, general and administrative expenses 775 (36 ) — — 739 research and development expenses 213 (1 ) — — 212 amortization of intangible assets 77 (68 ) — — 9 restructuring charges and certain acquisition-related costs 27 — (27 ) — — income before provision for taxes on income 836 124 27 73 1,060 provision for taxes on income 153 33 5 9 200 net income attributable to zoetis 683 91 22 64 860 earnings per common share attributable to zoetis–diluted 1.41 0.19 0.05 0.13 1.78 six months ended june 30, 2018 gaap reported(a) purchase accounting adjustments acquisition- related costs(1) certain significant items(2) non-gaap adjusted(b) cost of sales $ 894 $ (4 ) $ — $ (3 ) $ 887 gross profit 1,887 4 — 3 1,894 selling, general and administrative expenses 697 (3 ) — (1 ) 693 research and development expenses 199 (1 ) — — 198 amortization of intangible assets 46 (38 ) — — 8 restructuring charges and certain acquisition-related costs 7 — (1 ) (6 ) — income before provision for taxes on income 854 46 1 10 911 provision for taxes on income 122 15 — 38 175 net income attributable to zoetis 736 31 1 (28 ) 740 earnings per common share attributable to zoetis–diluted 1.51 0.06 — (0.06 ) 1.51 (a) the condensed consolidated statements of income present the quarter and six months ended june 30, 2019 and june 30, 2018. subsidiaries operating outside the united states are included for the quarter and six months ended may 31, 2019 and may 31, 2018. (b) non-gaap adjusted net income and its components and non-gaap adjusted diluted eps are not, and should not be viewed as, substitutes for u.s. gaap net income and its components and diluted eps. despite the importance of these measures to management in goal setting and performance measurement, non-gaap adjusted net income and its components and non-gaap adjusted diluted eps are non-gaap financial measures that have no standardized meaning prescribed by u.s. gaap and, therefore, have limits in their usefulness to investors. because of the non-standardized definitions, non-gaap adjusted net income and its components and non-gaap adjusted diluted eps (unlike u.s. gaap net income and its components and diluted eps) may not be comparable to the calculation of similar measures of other companies. non-gaap adjusted net income and its components, and non-gaap adjusted diluted eps are presented solely to permit investors to more fully understand how management assesses performance. see notes to reconciliation of gaap reported to non-gaap adjusted information for notes (1) and (2). certain amounts may reflect rounding adjustments. zoetis inc. notes to reconciliation of gaap reported to non-gaap adjusted information certain line items (unaudited) (millions of dollars) (1) acquisition-related costs include the following: quarter ended six months ended june 30, june 30, 2019 2018 2019 2018 integration costs(a) $ 8 $ — $ 9 $ 1 restructuring charges(b) 14 — 18 — total acquisition-related costs—pre-tax 22 — 27 1 income taxes(c) 4 — 5 — total acquisition-related costs—net of tax $ 18 $ — $ 22 $ 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 and certain acquisition-related costs. (b) represents employee termination costs, included in restructuring charges and certain acquisition-related costs. (c) 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: quarter ended six months ended june 30, june 30, 2019 2018 2019 2018 operational efficiency initiative(a) $ — $ 1 $ — $ 1 supply network strategy(a) 3 3 5 5 other restructuring charges and cost-reduction/productivity initiatives(b) — 3 — 3 other(c) — — 68 1 total certain significant items—pre-tax 3 7 73 10 income taxes(d) 1 35 9 38 total certain significant items—net of tax $ 2 $ (28 ) $ 64 $ (28 ) (a) represents consulting fees and product transfer costs, included in cost of sales, and employee termination costs and exit costs, included in restructuring charges and certain acquisition-related costs, related to cost-reduction and productivity initiatives. (b) for the quarter and six months ended june 30, 2018, represents employee termination costs in europe as a result of initiatives to better align our organizational structure, included in restructuring charges and certain acquisition-related costs. (c) for the six months ended june 30, 2019, represents a change in estimate related to inventory costing, included in cost of sales. (d) included in provision for taxes on income. income taxes include the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction's applicable tax rate. for the quarter and six months ended june 30, 2018, also includes a net tax benefit related to a measurement-period adjustment to the provisional one-time mandatory deemed repatriation tax on the company's undistributed non-u.s. earnings pursuant to the tax cuts and jobs act. certain amounts may reflect rounding adjustments. zoetis inc. adjusted selected costs, expenses and income(a) (unaudited) (millions of dollars) quarter ended june 30, % change 2019 2018 total foreign exchange operational(b) adjusted cost of sales $ 457 $ 443 3% (9)% 12% as a percent of revenue 29.5 % 31.3 % na na na adjusted sg&a expenses 388 357 9% (3)% 12% adjusted r&d expenses 110 102 8% (2)% 10% adjusted net income attributable to zoetis 436 375 16% (1)% 17% six months ended june 30, % change 2019 2018 total foreign exchange operational(b) adjusted cost of sales $ 891 $ 887 —% (8)% 8% as a percent of revenue 29.7 % 31.9 % na na na adjusted sg&a expenses 739 693 7% (3)% 10% adjusted r&d expenses 212 198 7% (2)% 9% adjusted net income attributable to zoetis 860 740 16% (2)% 18% (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. 2019 guidance selected line items (millions of dollars, except per share amounts) full year 2019 revenue $6,175 to $6,275 operational growth(a) 8.5% to 10.0% organic operational growth(b) 5.5% to 7.0% adjusted cost of sales as a percentage of revenue(c) 30% to 31% adjusted sg&a expenses(c) $1,505 to $1,545 adjusted r&d expenses(c) $450 to $465 adjusted interest expense and other (income)/deductions(c) approximately $190 effective tax rate on adjusted income(c) approximately 20% adjusted diluted eps(c) $3.53 to $3.60 adjusted net income(c) $1,700 to $1,735 operational growth(a)(d) 9% to 12% certain significant items and acquisition-related costs(e) $110 to $130 the guidance reflects foreign exchange rates as of late july 2019. reconciliations of 2019 reported guidance to 2019 adjusted guidance follows: (millions of dollars, except per share amounts) reported certain significant items and acquisition-related costs(e) purchase accounting adjusted(c) cost of sales as a percentage of revenue 31.8% - 32.8% ~ (1.3%) ~ (0.5%) 30% - 31% sg&a expenses $1,580 to $1,620 ($75) $1,505 to $1,545 r&d expenses $452 to $467 ($2) $450 to $465 interest expense and other (income)/deductions ~ $190 ~ $190 effective tax rate ~ 20% ~ 20% diluted eps $2.93 to $3.04 $0.19 to $0.23 $0.37 $3.53 to $3.60 net income attributable to zoetis $1,410 to $1,465 $90 to $110 ~ $180 $1,700 to $1,735 (a) operational growth (a non-gaap financial measure) excludes the impact of foreign exchange. (b) organic operational growth (a non-gaap financial measure) excludes the impact of the acquisition of abaxis as well as foreign exchange. (c) adjusted net income and its components and adjusted diluted eps are defined as reported u.s. generally accepted accounting principles (gaap) net income and its components and reported diluted eps excluding purchase accounting adjustments, acquisition-related costs and certain significant items. adjusted cost of sales, adjusted selling, general and administrative (sg&a) expenses, adjusted research and development (r&d) expenses, and adjusted interest expense and other (income)/deductions are income statement line items prepared on the same basis, and, therefore, components of the overall adjusted income measure. despite the importance of these measures to management in goal setting and performance measurement, adjusted net income and its components and adjusted diluted eps are non-gaap financial measures that have no standardized meaning prescribed by u.s. gaap and, therefore, have limits in their usefulness to investors. because of the non-standardized definitions, adjusted net income and its components and adjusted diluted eps (unlike u.s. gaap net income and its components and diluted eps) may not be comparable to the calculation of similar measures of other companies. adjusted net income and its components and adjusted diluted eps are presented solely to permit investors to more fully understand how management assesses performance. adjusted net income and its components and adjusted diluted eps are not, and should not be viewed as, substitutes for u.s. gaap net income and its components and diluted eps. (d) we do not provide a reconciliation of forward-looking non-gaap adjusted net income operational growth to the most directly comparable gaap reported financial measure because we are unable to calculate with reasonable certainty the foreign exchange impact of unusual gains and losses, acquisition-related expenses, potential future asset impairments and other certain significant items, without unreasonable effort. the foreign exchange impacts of these items are uncertain, depend on various factors, and could have a material impact on gaap reported results for the guidance period. (e) primarily includes certain nonrecurring costs related to the acquisition of abaxis and other charges. zoetis inc. consolidated revenue by segment(a) and species (unaudited) (millions of dollars) quarter ended june 30, % change 2019 2018 total foreign exchange operational(b) revenue: livestock $ 724 $ 734 (1)% (4)% 3% companion animal 798 671 19% (3)% 22% contract manufacturing & human health diagnostics 25 10 * * * total revenue $ 1,547 $ 1,415 9% (5)% 14% u.s. livestock $ 280 $ 271 3% —% 3% companion animal 500 406 23% —% 23% total u.s. revenue $ 780 $ 677 15% —% 15% international livestock $ 444 $ 463 (4)% (8)% 4% companion animal 298 265 12% (9)% 21% total international revenue $ 742 $ 728 2% (8)% 10% livestock: cattle $ 379 $ 396 (4)% (5)% 1% swine 158 165 (4)% (5)% 1% poultry 143 129 11% (4)% 15% fish 25 24 4% (2)% 6% other 19 20 (5)% (5)% —% total livestock revenue $ 724 $ 734 (1)% (4)% 3% companion animal: dogs and cats $ 754 $ 630 20% (3)% 23% horses 44 41 7% (3)% 10% total companion animal revenue $ 798 $ 671 19% (3)% 22% (a) for a description of each segment, see zoetis' most recent annual report on form 10-k. (b) operational revenue growth (a non-gaap financial measure) is defined as revenue growth excluding the impact of foreign exchange. *calculation not meaningful. certain amounts and percentages may reflect rounding adjustments. zoetis inc. consolidated revenue by segment(a) and species - continued (unaudited) (millions of dollars) six months ended june 30, % change 2019 2018 total foreign exchange operational(b) revenue: livestock $ 1,431 $ 1,504 (5)% (5)% —% companion animal 1,527 1,261 21% (4)% 25% contract manufacturing & human health diagnostics 44 16 * * * total revenue $ 3,002 $ 2,781 8% (4)% 12% u.s. livestock $ 553 $ 563 (2)% —% (2)% companion animal 945 748 26% —% 26% total u.s. revenue $ 1,498 $ 1,311 14% —% 14% international livestock $ 878 $ 941 (7)% (8)% 1% companion animal 582 513 13% (9)% 22% total international revenue $ 1,460 $ 1,454 —% (8)% 8% livestock: cattle $ 759 $ 812 (7)% (6)% (1)% swine 307 340 (10)% (5)% (5)% poultry 282 265 6% (5)% 11% fish 48 46 4% (3)% 7% other 35 41 (15)% (6)% (9)% total livestock revenue $ 1,431 $ 1,504 (5)% (5)% —% companion animal: dogs and cats $ 1,442 $ 1,179 22% (4)% 26% horses 85 82 4% (4)% 8% total companion animal revenue $ 1,527 $ 1,261 21% (4)% 25% (a) for a description of each segment, see zoetis' most recent annual report on form 10-k. (b) operational revenue growth (a non-gaap financial measure) is defined as revenue growth excluding the impact of foreign exchange. *calculation not meaningful. certain amounts and percentages may reflect rounding adjustments. zoetis inc. consolidated revenue by key international markets (unaudited) (millions of dollars) quarter ended june 30, % change 2019 2018 total foreign exchange operational(a) total international $ 741.9 $ 727.9 2% (8)% 10% australia 48.8 50.9 (4)% (8)% 4% brazil 74.2 68.3 9% (15)% 24% canada 53.7 55.6 (3)% (4)% 1% china 56.0 60.1 (7)% (6)% (1)% france 27.1 29.5 (8)% (8)% —% germany 39.1 38.4 2% (8)% 10% italy 27.6 26.1 6% (8)% 14% japan 41.1 39.1 5% (3)% 8% mexico 29.9 25.5 17% (3)% 20% spain 30.0 30.0 —% (8)% 8% united kingdom 42.3 36.1 17% (7)% 24% other developed markets 88.1 88.9 (1)% (6)% 5% other emerging markets 184.0 179.4 3% (10)% 13% six months ended june 30, % change 2019 2018 total foreign exchange operational(a) total international $ 1,459.9 $ 1,453.8 —% (8)% 8% australia 96.8 98.5 (2)% (9)% 7% brazil 134.3 137.9 (3)% (15)% 12% canada 94.8 95.8 (1)% (5)% 4% china 115.5 124.0 (7)% (6)% (1)% france 59.4 62.7 (5)% (7)% 2% germany 75.6 75.9 —% (7)% 7% italy 55.7 53.2 5% (7)% 12% japan 78.4 80.0 (2)% (1)% (1)% mexico 58.0 49.9 16% (3)% 19% spain 57.1 55.3 3% (7)% 10% united kingdom 99.0 88.2 12% (8)% 20% other developed markets 171.9 168.2 2% (6)% 8% other emerging markets 363.4 364.2 —% (11)% 11% (a) operational revenue growth (a non-gaap financial measure) is defined as revenue growth excluding the impact of foreign exchange. certain amounts and percentages may reflect rounding adjustments. zoetis inc. segment(a) earnings (unaudited) (millions of dollars) quarter ended june 30, % change 2019 2018 total foreign exchange operational(b) u.s.: revenue $ 780 $ 677 15% —% 15% cost of sales 158 140 13% —% 13% gross profit 622 537 16% —% 16% gross margin 79.7 % 79.3 % operating expenses 127 116 9% —% 9% other (income)/deductions — — —% —% —% u.s. earnings $ 495 $ 421 18% —% 18% international: revenue $ 742 $ 728 2% (8)% 10% cost of sales 218 229 (5)% (13)% 8% gross profit 524 499 5% (6)% 11% gross margin 70.6 % 68.5 % operating expenses 146 147 (1)% (10)% 9% other (income)/deductions — 2 * * * international earnings $ 378 $ 350 8% (4)% 12% total reportable segments $ 873 $ 771 13% (2)% 15% other business activities(c) (79 ) (82 ) (4)% reconciling items: corporate(d) (178 ) (139 ) 28% purchase accounting adjustments(e) (58 ) (23 ) * acquisition-related costs(f) (22 ) — * certain significant items(g) (3 ) (7 ) (57)% other unallocated(h) (78 ) (83 ) (6)% total earnings(i) $ 455 $ 437 4% (a) for a description of each segment, see zoetis' most recent annual report on form 10-k. (b) operational growth (a non-gaap financial measure) is defined as growth excluding the impact of foreign exchange. (c) other business activities reflect the research and development costs managed by our research and development organization as well as our contract manufacturing business and human health diagnostic business. (d) corporate includes, among other things, administration expenses, interest expense, certain compensation costs, certain procurement costs, and other costs not charged to our operating segments. (e) purchase accounting adjustments include certain charges related to the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment not charged to our operating segments. (f) acquisition-related costs include costs associated with acquiring and integrating newly acquired businesses, such as transaction costs and integration costs. (g) certain significant items includes substantive, unusual items that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis. such items primarily include restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition, costs associated with the operational efficiency initiative and supply network strategy, and the impact of divestiture-related gains and losses. (h) includes overhead expenses associated with our manufacturing and supply operations not directly attributable to an operating segment, as well as certain procurement costs. (i) defined as income before provision for taxes on income. * calculation not meaningful. certain amounts and percentages may reflect rounding adjustments. zoetis inc. segment(a) earnings - continued (unaudited) (millions of dollars) six months ended june 30, % change 2019 2018 total foreign exchange operational(b) u.s.: revenue $ 1,498 $ 1,311 14% —% 14% cost of sales 305 280 9% —% 9% gross profit 1,193 1,031 16% —% 16% gross margin 79.6 % 78.6 % operating expenses 237 212 12% —% 12% other (income)/deductions — — —% —% —% u.s. earnings $ 956 $ 819 17% —% 17% international: revenue $ 1,460 $ 1,454 —% (8)% 8% cost of sales 428 463 (8)% (12)% 4% gross profit 1,032 991 4% (7)% 11% gross margin 70.7 % 68.2 % operating expenses 278 280 (1)% (10)% 9% other (income)/deductions — 3 * * * international earnings $ 754 $ 708 6% (5)% 11% total reportable segments $ 1,710 $ 1,527 12% (2)% 14% other business activities(c) (159 ) (163 ) (2)% reconciling items: corporate(d) (340 ) (292 ) 16% purchase accounting adjustments(e) (124 ) (46 ) * acquisition-related costs(f) (27 ) (1 ) * certain significant items(g) (73 ) (10 ) * other unallocated(h) (151 ) (161 ) (6)% total earnings(i) $ 836 $ 854 (2)% (a) for a description of each segment, see zoetis' most recent annual report on form 10-k. (b) operational growth (a non-gaap financial measure) is defined as growth excluding the impact of foreign exchange. (c) other business activities reflect the research and development costs managed by our research and development organization as well as our contract manufacturing business and human health diagnostic business. (d) corporate includes, among other things, administration expenses, interest expense, certain compensation costs, certain procurement costs, and other costs not charged to our operating segments. (e) purchase accounting adjustments include certain charges related to the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment not charged to our operating segments. (f) acquisition-related costs include costs associated with acquiring and integrating newly acquired businesses, such as transaction costs and integration costs. (g) certain significant items includes substantive, unusual items that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis. such items primarily include restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition, costs associated with the operational efficiency initiative and supply network strategy, and the impact of divestiture-related gains and losses. (h) includes overhead expenses associated with our manufacturing and supply operations not directly attributable to an operating segment, as well as certain procurement costs. (i) defined as income before provision for taxes on income. * calculation not meaningful. certain amounts and percentages may reflect rounding adjustments.
