Zoetis announces third quarter 2017 results
Parsippany, n.j.--(business wire)--zoetis inc. (nyse:zts) today reported its financial results for the third quarter of 2017 and raised its full year guidance for revenue and net income. the company reported revenue of $1.3 billion for the third quarter of 2017, an increase of 9% compared with the third quarter of 2016. net income for the third quarter of 2017 was $298 million, or $0.61 per diluted share, an increase of 25% and 27%, respectively, on a reported basis. adjusted net income1 for the third quarter of 2017 was $322 million, or $0.65 per diluted share, an increase of 25%, on a reported basis. adjusted net income for the third quarter of 2017 excludes the net impact of $24 million for purchase accounting adjustments, acquisition-related costs and certain significant items. on an operational2 basis, revenue for the third quarter of 2017 increased 8%, excluding the impact of foreign currency. adjusted net income for the third quarter of 2017 increased 25% operationally, excluding the impact of foreign currency. executive commentary “in the third quarter, we delivered strong operational revenue and adjusted earnings growth of 8% and 25%, respectively,” said juan ramÓn alaix, chief executive officer at zoetis. “our companion animal portfolio grew 19% operationally, led by our industry leading dermatology products and increased adoption of our oral parasiticide, simparica. on the livestock side of our business, we grew 2% operationally, with growth in our fish and poultry products that support the world’s fastest growing sources of protein. this growth in livestock was offset primarily by lower sales in cattle and swine products in the u.s., due to lower disease incidence and shifts in treatment protocols related to the veterinary feed directive implementation.” “as expected, in the third quarter, our focus on cost of goods and expenses enabled us to improve our margins and grow adjusted earnings significantly faster than sales,” said glenn david, executive vice president and chief financial officer at zoetis. “with one quarter left in 2017, we are raising our full year guidance for revenue and net income, and we expect to continue delivering steady, profitable growth based on the performance of our diverse portfolio and investments in innovation.” quarterly highlights zoetis organizes and manages its commercial operations across two regional segments: the united states (u.s.) and international. within these segments, the company delivers a diverse portfolio of products for livestock and companion animals tailored to local trends and customer needs. in the third quarter of 2017: revenue in the u.s. segment was $680 million, an increase of 6% compared with the third quarter of 2016. sales of companion animal products grew 21%, driven by increased sales in our dermatology portfolio, in addition to several other new products, primarily simparica® (sarolaner), our oral parasiticide. sales of livestock products declined 6% driven primarily by decreased sales of cattle products due to the impact of promotional activities in the prior year and continued lower disease risk and incidence in the feedlot sector. in addition, certain medicated feed additive products for cattle and swine were negatively impacted by livestock producers’ continued implementation of the veterinary feed directive. the decline in cattle and swine products was partially offset by increased sales of poultry medicated feed additive products. revenue in the international segment was $654 million, an increase of 12% on a reported basis and 11% operationally compared with the third quarter of 2016. sales of companion animal products grew 15% on both a reported and operational basis, resulting primarily from increased sales of simparica and apoquel® (oclacitinib tablet). sales also benefited from growth in companion animal vaccines in china. sales of livestock products grew 10% on a reported basis and 9% on an operational basis, driven by increased sales of fish products and balanced growth across other species. fish product sales grew due to a new product in norway, as well as in-line product growth across various markets, including chile. cattle product growth reflects favorable performance in brazil, argentina and australia, and swine growth was driven by new products across europe and asia. zoetis continues to drive demand and strengthen its diverse portfolio through the introduction of new products, lifecycle innovations, business development initiatives, strong customer relationships and entry into new markets and technologies. in the third quarter of 2017, zoetis received approvals for new indications and formulations and expanded major product lines into new geographies. in august 2017, the european commission granted zoetis approval for suvaxyn® prrs mlv, a new addition to the suvaxyn/fostera® family of vaccines for swine. this modified live vaccine helps protect pigs against porcine respiratory and reproductive syndrome, one of the most common diseases affecting swine herds. also in august, zoetis extended the breadth and reach of its poultry portfolio with the approval in korea of poulvac® maternavac ibd-reo for the revaccination of chickens to help prevent locally prevalent strains of infectious bursal disease and avian reovirus. the company also brought its poultry diagnostics products proflok® and fludetect® into major european markets in july. the point-of-care diagnostic kits deliver accurate, fast and clear results facilitating timely and informed diagnoses for a range of diseases. zoetis also gained new approvals for its oral flea and tick medication simparica during september 2017 in japan and taiwan. simparica delivers fast and persistent protection from fleas and ticks in dogs, with effectiveness that lasts for a full 35 days, without losing efficacy at the end of the month. financial guidance zoetis raised its guidance for the full year 2017, which includes: revenue between $5.225 billion to $5.275 billion reported diluted eps between $2.16 to $2.23 per share adjusted diluted eps between $2.34 to $2.39 per share this guidance reflects foreign exchange rates as of late october. additional guidance on other items such as expenses and tax rate is included in the financial tables and will be discussed on the company's conference call this morning. webcast & conference call details zoetis will host a webcast and conference call at 8:30 a.m. (et) today, during which company executives will review third quarter 2017 results, discuss financial guidance and respond to questions from financial analysts. investors and the public may access the live webcast by visiting the zoetis website at http://investor.zoetis.com/events-presentations. a replay of the webcast will be archived and made available on november 2, 2017. about zoetis zoetis (nyse:zts) is the leading animal health company, dedicated to supporting its customers and their businesses. building on more than 60 years of experience in animal health, zoetis discovers, develops, manufactures and markets veterinary vaccines and medicines, complemented by diagnostic products, genetic tests, biodevices and a range of services. zoetis serves veterinarians, livestock producers and people who raise and care for farm and companion animals with sales of its products in more than 100 countries. in 2016, the company generated annual revenue of $4.9 billion with approximately 9,000 employees. for more information, visit www.zoetis.com. 1 adjusted net income and its components and adjusted diluted earnings per share (non-gaap financial measures) are defined as reported net income attributable to zoetis and reported diluted earnings per share, excluding purchase accounting adjustments, acquisition-related costs and certain significant items. 2 operational revenue growth (a non-gaap financial measure) is defined as revenue growth excluding the impact of foreign exchange. disclosure notices forward-looking statements: this press release contains forward-looking statements, which reflect the current views of zoetis with respect to business plans or prospects, future operating or financial performance, future guidance, future operating models, expectations regarding products, future use of cash and dividend payments, tax rate and tax regimes, changes in the tax regimes and laws in other jurisdictions, and other future events. these statements are not guarantees of future performance or actions. forward-looking statements are subject to risks and uncertainties. if one or more of these risks or uncertainties materialize, or if management's underlying assumptions prove to be incorrect, actual results may differ materially from those contemplated by a forward-looking statement. forward-looking statements speak only as of the date on which they are made. zoetis expressly disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. a further list and description of risks, uncertainties and other matters can be found in our annual report on form 10-k for the fiscal year ended december 31, 2016, including in the sections thereof captioned “forward-looking statements and factors that may affect future results” and “item 1a. risk factors,” in our quarterly reports on form 10-q and in our current reports on form 8-k. these filings and subsequent filings are available online at www.sec.gov, www.zoetis.com, or on request from zoetis. use of non-gaap financial measures: we use non-gaap financial measures, such as adjusted net income, adjusted diluted earnings per share and operational results (which exclude the impact of foreign exchange), to assess and analyze our results and trends and to make financial and operational decisions. we believe these non-gaap financial measures are also useful to investors because they provide greater transparency regarding our operating performance. the non-gaap financial measures included in this press release should not be considered alternatives to measurements required by gaap, such as net income, operating income, and earnings per share, and should not be considered measures of liquidity. these non-gaap financial measures are unlikely to be comparable with non-gaap information provided by other companies. reconciliation of non-gaap financial measures and gaap financial measures are included in the tables accompanying this press release and are posted on our website at www.zoetis.com. internet posting of information: we routinely post information that may be important to investors in the 'investors' section of our website at www.zoetis.com, on our facebook page at http://www.facebook.com/zoetis and on twitter @zoetis. we encourage investors and potential investors to consult our website regularly and to follow us on facebook and twitter for important information about us. zoetis inc. condensed consolidated statements of income(a) (unaudited) (millions of dollars, except per share data) 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. zoetis inc. reconciliation of gaap reported to non-gaap adjusted information certain line items (unaudited) (millions of dollars, except per share data) gaapreported(a) purchaseaccountingadjustments acquisition-relatedcosts(1) certainsignificantitems(2) non-gaapadjusted(b) gaapreported(a) purchaseaccountingadjustments acquisition-relatedcosts(1) certainsignificantitems(2) non-gaapadjusted(b) zoetis inc. reconciliation of gaap reported to non-gaap adjusted information certain line items (unaudited) (millions of dollars, except per share data) gaapreported(a) purchaseaccountingadjustments acquisition-relatedcosts(1) certainsignificantitems(2) non-gaapadjusted(b) gaapreported(a) purchaseaccountingadjustments acquisition-relatedcosts(1) certainsignificantitems(2) non-gaapadjusted(b) 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). 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: 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. represents employee termination costs related to the acquisition of an irish biologic therapeutics company in the third quarter of 2017, included in restructuring charges/(reversals) and certain acquisition-related costs. included in other (income)/deductions—net. included in provision for taxes on income. income taxes include the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction's applicable tax rate. the nine months ended october 2, 2016, also includes a tax charge related to the acquisition of certain assets of abbott animal health. (2) certain significant items include the following: for the three months ended october 1, 2017, represents employee termination costs of $1 million, and a reversal of $1 million related to exit costs, included in restructuring charges/(reversals) and certain acquisition-related costs, and an adjustment to the net gain related to sales of certain manufacturing sites and products of $1 million, included in other (income)/deductions—net. for the nine months ended october 1, 2017, represents consulting fees of $1 million, included in selling, general and administrative expenses, employee termination costs of $2 million, included in restructuring charges/(reversals) and certain acquisition-related costs, and a net loss related to sales of certain manufacturing sites and products of $1 million, included in other (income)/deductions—net. for the three months ended october 2, 2016, represents inventory write-offs of $1 million, included in cost of sales, consulting fees of $4 million, included in selling, general and administrative expenses, and employee termination costs of $3 million and exit costs of $1 million, included in restructuring charges/(reversals) and certain acquisition-related costs. for the nine months ended october 2, 2016, represents inventory write-offs of $1 million, included in cost of sales, accelerated depreciation of $1 million and consulting fees of $11 million, included in selling, general and administrative expenses, a reversal of previously accrued employee termination costs of $26 million and an increase in exit costs of $4 million, included in restructuring charges/(reversals) and certain acquisition-related costs, and a $27 million net gain related to sales of certain manufacturing sites and products, included in other (income)/deductions—net. for the three months ended october 1, 2017, represents consulting fees of $2 million, and an adjustment of $1 million related to the requirement to cease depreciation of assets, located at our manufacturing site in guarulhos brazil, that are currently classified as held for sale, included in cost of sales, employee termination costs of $2 million, included in restructuring charges/(reversals) and certain acquisition-related costs, and a net loss related to sales of certain manufacturing sites and products, including the anticipated disposal of our manufacturing site in guarulhos, brazil, of $5 million, included in other (income)/deductions—net. for the nine months ended october 1, 2017, represents accelerated depreciation of $2 million, consulting fees of $4 million, and an adjustment of $1 million related to the requirement to cease depreciation of assets, located at our manufacturing site in guarulhos brazil, that are currently classified as held for sale, included in cost of sales, a reversal of previously accrued employee terminations costs of $3 million, included in restructuring charges/(reversals) and certain acquisition-related costs, and a net loss related to sales of certain manufacturing sites and products, including the anticipated disposal of our manufacturing site in guarulhos, brazil, of $5 million, included in other (income)/deductions—net. certain amounts may reflect rounding adjustments. zoetis inc. adjusted selected costs, expenses and income (a) (unaudited) (millions of dollars) foreignexchange foreignexchange 10% —% 1% 16% zoetis inc. 2017 guidance (millions of dollars, except per share amounts) the guidance reflects foreign exchange rates as of late october 2017. reconciliations of 2017 reported guidance to 2017 adjusted guidance follows: certain significantitems(d) andacquisition-relatedcosts purchaseaccounting zoetis inc. consolidated revenue by segment(a) and species (unaudited) (millions of dollars) foreignexchange zoetis inc. consolidated revenue by segment(a) and species (unaudited) (millions of dollars) foreignexchange zoetis inc. consolidated revenue by key international markets (unaudited) (millions of dollars) foreignexchange foreignexchange (11)% zoetis inc. segment(a) earnings (unaudited) (millions of dollars) foreignexchange — —% —% —% —% —% zoetis inc. segment(a) earnings (unaudited) (millions of dollars) foreignexchange —% —% —%
