Zoetis announces second quarter 2017 results
Parsippany, n.j.--(business wire)--zoetis inc. (nyse:zts) today reported its financial results for the second quarter of 2017 and increased its full year guidance for revenue and net income. the company reported revenue of $1.3 billion for the second quarter of 2017, an increase of 5% compared with the second quarter of 2016. net income for the second quarter of 2017 was $247 million, or $0.50 per diluted share, an increase of 10% and 11%, respectively, on a reported basis. adjusted net income1 for the second quarter of 2017 was $261 million, or $0.53 per diluted share, an increase of 6% and 8%, respectively, on a reported basis. adjusted net income for the second quarter of 2017 excludes the net impact of $14 million for purchase accounting adjustments, acquisition-related costs and certain significant items. on an operational2 basis, revenue for the second quarter of 2017 increased 6%, excluding the impact of foreign currency. adjusted net income for the second quarter of 2017 increased 11% operationally, excluding the impact of foreign currency. executive commentary “as in previous quarters, the consistency of our financial results is supported by the innovations we bring to the market and the diversity of our portfolio across geographies, species and therapeutic areas,” said juan ramÓn alaix, chief executive officer at zoetis. “zoetis was able to generate an 11% operational increase in adjusted net income on 6% operational growth in revenue in the second quarter. our companion animal business remains the largest driver of our growth, supported by the continued adoption of products like apoquel, cytopoint and simparica, while our livestock portfolio continues to grow based on the breadth of our solutions and global presence.” “based on recent foreign exchange rates and continued confidence in our performance for the year, we are improving our full year guidance for revenue and net income,” said glenn david, executive vice president and chief financial officer at zoetis. “we will continue to build on our foundation for sustainable long term growth, allocating cash and other resources to support new products, lifecycle innovation, market expansion and business development opportunities.” 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 second quarter of 2017: revenue in the u.s. segment was $623 million, an increase of 5% compared with the second quarter of 2016. sales of companion animal products grew 7%, driven by increased sales in our dermatology portfolio, in addition to several other new product launches. growth was partially offset by lower sales of our pain products due to competition and timing of promotional campaigns. sales of livestock products grew 3% driven primarily by increased sales of cattle and poultry products. growth was partially offset by lower sales of swine products. in addition, certain medicated feed additive products for cattle and swine were negatively impacted by livestock producers’ implementation of the veterinary feed directive. revenue in the international segment was $634 million, an increase of 5% on a reported basis and 7% operationally compared with the second quarter of 2016. sales of companion animal products grew 12% on a reported basis and 15% operationally, resulting primarily from increased sales of apoquel®, in addition to new product launches, primarily simparica®. sales of livestock products grew 2% on a reported basis and 3% on an operational basis, driven primarily by increased sales of cattle and swine products. in cattle, growth was due to higher sales in brazil and other latin american markets, with increased demand in brazil as a result of field force expansion, while swine was driven by growth in china. growth was partially offset by product rationalizations as a result of our operational efficiency initiative. 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 second quarter of 2017: in a prime example of lifecycle innovation to keep brand product franchises delivering value to customers, zoetis received approval in may from the u.s. food and drug administration (fda) for the company’s clavamox® chewable (amoxicillin/clavulanate potassium tablets) for use in dogs. this leading anti-infective, first approved in the u.s. in 1984, provides a broad spectrum of treatment for skin infections in dogs and cats, periodontal infections in dogs and urinary tract infections in cats. clavamox chewables join the original tablet and liquid drop formulations, which zoetis will continue to market. zoetis continued to extend its dermatology portfolio to new markets with approvals of apoquel (oclacitinib tablet) in vietnam and cytopoint® (lokivetmab) in new zealand. apoquel, first approved in 2013, is indicated for the control of pruritus (itching) associated with allergic dermatitis and control of atopic dermatitis in dogs at least 12 months of age. monoclonal antibody therapy cytopoint, fully licensed in the united states in 2016 and in europe and canada earlier this year, aids in the reduction of clinical signs associated with atopic dermatitis in dogs. the company also continued expanding the availability of its oral flea and tick medication simparica (sarolaner) chewables with an approval in peru. simparica received its first approval in 2015. it 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. on july 31, zoetis completed the acquisition of nexvet biopharma plc, an innovator in monoclonal antibody therapies for companion animals in management of chronic pain and other therapeutic areas. the acquisition strengthens zoetis’ r&d pipeline in monoclonal antibodies and helps sustain the company’s leadership in chronic pain management for companion animals, an area poised for innovation with new monoclonal antibody therapies. financial guidance zoetis updated its guidance for the full year 2017, which includes: revenue between $5.150 billion to $5.250 billion reported diluted eps between $2.12 to $2.21 per share adjusted diluted eps between $2.30 to $2.37 per share this guidance reflects foreign exchange rates as of late july. 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 second 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 august 8, 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. condensed consolidated statements of income(a) the condensed consolidated statements of income present the three and six months ended july 2, 2017, and july 3, 2016. subsidiaries operating outside the united states are included for the three and six months ended may 28, 2017 and may 29, 2016. 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. gaap reported(a) purchaseaccountingadjustments acquisition-relatedcosts(1) certainsignificantitems(2) non-gaapadjusted(b) 345 gaap reported(a) purchaseaccountingadjustments acquisition-relatedcosts(1) certainsignificantitems(2) non-gaapadjusted(b) gaap reported(a) purchaseaccountingadjustments acquisition-relatedcosts(1) certainsignificantitems(2) non-gaapadjusted(b) gaap reported(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. notes to reconciliation of gaap reported to non-gaap adjusted information 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 (benefits)/charges 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 six months ended july 3, 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 july 2, 2017, represents consulting fees of $1 million, included in selling, general and administrative expenses, restructuring charges of $3 million related to employee termination costs ($2 million) and exit costs ($1 million), included in restructuring charges/(reversals), and a net loss related to sales of certain manufacturing sites and products of $2 million, included in other (income)/deductions—net. for the six months ended july 2, 2017, represents consulting fees of $1 million, included in selling, general and administrative expenses, restructuring charges of $2 million related to employee termination costs ($1 million) and exit costs ($1 million), included in restructuring charges/(reversals), and a net loss related to sales of certain manufacturing sites and products of $2 million, included in other (income)/deductions—net. for the three months ended july 3, 2016, represents a reversal of previously accrued employee terminations costs ($30 million), and an increase in exit costs ($2 million), included in restructuring charges/(reversals) and certain acquisition-related costs, accelerated depreciation of $1 million, and consulting fees of $4 million, included in selling, general and administrative expenses, and a $6 million net loss on sales of certain manufacturing sites and products, included in other (income)/deductions—net. for the six months ended july 3, 2016, represents a reversal of previously accrued employee terminations costs ($29 million), and an increase in exit costs ($3 million), included in restructuring charges/(reversals) and certain acquisition-related costs, accelerated depreciation of $1 million, and consulting fees of $7 million, included in selling, general and administrative expenses, and a $27 million net gain on sales of certain manufacturing sites and products, included in other (income)/deductions—net. for the three months ended july 2, 2017, represents accelerated depreciation of $1 million, included in cost of sales, and a reversal of previously accrued employee terminations costs of $5 million, included in restructuring charges/(reversals). for the six months ended july 2, 2017, represents accelerated depreciation of $2 million, and consulting fees of $2 million, included in cost of sales, and a reversal of previously accrued employee terminations costs of $5 million, included in restructuring charges/(reversals). for the three months ended july 3, 2016, represents accelerated depreciation charges of $1 million, and consulting fees of $1 million, included in cost of sales, and restructuring charges of $6 million related to employee termination costs, included in restructuring charges/(reversals) and certain acquisition-related costs. for the six months ended july 3, 2016, represents accelerated depreciation charges of $2 million, and consulting fees of $3 million, included in cost of sales, and restructuring charges of $6 million related to employee termination costs, included in restructuring charges/(reversals) and certain acquisition-related costs. included in restructuring charges/(reversals) and certain acquisition-related costs. represents certain nonrecurring costs related to becoming an independent public company, such as the creation of standalone systems and infrastructure, site separation, new branding (including changes to the manufacturing process for required new packaging), and certain legal registration and patent assignment costs. for the three and six months ended july 3, 2016, included in cost of sales ($1 million and $2 million, respectively) and selling, general and administrative expenses ($4 million and $15 million, respectively). for the three months ended july 2, 2017, represents costs associated with changes to our operating model of $1 million, included in cost of sales, and income of $4 million related to an insurance recovery from commercial settlements in mexico recorded in 2014 and 2016, included in other (income)/deductions—net. for the six months ended july 2, 2017, represents costs associated with changes to our operating model of $1 million, included in cost of sales and $2 million, included in selling, general and administrative expenses, as well as income of $4 million related to insurance recovery from commercial settlements in mexico recorded in 2014 and 2016, included in other (income)/deductions—net. the three and six months ended july 3, 2016, represents costs associated with changes to our operating model, included in selling, general and administrative expenses. 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 six months ended july 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. the three and six months ended july 3, 2016, also includes a net tax charge of approximately $3 million and $38 million, respectively, related to the impact of the european commission’s negative decision on the excess profits rulings in belgium. these net charges relate to the belgium government's 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. these net charges do not include any benefits associated with a successful appeal of the decision. adjusted selected costs, expenses and income(a) foreignexchange $ 333 $ 331 foreignexchange $ 639 $ 631 the guidance reflects foreign exchange rates as of late july 2017. reconciliations of 2017 reported guidance to 2017 adjusted guidance follows: certain significantitems(d) andacquisition-relatedcosts purchaseaccounting consolidated revenue by segment(a) and species foreignexchange foreignexchange foreignexchange foreignexchange segment(a) earnings foreignexchange u.s.: international: foreignexchange u.s.: international:
