Zoetis reports second quarter 2016 results
Florham park, n.j.--(business wire)--zoetis inc. (nyse:zts) today reported its financial results for the second quarter of 2016 and increased its revenue and adjusted net income guidance for full year 2016. the company reported revenue of $1.2 billion for the second quarter of 2016, an increase of 3% compared with the second quarter of 2015. net income for the second quarter of 2016 was $224 million, or $0.45 per diluted share, compared with a net loss of $37 million for the second quarter of 2015, on a reported basis. adjusted net income1 for the second quarter of 2016 was $246 million, or $0.49 per diluted share, an increase of 14%. adjusted net income for the second quarter of 2016 excludes the net impact of $22 million for purchase accounting adjustments, acquisition-related costs and certain significant items. on an operational2 basis, revenue for the second quarter of 2016 increased 6%, excluding the impact of foreign currency. adjusted net income for the second quarter of 2016 increased 22% operationally, excluding the impact of foreign currency. executive commentary “we have continued our positive momentum through the first half of the year based on the strengths of our diverse portfolio and dedicated zoetis colleagues,” said zoetis chief executive officer juan ramÓn alaix. “in the second quarter, we delivered 6% operational revenue growth, driven by strong sales of our companion animal products and the positive performance of the u.s. cattle business. we also grew adjusted net income significantly faster than revenue – 22% operationally – as cost controls and efficiency improvements are progressing. “we also continue to reap the benefits of a productive, world-class r&d organization focused on new discoveries like apoquel and simparica, as well as lifecycle innovations across our approximately 300 product lines,” said alaix. “our investments in internal r&d and external business development opportunities have us well-positioned as the world leader in animal health today and into the future.” “we’ve made a number of operational efficiency changes over the last year that have and will negatively impact our reported revenue growth in 2016. however, our go-forward product portfolio and revised international footprint delivered strong revenue growth in the second quarter and over the first half of 2016,” said paul herendeen, executive vice president and chief financial officer of zoetis. “these efficiency improvements and our execution of new product launches have us on track to achieve our updated financial guidance for 2016 and improve our profitability for the long term.” quarterly highlights zoetis organizes and manages its business across two regional operating 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 2016: revenue in the u.s. segment was $594 million, an increase of 10% compared with the second quarter of 2015. sales of companion animal products grew 17%, due primarily to increased sales of apoquel® and several new product launches, including simparica™. livestock revenue grew 2%, driven by increased sales of our cattle products as a result of improving market conditions and expanding herd sizes. livestock revenue growth was partially offset by product rationalizations as part of the company’s operational efficiency initiative that impacted poultry and swine; swine also declined due to increased competition. revenue in the international segment was $602 million, a decrease of 3% on a reported basis and an increase of 2% operationally compared with the second quarter of 2015. sales of companion animal products grew 2% on a reported basis and 6% operationally, driven primarily by sales of apoquel across a variety of markets and growth in china, primarily from the company’s vaccines portfolio. growth in companion animal products was partially offset by product rationalizations as a result of the company’s operational efficiency initiative and business reductions in venezuela. sales of livestock products decreased 5% on a reported basis and grew 1% operationally, primarily from the addition of revenue from pharmaq and growth in china due to favorable market conditions in the swine market. poultry and cattle products declined primarily due to business reductions in venezuela and india, in addition to product rationalizations as a result of the company’s operational efficiency initiative. zoetis continues to drive demand and strengthen its diverse portfolio of products through lifecycle innovations, strong customer relationships and access to new markets and technologies. the company is focused on improving the performance and delivery of its current product lines; expanding product indications across species; pursuing approvals in new geographies; and developing and marketing innovative medicines, treatments and solutions for emerging diseases and unmet customer needs. some recent highlights include: on the companion animal side, zoetis strengthened its vaccine portfolio, expanding its versican® plus and vanguard® vaccine franchises with new approvals in europe and canada. versican plus, a combination vaccine for dogs containing nine vaccine antigens that help protect against ten canine diseases, was first approved in the european union in 2014, and this quarter received additional approvals in the united kingdom, denmark, sweden and the netherlands for smaller combinations of the vaccine. these smaller combinations provide veterinarians with further flexibility to tailor their vaccination programs to meet the needs of their patients. additionally, versican plus rabies gained approval for a new claim – three years duration of immunity – in the european union. vanguard® b oral and vanguard® crlyme vaccines were approved in canada. these vaccines, which were granted united states department of agriculture (usda) licensure in december 2015, help protect against bordetella bronchiseptica, a common pathogen in canine infectious respiratory disease, and borrelia burgdorferi, the causative agent of lyme disease in dogs. versican plus, a combination vaccine for dogs containing nine vaccine antigens that help protect against ten canine diseases, was first approved in the european union in 2014, and this quarter received additional approvals in the united kingdom, denmark, sweden and the netherlands for smaller combinations of the vaccine. these smaller combinations provide veterinarians with further flexibility to tailor their vaccination programs to meet the needs of their patients. additionally, versican plus rabies gained approval for a new claim – three years duration of immunity – in the european union. vanguard® b oral and vanguard® crlyme vaccines were approved in canada. these vaccines, which were granted united states department of agriculture (usda) licensure in december 2015, help protect against bordetella bronchiseptica, a common pathogen in canine infectious respiratory disease, and borrelia burgdorferi, the causative agent of lyme disease in dogs. zoetis also gained approval in spain for a livestock variation of its witness® diagnostic test kits. this product delivers accurate, fast and clear point-of-care results facilitating timely and informed diagnoses of intestinal disease in cattle, without disrupting clinical consultation. on the livestock side, the company received approval of a new label claim in europe for draxxin® (tulathromycin) and draxxin® 25 (tulathromycin injection), one of the company’s largest global product lines, which was first introduced in 2005. this injectable anti-infective is an effective tool for treating swine respiratory disease, and can now also be used to treat respiratory diseases caused by bordetella bronchiseptica infections in swine. zoetis also continues to pursue partnerships that can help broaden and strengthen its product portfolio. in may, zoetis launched sileo® (dexmedetomidine oromucosal gel), the first and only medication approved by the u.s. food and drug administration (fda) for treatment of noise aversion in dogs. sileo is available from veterinarians by prescription and can be safely administered at home by pet owners to help calm dogs without sedating them. zoetis markets and distributes sileo in the u.s. under an exclusive agreement with orion corporation, orion pharma finland, which developed and manufactures sileo. financial guidance zoetis' guidance for the full year 2016 has been increased to reflect the company’s strong performance in the first half of the year, the continued strength of its business model, and its confidence in the outlook for the remainder of the year. the company’s guidance for the full year 2016 is the following: revenue of between $4.800 billion to $4.900 billion reported diluted eps for the full year of between $1.52 to $1.63 per share adjusted diluted eps for the full year between $1.86 to $1.93 per share additional guidance on other items such as expenses and tax rate is included in the financial tables and will be discussed on the company's conference call this morning. this guidance reflects foreign exchange rates as of late july. webcast & conference call details zoetis will host a webcast and conference call at 8:30 a.m. (edt) today, during which company executives will review second quarter 2016 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. 3, 2016. about zoetis zoetis (zÔ-eh-tis) 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 and genetic tests and supported by 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 2015, the company generated annual revenue of $4.8 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, 2015, including in the sections thereof captioned “forward-looking information 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 operations(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 informationcertain line items(unaudited)(millions of dollars, except per share data) gaapreported(a) purchaseaccountingadjustments acquisition- relatedcosts(1) certainsignificantitems(2) non-gaapadjusted(b) gaapreported(a) purchaseaccounting adjustments acquisition- relatedcosts(1) certainsignificantitems(2) non-gaapadjusted(b) zoetis inc.reconciliation of gaap reported to non-gaap adjusted informationcertain 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 informationcertain 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 (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, as well as 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 3, 2016, represents a reduction in employee termination accruals ($30 million benefit) and an increase in exit costs ($2 million), included in restructuring (benefits)/charges 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 related to divestitures, included in other (income)/deductions—net. for the six months ended july 3, 2016, represents a reduction in employee termination accruals ($29 million benefit) and an increase in exit costs ($3 million), included in restructuring (benefits)/charges 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 related to divestitures, included in other (income)/deductions—net. the three and six months ended june 28, 2015, represents restructuring charges of $253 million related to employee termination costs ($228 million) and asset impairments ($25 million), included in restructuring (benefits)/charges and certain acquisition-related costs. additionally, the three and six months ended june 28, 2015 include consulting fees of $10 million and $20 million, respectively, included in selling, general and administrative expenses. for the three and six months ended july 3, 2016, represents restructuring charges of $6 million related to employee termination costs, included in restructuring (benefits)/charges and certain acquisition-related costs, and accelerated depreciation charges of $1 million and $2 million, respectively, and consulting fees of $1 million and $3 million, respectively, included in cost of sales. for the three and six months ended june 28, 2015, represents restructuring charges of $10 million related to employee termination costs ($9 million) and asset impairments ($1 million), included in restructuring (benefits)/charges and certain acquisition-related costs. additionally, the three and six months ended june 28, 2015, include consulting fees of $5 million and $10 million, respectively, included in cost of sales. included in restructuring (benefits)/charges 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 and six months ended june 28, 2015, included in cost of sales ($12 million and $14 million, respectively) and selling, general and administrative expenses ($27 million and $48 million, respectively). the three and six months ended july 3, 2016, represents costs associated with changes to our operating model in selling, general and administrative expenses. the three and six months ended june 28, 2015, includes an impairment of ipr&d assets related to a discontinued canine oncology project ($2 million) in other (income)/deductions—net. the six months ended june 28, 2015, also includes charges due to unusual investor-related activities ($3 million) 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. 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. zoetis inc.adjusted selected costs, expenses and income (a)(unaudited)(millions of dollars) foreignexchange na na na foreignexchange na na na % zoetis inc.2016 guidance selected line items(millions of dollars, except per share amounts) a reconciliation of 2016 adjusted net income and adjusted diluted eps guidance to 2016 reported net income attributable to zoetis and reported diluted eps attributable to zoetis common shareholders guidance follows: zoetis inc.2017 guidance selected line items(millions of dollars, except per share amounts) a reconciliation of 2017 adjusted net income and adjusted diluted eps guidance to 2017 reported net income attributable to zoetis and reported diluted eps attributable to zoetis common shareholders guidance follows: 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 zoetis inc.segment(a) earnings(unaudited)(millions of dollars) foreignexchange u.s.: international: zoetis inc.segment(a) earnings(unaudited)(millions of dollars) foreignexchange u.s.: international:
