Zoetis reports third quarter 2015 results
Florham park, n.j.--(business wire)--zoetis inc. (nyse:zts) today reported its financial results for the third quarter of 2015, and updated its full year 2015 guidance, as well as its financial outlook for full year 2016 and 2017. the company reported revenue of $1.2 billion for the third quarter of 2015, which was flat compared to the third quarter of 2014. revenue reflected an operational2 increase of 9%, excluding the impact of foreign exchange. net income for the third quarter of 2015 was $189 million, or $0.38 per diluted share, an increase of 14% and 15%, respectively, compared to the third quarter of 2014. adjusted net income1 for the third quarter of 2015 was $252 million, or $0.50 per diluted share, an increase of 22% compared to the third quarter of 2014. adjusted net income for the third quarter of 2015 excludes the net impact of $63 million, or $0.12 per diluted share, for purchase accounting adjustments, acquisition-related costs and certain significant items. on an operational basis, adjusted net income for the third quarter of 2015 increased 31% compared to the third quarter of 2014, with foreign currency having a negative impact of 9%. executive commentary “we continued to deliver strong revenue and adjusted net income growth this quarter, based on our diverse portfolio of high-quality products and our continued discipline on costs and expenses,” said zoetis chief executive officer juan ramÓn alaix. “we generated operational growth of 9% in revenue and 31% in adjusted net income, delivering adjusted diluted eps of 50 cents per share. this quarter’s growth was largely due to the performance of our livestock business in the u.s., the integration of abbott animal health products into our business, and the growth of recent product launches, led by apoquel." “despite some global economic challenges, the animal health industry remains resilient based on the strong fundamental drivers for improved protein production and healthier pets,” said alaix. “our growth strategies and resources are aligned against these drivers to expand our market leadership in the industry. the recently announced acquisition of pharmaq, a market-leading company in aquatic health, is an example of this growth strategy and will bring us another platform and pipeline to strengthen our core livestock business.” “the financial highlights of the quarter were once again operational revenue growth across our portfolio and cost discipline that drove significant growth in adjusted net income,” said zoetis chief financial officer paul herendeen. “the productivity of our r&d engine and performance in the u.s. and key emerging markets like brazil and china give us confidence in our future prospects. with this view, we are updating our guidance for full year 2015 and our outlook for full year 2016 and 2017, while managing the expected headwinds of foreign exchange.” 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 third quarter of 2015: revenue in the u.s. segment was $632 million, an increase of 19% compared to the third quarter of 2014. sales of companion animal products grew 27%, led by the addition of abbott animal health products and the performance of key brands including apoquel®, as well as revolution®, cerenia®, proheart® and convenia®. sales of livestock products grew 13%, driven by sales of cattle and swine products, due primarily to the timing of seasonal buying patterns. sales of poultry products declined slightly. revenue in the international segment was $569 million, an increase of 2% on an operational basis compared to the third quarter of 2014. in companion animal, sales grew 7% operationally, primarily driven by sales of apoquel and the addition of abbott products. sales in japan grew significantly due to the termination of a distributor agreement that resulted in a product buyback in the prior year. competitive pressures on revolution in certain key markets partially offset growth in companion animal products. in livestock, sales were flat operationally despite revenue growth in brazil, australia and china. livestock growth in brazil was driven by cattle due to favorable market conditions and recent product launches, as well as growth in poultry. in australia, growth was driven by increased feedlot activity in the cattle market, while an improving pork market in china drove growth across the swine portfolio. this growth was offset by our business reduction in venezuela and lower sales in france, which were compared to higher sales in the prior year related to changes in anti-infective legislation. zoetis continues to drive demand and strengthen its diverse portfolio of products through lifecycle developments, 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 innovative medicines, treatments and solutions for emerging diseases and unmet customer needs. some recent highlights include: yesterday, zoetis announced an agreement to purchase pharmaq, the global leader in vaccines and innovation for health products in aquaculture. acquiring pharmaq, the market leader in vaccines for farmed fish, strengthens zoetis’ core livestock business, giving the company an increased presence in the fastest growing segment of the animal health industry. in the third quarter, zoetis received a positive opinion from the european medicines agency's committee for medicinal products for veterinary use (cvmp), recommending the granting of a marketing authorization for simparicatm, a once-monthly chewable medication for the treatment of flea, tick and mange mite infestations in dogs beginning at age eight weeks. the active substance of simparica is sarolaner, a new ectoparasiticide belonging to the isoxazoline group. zoetis strengthened its commitment to innovation in china with the opening of a new research and development center near beijing last week. the site will serve as home to a team of scientists who will initially focus on accelerating the development of quality vaccines tailored to the strains of illnesses that affect livestock in china. in addition, zoetis opened a new global manufacturing and supply facility in suzhou, china, replacing its original suzhou manufacturing facility that opened in 1995. the site will house the manufacture of pre-mix and soluble powder medicines that will help keep farm animals healthy and set a strong foundation for future growth in china. financial guidance zoetis is updating its financial guidance for full year 2015 to reflect its most recent expectations for the fourth quarter and recent changes in foreign exchange rates: revenue of between $4.700 billion to $4.750 billion reported diluted eps of between $0.82 to $0.89 per share adjusted diluted eps1 of between $1.70 to $1.74 per share the company also provided updates to its long-term outlook for: full year 2016 revenue of $4.750 billion to $4.875 billion reported diluted eps of between $1.50 to $1.68 per share3 adjusted cost of sales1 as a percentage of revenue of approximately 33% to 34% adjusted ebit margin1 of approximately 31% adjusted diluted eps of $1.84 to $1.94 full year 2017 revenue of $5.025 billion to $5.225 billion reported diluted eps of between $2.04 to $2.22 per share3 adjusted cost of sales1 as a percentage of revenue of approximately 32% to 33% adjusted ebit margin1 of approximately 34% adjusted diluted eps of $2.24 to $2.38 additional guidance on other items for 2015, 2016 and 2017, such as expenses and tax rate, 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. (est) today, during which company executives will review third quarter financial results, discuss 2015 financial guidance, talk about the acquisition of pharmaq, and respond to questions from financial analysts. investors and the public may access the live webcast by visiting the zoetis website at http://www.zoetis.com/events-and-presentations. a replay of the webcast will be archived and made available on nov. 3, 2015. 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. in 2014, the company generated annual revenue of $4.8 billion. with approximately 10,000 employees worldwide at the beginning of 2015, zoetis serves veterinarians, livestock producers and people who raise and care for farm and companion animals with sales of its products in 120 countries. 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 is defined as revenue growth excluding the impact of foreign exchange. 3 includes preliminary estimate of purchase price allocation for pharmaq. 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, expectations regarding products, future use of cash and dividend payments, 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, 2014, 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 and adjusted diluted earnings per share, to assess and analyze our operational 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) 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 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) 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 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). (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 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: includes restructuring charges of $8 million related to asset impairments for the three months ended september 27, 2015 and restructuring charges of $261 million related to employee termination costs ($228 million) and asset impairments ($33 million) for the nine months ended september 27, 2015, included in restructuring charges and certain acquisition-related costs. also includes inventory write-offs of $5 million for the three and nine months ended september 27, 2015, included in cost of sales, and $8 million and $28 million primarily related to consulting fees for the three and nine months ended september 27, 2015, respectively, included in selling, general and administrative expenses. includes restructuring charges of $10 million related to employee termination costs ($9 million) and asset impairments ($1 million) for the nine months ended september 27, 2015, included in restructuring charges and certain acquisition-related costs. also includes charges of $3 million and $13 million primarily related to consulting fees for the three and nine months ended september 27, 2015, respectively, included in cost of sales. amounts related to our cost-reduction/productivity initiatives and were included in restructuring charges and certain acquisition-related costs. included in other (income)/deductions—net. for the nine months ended september 27, 2015, represents an impairment of ipr&d assets related to the termination of a canine oncology project. for the three and nine months ended september 28, 2014, represents an impairment charge related to an ipr&d project acquired with the fdah acquisition in 2009. represents certain nonrecurring costs related to becoming an independent public company, such as new branding (including changes to the manufacturing process for required new packaging), the creation of standalone systems and infrastructure, site separation, and certain legal registration and patent assignment costs. included in cost of sales ($2 million and $16 million) and selling, general and administrative expenses ($20 million and $68 million) for the three and nine months ended september 27, 2015, respectively. included in cost of sales ($3 million and $14 million) and selling, general and administrative expenses ($29 million and $90 million), and other (income)/deductions—net ($0 million and $2 million) for the three and nine months ended september 28, 2014, respectively. for the nine months ended september 28, 2014, represents the zoetis portion of a net gain on the sale of land by our taiwan joint venture, included in other (income)/deductions—net. the nine months ended september 27, 2015, includes charges due to unusual investor-related activities in selling, general and administrative expenses ($3 million). the nine months ended september 28, 2014, primarily includes a reserve associated with a commercial settlement in mexico ($13 million), partially offset by the insurance recovery ($1 million income), and a pension plan settlement charge related to the divestiture of a manufacturing plant ($4 million), partially offset by an insurance recovery of litigation related charges ($2 million income), 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 september 27, 2015 also includes a net tax benefit related to the revaluation of deferred taxes and other deferred tax adjustments. adjusted selected costs, expenses and income (a) foreignexchange na % change foreignexchange (millions of dollars, except per share amounts) a reconciliation of 2015 adjusted net income and adjusted diluted eps guidance to 2015 reported net income attributable to zoetis and reported diluted eps attributable to zoetis common shareholders guidance follows: (millions of dollars, except per share amounts) a reconciliation of 2016 and 2017 adjusted net income and adjusted diluted eps guidance to 2016 and 2017 reported net income attributable to zoetis and reported diluted eps attributable to zoetis common shareholders guidance follows: ~$1,125 - $1,195 consolidated revenue by segment(a) and species % consolidated revenue by segment(a) and species foreignexchange foreignexchange segment(a) earnings foreignexchange u.s.: % international: segment(a) earnings u.s.: international:
