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Zoetis Announces Third Quarter 2019 Results

  • Reports Revenue of $1.6 Billion, Growing 7%, and Net Income of $433 Million, or $0.90 per Diluted Share, Increasing 25% and 27%, Respectively, on a Reported Basis for Third Quarter 2019
  • Reports Adjusted Net Income of $455 Million, or Adjusted Diluted EPS of $0.94, for Third Quarter 2019
  • Delivers 9% Operational Growth in Revenue and 10% Operational Growth in Adjusted Net Income for Third Quarter 2019
  • Updates Full Year 2019 Revenue Guidance to $6.200 - $6.250 Billion and Diluted EPS of $2.99 - $3.08 on a Reported Basis, or $3.57 - $3.62 on an Adjusted Basis
Thursday, November 7, 2019 7:00 am EST

Dateline:

PARSIPPANY, N.J.

Public Company Information:

NYSE:
ZTS

Zoetis $ZTS reports Q3'19 financial results.

PARSIPPANY, N.J.--(BUSINESS WIRE)--Zoetis Inc. (NYSE: ZTS) today reported its financial results for the third quarter of 2019 and updated its guidance for full year 2019.

The company reported revenue of $1.6 billion for the third quarter of 2019, an increase of 7% compared with the third quarter of 2018. Net income for the third quarter of 2019 was $433 million, or $0.90 per diluted share, an increase of 25% and 27%, respectively, on a reported basis.

Adjusted net income1 for the third quarter of 2019 was $455 million, or $0.94 per diluted share, an increase of 13%, on a reported basis. Adjusted net income for the third quarter of 2019 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 third quarter of 2019 increased 9%, excluding the impact of foreign currency. Adjusted net income for the third quarter of 2019 increased 10% operationally, excluding the impact of foreign currency.

EXECUTIVE COMMENTARY

“Our strong performance continues, with 9% operational revenue growth in the third quarter,” said Juan Ramón Alaix, Chief Executive Officer at Zoetis. “Our companion animal portfolio is once again the main driver of our results, growing 23% operationally based on strong sales of our parasiticide products, our key dermatology portfolio, and diagnostic revenue from the Abaxis acquisition. Livestock sales declined 4% operationally due to lower product sales in cattle, swine and fish, which were partially offset by growth in poultry.”

“We remain confident that our diverse portfolio, innovations, and core business are performing well and will continue to drive growth in the future. On a personal note, as I retire at the end of this year, I feel very positive about what lies ahead for Zoetis. Under the leadership of Kristin Peck, who has been named our next CEO, I know that our talented colleagues and experienced management team will continue to capitalize on growth opportunities to create significant value for our company, customers and shareholders,” 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 companion animals and livestock, tailored to local trends and customer needs. In the third quarter of 2019:

  • Revenue in the U.S. segment was $844 million, an increase of 11% compared with the third quarter of 2018. Sales of companion animal products increased 26%, driven primarily by growth in the company’s parasiticides portfolio across the ProHeart®, Revolution® and Simparica® franchises, including new product introductions, notably Revolution Plus for cats and ProHeart 12 for dogs. Increased sales across our key dermatology portfolio and revenue from the acquisition of Abaxis also contributed to growth. Sales of livestock products declined 9%, as a result of continued weakness across both the beef and dairy cattle sectors, as well as the timing of promotional activities in swine. Growth in poultry products was driven primarily by increased sales of alternatives to antibiotics in medicated feed additives.
  • Revenue in the International segment was $721 million, an increase of 2% on a reported basis and an increase of 5% operationally compared with the third quarter of 2018. Sales of companion animal products grew 12% on a reported basis and 16% on an operational basis. Growth resulted primarily from increased sales across our key dermatology portfolio, the acquisition of Abaxis, and parasiticides including Simparica and Stronghold® Plus. Sales of livestock products declined 4% on a reported basis and 1% operationally. This decline was the result of the ongoing impact of African Swine Fever in China, and, to a lesser extent, other markets in Asia, which more than offset growth in the cattle and poultry portfolios. Growth in cattle products was driven by favorable market conditions in key markets including Mexico, the U.K. and Canada, but was negatively impacted by an unfavorable comparison to the prior year, which benefited from the end of the national trucking strike in Brazil. Growth in poultry products was the result of increased sales in key markets, including China, Australia and Brazil.

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 pet owners, veterinarians and farmers that span the continuum of animal healthcare - helping to predict, prevent, detect and treat diseases.

Since our last quarterly earnings announcement, Zoetis received approval in the European Union and Canada for its three-way combination parasiticide for dogs, Simparica Trio™ (sarolaner/moxidectin/pyrantel) chewable tablets and anticipates launching in these markets in the first quarter of 2020. Regulatory reviews are also underway in the U.S., Australia, Brazil and Japan, with further submissions expected globally.

The company also continues to enhance its vaccine portfolio for livestock. In October, Zoetis received United States Department of Agriculture (USDA) approval for Poulvac® Procerta™ HVT-ND, the company’s first vector vaccine that will help protect against Marek’s disease and Newcastle disease, highly contagious viral infections affecting poultry. The product is the first in what the company expects to become an important new global poultry vaccine franchise over the next several years. In cattle, the company continues to expand the Bovi-Shield® vaccine franchise in important markets with the approval of Bovi-Shield Gold One Shot in Brazil. This vaccine, approved in the U.S. in 2013, as well as in Canada and Mexico, helps prevent certain bovine respiratory diseases.

In addition to new product approvals and lifecycle innovations, Zoetis continues to support future growth through business development activities. The company announced last week that it has completed the acquisition of Phoenix Lab as an entry to the veterinary reference laboratory space. The acquisition will further build upon Zoetis’ 2018 purchase of Abaxis, a leading provider of veterinary point-of-care diagnostic instruments. Headquartered near Seattle, Phoenix Lab brings Zoetis a reference laboratory highly valued by veterinarians for quality assurance and customer care.

FINANCIAL GUIDANCE

Zoetis is updating its full year 2019 guidance, which includes:

  • Revenue between $6.200 billion and $6.250 billion
  • Reported diluted EPS between $2.99 and $3.08
  • Adjusted diluted EPS between $3.57 and $3.62

This guidance reflects foreign exchange rates as of late October. 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 third 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 Nov. 7, 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

 

 

 

Nine Months Ended

 

 

September 30,

 

 

 

September 30,

 

 

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

Revenue

$

1,584

 

 

$

1,480

 

 

7

 

$

4,586

 

 

$

4,261

 

 

8

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

479

 

 

473

 

 

1

 

1,462

 

 

1,367

 

 

7

Selling, general and administrative expenses

391

 

 

367

 

 

7

 

1,166

 

 

1,064

 

 

10

Research and development expenses

112

 

 

108

 

 

4

 

325

 

 

307

 

 

6

Amortization of intangible assets

38

 

 

32

 

 

19

 

115

 

 

78

 

 

47

Restructuring charges and certain acquisition-related costs

6

 

 

47

 

 

(87)

 

33

 

 

54

 

 

(39)

Interest expense

56

 

 

54

 

 

4

 

167

 

 

147

 

 

14

Other (income)/deductions–net

(26

)

 

(19

)

 

37

 

(46

)

 

(28

)

 

64

Income before provision for taxes on income

528

 

 

418

 

 

26

 

1,364

 

 

1,272

 

 

7

Provision for taxes on income

95

 

 

71

 

 

34

 

248

 

 

193

 

 

28

Net income before allocation to noncontrolling interests

433

 

 

347

 

 

25

 

1,116

 

 

1,079

 

 

3

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

(4

)

 

*

Net income attributable to Zoetis

$

433

 

 

$

347

 

 

25

 

$

1,116

 

 

$

1,083

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share—basic

$

0.91

 

 

$

0.72

 

 

26

 

$

2.33

 

 

$

2.24

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share—diluted

$

0.90

 

 

$

0.71

 

 

27

 

$

2.31

 

 

$

2.22

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares used to calculate earnings per share

 

 

 

 

 

 

 

 

 

 

 

Basic

477.8

 

 

482.0

 

 

 

 

478.7

 

 

483.9

 

 

 

Diluted

481.5

 

 

485.8

 

 

 

 

482.3

 

 

487.7

 

 

 

(a)

  The condensed consolidated statements of income present the quarter and nine months ended September 30, 2019 and September 30, 2018. Subsidiaries operating outside the United States are included for the quarter and nine months ended August 31, 2019 and August 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 September 30, 2019

 

GAAP
Reported(a)

 

Purchase
Accounting
Adjustments

 

Acquisition-
Related
Costs(1)

 

Certain
Significant
Items(2)

 

Non-GAAP
Adjusted(b)

Cost of sales

$

479

 

 

$

(3

)

 

$

 

 

$

(3

)

 

$

473

 

Gross profit

1,105

 

 

3

 

 

 

 

3

 

 

1,111

 

Selling, general and administrative expenses

391

 

 

(18

)

 

 

 

 

 

373

 

Amortization of intangible assets

38

 

 

(34

)

 

 

 

 

 

4

 

Restructuring charges and certain acquisition-related costs

6

 

 

 

 

(6

)

 

 

 

 

Other (income)/deductions–net

(26

)

 

 

 

 

 

20

 

 

(6

)

Income before provision for taxes on income

528

 

 

55

 

 

6

 

 

(17

)

 

572

 

Provision for taxes on income

95

 

 

26

 

 

1

 

 

(5

)

 

117

 

Net income attributable to Zoetis

433

 

 

29

 

 

5

 

 

(12

)

 

455

 

Earnings per common share attributable to Zoetis–diluted

0.90

 

 

0.06

 

 

0.01

 

 

(0.03

)

 

0.94

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30, 2018

 

GAAP
Reported(a)

 

Purchase
Accounting
Adjustments

 

Acquisition-
Related
Costs(1)

 

Certain
Significant
Items(2)

 

Non-GAAP
Adjusted(b)

Cost of sales

$

473

 

 

$

(9

)

 

$

 

 

$

(1

)

 

$

463

 

Gross profit

1,007

 

 

9

 

 

 

 

1

 

 

1,017

 

Selling, general and administrative expenses

367

 

 

(11

)

 

 

 

 

 

356

 

Amortization of intangible assets

32

 

 

(29

)

 

 

 

 

 

3

 

Restructuring charges and certain acquisition-related costs

47

 

 

 

 

(40

)

 

(7

)

 

 

Other (income)/deductions–net

(19

)

 

 

 

 

 

16

 

 

(3

)

Income before provision for taxes on income

418

 

 

49

 

 

40

 

 

(8

)

 

499

 

Provision for taxes on income

71

 

 

12

 

 

9

 

 

4

 

 

96

 

Net income attributable to Zoetis

347

 

 

37

 

 

31

 

 

(12

)

 

403

 

Earnings per common share attributable to Zoetis–diluted

0.71

 

 

0.08

 

 

0.06

 

 

(0.02

)

 

0.83

 

(a)

  The condensed consolidated statements of income present the quarter and nine months ended September 30, 2019 and September 30, 2018. Subsidiaries operating outside the United States are included for the quarter and nine months ended August 31, 2019 and August 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)

 

 

Nine Months Ended September 30, 2019

 

GAAP
Reported(a)

 

Purchase
Accounting
Adjustments

 

Acquisition-
Related
Costs(1)

 

Certain
Significant
Items(2)

 

Non-GAAP
Adjusted(b)

Cost of sales

$

1,462

 

 

$

(22

)

 

$

 

 

$

(76

)

 

$

1,364

 

Gross profit

3,124

 

 

22

 

 

 

 

76

 

 

3,222

 

Selling, general and administrative expenses

1,166

 

 

(54

)

 

 

 

 

 

1,112

 

Research and development expenses

325

 

 

(1

)

 

 

 

 

 

324

 

Amortization of intangible assets

115

 

 

(102

)

 

 

 

 

 

13

 

Restructuring charges and certain acquisition-related costs

33

 

 

 

 

(33

)

 

 

 

 

Other (income)/deductions–net

(46

)

 

 

 

 

 

20

 

 

(26

)

Income before provision for taxes on income

1,364

 

 

179

 

 

33

 

 

56

 

 

1,632

 

Provision for taxes on income

248

 

 

59

 

 

6

 

 

4

 

 

317

 

Net income attributable to Zoetis

1,116

 

 

120

 

 

27

 

 

52

 

 

1,315

 

Earnings per common share attributable to Zoetis–diluted

2.31

 

 

0.25

 

 

0.06

 

 

0.11

 

 

2.73

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

GAAP
Reported(a)

 

Purchase
Accounting
Adjustments

 

Acquisition-
Related
Costs(1)

 

Certain
Significant
Items(2)

 

Non-GAAP
Adjusted(b)

Cost of sales

$

1,367

 

 

$

(13

)

 

$

 

 

$

(4

)

 

$

1,350

 

Gross profit

2,894

 

 

13

 

 

 

 

4

 

 

2,911

 

Selling, general and administrative expenses

1,064

 

 

(14

)

 

 

 

(1

)

 

1,049

 

Research and development expenses

307

 

 

(1

)

 

 

 

 

 

306

 

Amortization of intangible assets

78

 

 

(67

)

 

 

 

 

 

11

 

Restructuring charges and certain acquisition-related costs

54

 

 

 

 

(41

)

 

(13

)

 

 

Other (income)/deductions–net

(28

)

 

 

 

 

 

16

 

 

(12

)

Income before provision for taxes on income

1,272

 

 

95

 

 

41

 

 

2

 

 

1,410

 

Provision for taxes on income

193

 

 

27

 

 

9

 

 

42

 

 

271

 

Net income attributable to Zoetis

1,083

 

 

68

 

 

32

 

 

(40

)

 

1,143

 

Earnings per common share attributable to Zoetis–diluted

2.22

 

 

0.14

 

 

0.06

 

 

(0.08

)

 

2.34

 

(a)

  The condensed consolidated statements of income present the quarter and nine months ended September 30, 2019 and September 30, 2018. Subsidiaries operating outside the United States are included for the quarter and nine months ended August 31, 2019 and August 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

 

Nine Months Ended

 

September 30,

 

September 30,

 

2019

 

2018

 

2019

 

2018

Transaction costs(a)

$

 

 

$

21

 

 

$

 

 

$

21

 

Integration costs(b)

4

 

 

9

 

 

13

 

 

10

 

Restructuring charges(c)

2

 

 

10

 

 

20

 

 

10

 

Total acquisition-related costs—pre-tax

6

 

 

40

 

 

33

 

 

41

 

Income taxes(d)

1

 

 

9

 

 

6

 

 

9

 

Total acquisition-related costs—net of tax

$

5

 

 

$

31

 

 

$

27

 

 

$

32

 

(a)

  Transaction costs represent external costs directly related to acquiring businesses and primarily include expenditures for banking, legal, accounting and other similar services. Included in Restructuring charges and certain acquisition-related costs.

(b)

  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.

(c)

  Represents employee termination costs, included in Restructuring charges and certain acquisition-related costs.

(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 nine months ended September 30, 2018, also includes a tax charge related to the non-deductibility of certain costs associated with the acquisition of Abaxis.

Certain amounts may reflect rounding adjustments.

(2) Certain significant items include the following:

 

 

Quarter Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

2019

 

2018

 

2019

 

2018

Operational efficiency initiative(a)

$

(20

)

 

$

(1

)

 

$

(20

)

 

$

 

Supply network strategy(b)

2

 

 

3

 

 

7

 

 

8

 

Other restructuring charges and cost-reduction/productivity initiatives(c)

 

 

8

 

 

 

 

11

 

Other(d)

1

 

 

(18

)

 

69

 

 

(17

)

Total certain significant items—pre-tax

(17

)

 

(8

)

 

56

 

 

2

 

Income taxes(e)

(5

)

 

4

 

 

4

 

 

42

 

Total certain significant items—net of tax

$

(12

)

 

$

(12

)

 

$

52

 

 

$

(40

)

(a)

  For the quarter and nine months ended September 30, 2019, primarily includes income resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites.

(b)

  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

(c)

  For the quarter and nine months ended September 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.

(d)

  For the nine months ended September 30, 2019, primarily represents a change in estimate related to inventory costing, included in Cost of sales. For the quarter and nine months ended September 30, 2018, primarily represents a net gain related to the relocation of a manufacturing site in China, included in Other (income)/deductions— net.

(e)

  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 nine months ended September 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

 

 

 

 

September 30,

 

% Change

 

 

2019

 

2018

 

Total

 

 

Foreign
Exchange

 

Operational(b)

Adjusted cost of sales

 

$

473

 

 

$

463

 

 

2

%

 

 

(6

)%

 

8

%

as a percent of revenue

 

29.9

%

 

31.3

%

 

NA

 

 

NA

 

NA

Adjusted SG&A expenses

 

373

 

 

356

 

 

5

%

 

 

(2

)%

 

7

%

Adjusted R&D expenses

 

112

 

 

108

 

 

4

%

 

 

%

 

4

%

Adjusted net income attributable to Zoetis

 

455

 

 

403

 

 

13

%

 

 

3

%

 

10

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

September 30,

 

% Change

 

 

2019

 

2018

 

Total

 

 

Foreign
Exchange

 

Operational(b)

Adjusted cost of sales

 

$

1,364

 

 

$

1,350

 

 

1

%

 

 

(7

)%

 

8

%

as a percent of revenue

 

29.7

%

 

31.7

%

 

NA

 

 

NA

 

NA

Adjusted SG&A expenses

 

1,112

 

 

1,049

 

 

6

%

 

 

(3

)%

 

9

%

Adjusted R&D expenses

 

324

 

 

306

 

 

6

%

 

 

(1

)%

 

7

%

Adjusted net income attributable to Zoetis

 

1,315

 

 

1,143

 

 

15

%

 

 

%

 

15

%

 

 

 

 

 

 

 

 

 

 

 

 

(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 Income 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

$6,200 to $6,250

Operational growth(a)

9.0% to 10.0%

Organic operational growth(b)

6.0% to 7.0%

Adjusted cost of sales as a percentage of revenue(c)

Approximately 30%

Adjusted SG&A expenses(c)

$1,525 to $1,550

Adjusted R&D expenses(c)

$445 to $455

Adjusted interest expense and other (income)/deductions(c)

Approximately $190

Effective tax rate on adjusted income(c)

Approximately 20%

Adjusted diluted EPS(c)

$3.57 to $3.62

Adjusted net income(c)

$1,720 to $1,745

Operational growth(a)(d)

11% to 14%

Certain significant items and acquisition-related costs(e)

$110 to $130

The guidance reflects foreign exchange rates as of late October 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%

~ (1.3%)

~ (0.5%)

~ 30.0%

SG&A expenses

$1,605 to $1,630

~ ($5)

($75)

$1,525 to $1,550

R&D expenses

$447 to $457

 

($2)

$445 to $455

Interest expense and other (income)/deductions

~ $170

$20

 

~ $190

Effective tax rate

~ 19%

 

~ 1%

~ 20%

Diluted EPS

$2.99 to $3.08

$0.19 to $0.23

$0.35

$3.57 to $3.62

Net income attributable to Zoetis

$1,440 to $1,485

$90 to $110

~ $170

$1,720 to $1,745

(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

 

 

 

 

September 30,

 

% Change

 

 

2019

 

2018

 

Total

 

 

Foreign
Exchange

 

Operational(b)

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Livestock

 

$

731

 

 

$

778

 

 

(6

)%

 

 

(2

)%

 

(4

)%

Companion Animal

 

834

 

 

688

 

 

21

%

 

 

(2

)%

 

23

%

Contract Manufacturing & Human Health

 

19

 

 

14

 

 

36

%

 

 

*

 

*

Total Revenue

 

$

1,584

 

 

$

1,480

 

 

7

%

 

 

(2

)%

 

9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

 

 

 

 

 

 

 

 

 

Livestock

 

$

294

 

 

$

322

 

 

(9

)%

 

 

%

 

(9

)%

Companion Animal

 

550

 

 

435

 

 

26

%

 

 

%

 

26

%

Total U.S. Revenue

 

$

844

 

 

$

757

 

 

11

%

 

 

%

 

11

%

 

 

 

 

 

 

 

 

 

 

 

 

International

 

 

 

 

 

 

 

 

 

 

 

Livestock

 

$

437

 

 

$

456

 

 

(4

)%

 

 

(3

)%

 

(1

)%

Companion Animal

 

284

 

 

253

 

 

12

%

 

 

(4

)%

 

16

%

Total International Revenue

 

$

721

 

 

$

709

 

 

2

%

 

 

(3

)%

 

5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Livestock:

 

 

 

 

 

 

 

 

 

 

 

Cattle

 

$

389

 

 

$

417

 

 

(7

)%

 

 

(2

)%

 

(5

)%

Swine

 

142

 

 

160

 

 

(11

)%

 

 

(1

)%

 

(10

)%

Poultry

 

135

 

 

130

 

 

4

%

 

 

(1

)%

 

5

%

Fish

 

42

 

 

46

 

 

(9

)%

 

 

(4

)%

 

(5

)%

Other

 

23

 

 

25

 

 

(8

)%

 

 

(7

)%

 

(1

)%

Total Livestock Revenue

 

$

731

 

 

$

778

 

 

(6

)%

 

 

(2

)%

 

(4

)%

 

 

 

 

 

 

 

 

 

 

 

 

Companion Animal:

 

 

 

 

 

 

 

 

 

 

 

Dogs and Cats

 

$

789

 

 

$

653

 

 

21

%

 

 

(1

)%

 

22

%

Horses

 

45

 

 

35

 

 

29

%

 

 

(5

)%

 

34

%

Total Companion Animal Revenue

 

$

834

 

 

$

688

 

 

21

%

 

 

(2

)%

 

23

%

 

 

 

 

 

 

 

 

 

 

 

 

(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)

 

 

 

Nine Months Ended

 

 

 

 

September 30,

 

% Change

 

 

2019

 

2018

 

Total

 

 

Foreign
Exchange

 

Operational(b)

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Livestock

 

$

2,162

 

 

$

2,282

 

 

(5

)%

 

 

(4

)%

 

(1

)%

Companion Animal

 

2,361

 

 

1,949

 

 

21

%

 

 

(3

)%

 

24

%

Contract Manufacturing & Human Health

 

63

 

 

30

 

 

*

 

 

*

 

*

Total Revenue

 

$

4,586

 

 

$

4,261

 

 

8

%

 

 

(3

)%

 

11

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

 

 

 

 

 

 

 

 

 

Livestock

 

$

847

 

 

$

885

 

 

(4

)%

 

 

%

 

(4

)%

Companion Animal

 

1,495

 

 

1,183

 

 

26

%

 

 

%

 

26

%

Total U.S. Revenue

 

$

2,342

 

 

$

2,068

 

 

13

%

 

 

%

 

13

%

 

 

 

 

 

 

 

 

 

 

 

 

International

 

 

 

 

 

 

 

 

 

 

 

Livestock

 

$

1,315

 

 

$

1,397

 

 

(6

)%

 

 

(6

)%

 

%

Companion Animal

 

866

 

 

766

 

 

13

%

 

 

(7

)%

 

20

%

Total International Revenue

 

$

2,181

 

 

$

2,163

 

 

1

%

 

 

(6

)%

 

7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Livestock:

 

 

 

 

 

 

 

 

 

 

 

Cattle

 

$

1,148

 

 

$

1,229

 

 

(7

)%

 

 

(4

)%

 

(3

)%

Swine

 

449

 

 

500

 

 

(10

)%

 

 

(3

)%

 

(7

)%

Poultry

 

417

 

 

395

 

 

6

%

 

 

(3

)%

 

9

%

Fish

 

90

 

 

92

 

 

(2

)%

 

 

(3

)%

 

1

%

Other

 

58

 

 

66

 

 

(12

)%

 

 

(6

)%

 

(6

)%

Total Livestock Revenue

 

$

2,162

 

 

$

2,282

 

 

(5

)%

 

 

(4

)%

 

(1

)%

 

 

 

 

 

 

 

 

 

 

 

 

Companion Animal:

 

 

 

 

 

 

 

 

 

 

 

Dogs and Cats

 

$

2,231

 

 

$

1,832

 

 

22

%

 

 

(2

)%

 

24

%

Horses

 

130

 

 

117

 

 

11

%

 

 

(5

)%

 

16

%

Total Companion Animal Revenue

 

$

2,361

 

 

$

1,949

 

 

21

%

 

 

(3

)%

 

24

%

 

 

 

 

 

 

 

 

 

 

 

 

(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

 

 

 

 

September 30,

 

% Change

 

 

2019

 

2018

 

Total

 

 

Foreign
Exchange

 

Operational(a)

Total International

 

$

720.7

 

 

$

708.8

 

 

2

%

 

 

(3

)%

 

5

%

Australia

 

52.7

 

 

53.3

 

 

(1

)%

 

 

(7

)%

 

6

%

Brazil

 

71.8

 

 

72.2

 

 

(1

)%

 

 

(2

)%

 

1

%

Canada

 

46.7

 

 

42.4

 

 

10

%

 

 

(1

)%

 

11

%

China

 

40.2

 

 

46.1

 

 

(13

)%

 

 

(4

)%

 

(9

)%

France

 

23.6

 

 

28.8

 

 

(18

)%

 

 

(3

)%

 

(15

)%

Germany

 

35.1

 

 

36.0

 

 

(3

)%

 

 

(4

)%

 

1

%

Italy

 

26.2

 

 

26.5

 

 

(1

)%

 

 

(4

)%

 

3

%

Japan

 

39.2

 

 

34.1

 

 

15

%

 

 

3

%

 

12

%

Mexico

 

29.2

 

 

23.9

 

 

22

%

 

 

%

 

22

%

Spain

 

29.1

 

 

27.8

 

 

5

%

 

 

(4

)%

 

9

%

United Kingdom

 

46.4

 

 

46.9

 

 

(1

)%

 

 

(6

)%

 

5

%

Other developed markets

 

97.5

 

 

97.7

 

 

%

 

 

(4

)%

 

4

%

Other emerging markets

 

183.0

 

 

173.1

 

 

6

%

 

 

(4

)%

 

10

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

September 30,

 

% Change

 

 

2019

 

2018

 

Total

 

 

Foreign
Exchange

 

Operational(a)

Total International

 

$

2,180.6

 

 

$

2,162.6

 

 

1

%

 

 

(6

)%

 

7

%

Australia

 

149.5

 

 

151.8

 

 

(2

)%

 

 

(9

)%

 

7

%

Brazil

 

206.1

 

 

210.1

 

 

(2

)%

 

 

(10

)%

 

8

%

Canada

 

141.5

 

 

138.4

 

 

2

%

 

 

(4

)%

 

6

%

China

 

155.7

 

 

170.1

 

 

(8

)%

 

 

(5

)%

 

(3

)%

France

 

83.0

 

 

91.5

 

 

(9

)%

 

 

(6

)%

 

(3

)%

Germany

 

110.7

 

 

111.9

 

 

(1

)%

 

 

(6

)%

 

5

%

Italy

 

81.9

 

 

79.5

 

 

3

%

 

 

(6

)%

 

9

%

Japan

 

117.6

 

 

114.1

 

 

3

%

 

 

%

 

3

%

Mexico

 

87.2

 

 

73.8

 

 

18

%

 

 

(2

)%

 

20

%

Spain

 

86.2

 

 

83.1

 

 

4

%

 

 

(6

)%

 

10

%

United Kingdom

 

145.4

 

 

135.1

 

 

8

%

 

 

(6

)%

 

14

%

Other developed markets

 

269.4

 

 

265.9

 

 

1

%

 

 

(6

)%

 

7

%

Other emerging markets

 

546.4

 

 

537.3

 

 

2

%

 

 

(8

)%

 

10

%

(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

 

 

 

 

September 30,

 

% Change

 

 

2019

 

2018

 

Total

 

 

Foreign
Exchange

 

Operational(b)

U.S.:

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

844

 

 

$

757

 

 

11

%

 

 

%

 

11

%

Cost of Sales

 

163

 

 

151

 

 

8

%

 

 

%

 

8

%

Gross Profit

 

681

 

 

606

 

 

12

%

 

 

%

 

12

%

Gross Margin

 

80.7

%

 

80.1

%

 

 

 

 

 

 

 

Operating Expenses

 

130

 

 

116

 

 

12

%

 

 

%

 

12

%

Other (income)/deductions

 

 

 

 

 

%

 

 

%

 

%

U.S. Earnings

 

$

551

 

 

$

490

 

 

12

%

 

 

%

 

12

%

 

 

 

 

 

 

 

 

 

 

 

 

International:

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

721

 

 

$

709

 

 

2

%

 

 

(3

)%

 

5

%

Cost of Sales

 

234

 

 

226

 

 

4

%

 

 

(7

)%

 

11

%

Gross Profit

 

487

 

 

483

 

 

1

%

 

 

(1

)%

 

2

%

Gross Margin

 

67.5

%

 

68.1

%

 

 

 

 

 

 

 

Operating Expenses

 

134

 

 

131

 

 

2

%

 

 

(4

)%

 

6

%

Other (income)/deductions

 

 

 

(1

)

 

*

 

 

*

 

*

International Earnings

 

$

353

 

 

$

353

 

 

%

 

 

(1

)%

 

1

%

 

 

 

 

 

 

 

 

 

 

 

 

Total Reportable Segments

 

$

904

 

 

$

843

 

 

7

%

 

 

(1

)%

 

8

%

 

 

 

 

 

 

 

 

 

 

 

 

Other business activities(c)

 

(87

)

 

(84

)

 

4

%

 

 

 

 

 

Reconciling Items:

 

 

 

 

 

 

 

 

 

 

 

Corporate(d)

 

(172

)

 

(178

)

 

(3

)%

 

 

 

 

 

Purchase accounting adjustments(e)

 

(55

)

 

(49

)

 

12

%

 

 

 

 

 

Acquisition-related costs(f)

 

(6

)

 

(40

)

 

(85

)%

 

 

 

 

 

Certain significant items(g)

 

17

 

 

8

 

 

*

 

 

 

 

 

Other unallocated(h)

 

(73

)

 

(82

)

 

(11

)%

 

 

 

 

 

Total Earnings(i)

 

$

528

 

 

$

418

 

 

26

%

 

 

 

 

 

(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 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)

 

 

 

Nine Months Ended

 

 

 

 

September 30,

 

% Change

 

 

2019

 

2018

 

Total

 

 

Foreign
Exchange

 

Operational(b)

U.S.:

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

2,342

 

 

$

2,068

 

 

13

%

 

 

%

 

13

%

Cost of Sales

 

468

 

 

431

 

 

9

%

 

 

%

 

9

%

Gross Profit

 

1,874

 

 

1,637

 

 

14

%

 

 

%

 

14

%

Gross Margin

 

80.0

%

 

79.2

%

 

 

 

 

 

 

 

Operating Expenses

 

367

 

 

328

 

 

12

%

 

 

%

 

12

%

Other (income)/deductions

 

 

 

 

 

%

 

 

%

 

%

U.S. Earnings

 

$

1,507

 

 

$

1,309

 

 

15

%

 

 

%

 

15

%

 

 

 

 

 

 

 

 

 

 

 

 

International:

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

2,181

 

 

$

2,163

 

 

1

%

 

 

(6

)%

 

7

%

Cost of Sales

 

662

 

 

689

 

 

(4

)%

 

 

(10

)%

 

6

%

Gross Profit

 

1,519

 

 

1,474

 

 

3

%

 

 

(5

)%

 

8

%

Gross Margin

 

69.6

%

 

68.1

%

 

 

 

 

 

 

 

Operating Expenses

 

412

 

 

411

 

 

%

 

 

(7

)%

 

7

%

Other (income)/deductions

 

 

 

2

 

 

*

 

 

*

 

*

International Earnings

 

$

1,107

 

 

$

1,061

 

 

4

%

 

 

(5

)%

 

9

%

 

 

 

 

 

 

 

 

 

 

 

 

Total Reportable Segments

 

$

2,614

 

 

$

2,370

 

 

10

%

 

 

(2

)%

 

12

%

 

 

 

 

 

 

 

 

 

 

 

 

Other business activities(c)

 

(246

)

 

(247

)

 

%

 

 

 

 

 

Reconciling Items:

 

 

 

 

 

 

 

 

 

 

 

Corporate(d)

 

(512

)

 

(470

)

 

9

%

 

 

 

 

 

Purchase accounting adjustments(e)

 

(179

)

 

(95

)

 

88

%

 

 

 

 

 

Acquisition-related costs(f)

 

(33

)

 

(41

)

 

(20

)%

 

 

 

 

 

Certain significant items(g)

 

(56

)

 

(2

)

 

*

 

 

 

 

 

Other unallocated(h)

 

(224

)

 

(243

)

 

(8

)%

 

 

 

 

 

Total Earnings(i)

 

$

1,364

 

 

$

1,272

 

 

7

%

 

 

 

 

 

(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 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.

 

Multimedia Files:

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Contact:

Media:
Bill Price
1-973-443-2742 (o)
william.price@zoetis.com

Kristen Seely
1-973-443-2777 (o)
kristen.seely@zoetis.com

Investors:
Steve Frank
1-973-822-7141 (o)
steve.frank@zoetis.com

Marissa Patel
1-973-443-2996 (o)
marissa.patel@zoetis.com