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Zoetis Reports Third Quarter 2015 Results

The following excerpt is from the company's SEC filing.

Delivers 9% Operational Growth in Revenue and 31% Operational Growth in Adjusted Net Income, Excluding Foreign Exchange

Third Quarter 2015 Reported Revenue of $1.2 Billion was Flat Compared to Third Quarter 2014

Third Quarter 2015 Reported Net Income of $189 Million, or $0.38 Per Diluted Share, Increased 14% and 15%, Respectively, Compared to Third Quarter 2014

Third Quarter 2015 Adjusted Net Income

of $252 Million, or Adjusted Diluted EPS

of $0.50, Increased 22% Compared to Third Quarter 2014

Updates Full Year 2015 Revenue Guidance to $4.700 - $4.750 Billion and Full Year 2015 Adjusted Diluted EPS

Guidance to $1.70 - $1.74

Updates Financial Outlook for Full Year 2016 and 2017

FLORHAM PARK, N.J.

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 operational

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 income

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.

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 SIMPARICA

, a once-monthly chewable oral 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 EPS

of between $1.70 to $1.74 per share

The company also provided updates to its long-term outlook for:

Revenue of $4.750 billion to $4.875 billion

Reported diluted EPS of between $1.50 to $1.68 per share

Adjusted cost of sales

as a percentage of revenue of approximately 33% to 34%

Adjusted EBIT margin

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 share

as a percentage of revenue of approximately 32% to 33%

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

(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...


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