Zoetis Reports Fourth Quarter and Full Year 2015 Results

16 Feb 2016, 00:00 AM EST

For Fourth Quarter 2015, Zoetis Delivers 6% Operational Growth in
Revenue and 29% Operational Growth in Adjusted Net Income, Excluding
Foreign Exchange

Reported Fourth Quarter 2015 Revenue of $1.3 Billion and
Reported Net Income of $22 Million, or $0.04 per Diluted Share
Fourth Quarter 2015 Adjusted Net Income of $214 Million, or
Adjusted Diluted EPS of $0.43

Reported Full Year 2015 Revenue of $4.8 Billion and Reported
Net Income of $339 Million, or $0.68 per Diluted Share
Full Year 2015 Adjusted Net Income of $889 Million, or Adjusted
Diluted EPS of $1.77

FLORHAM PARK, N.J.–(BUSINESS WIRE)–Zoetis
Inc. (NYSE:ZTS) today reported its financial results for the fourth
quarter and full year 2015 and updated its guidance for full year 2016
and 2017.

The company reported revenue of $1.3 billion for the fourth quarter of
2015, a decrease of 3% from the fourth quarter of 2014. Revenue
reflected an operational¹increase of 6%, excluding
the impact of foreign currency.

Net income for the fourth quarter of 2015 was $22 million, or $0.04 per
diluted share, a decrease of 83% and 84%, respectively, compared to the
fourth quarter of 2014; the significant decrease was primarily driven by
charges related to changes in the company’s accounting for operations in
Venezuela. Adjusted net income² for the fourth quarter of
2015 was $214 million, or $0.43 per diluted share, an increase of 5% and
8%, respectively. Adjusted net income for the fourth quarter of 2015
excludes the net impact of $192 million, or $0.39 per diluted share, for
purchase accounting adjustments, acquisition-related costs and certain
significant items. On an operational basis, adjusted net income for the
fourth quarter of 2015 increased 29%, with foreign currency having a
negative impact of 24 percentage points.

For the full year 2015, the company reported revenue of $4.8 billion,
which is flat compared with the full year 2014. Revenue reflected an
operationalincrease of 8%, with foreign currency
having a negative impact of 8 percentage points.

Net income for the full year 2015 was $339 million, or $0.68 per diluted
share, decreasing 42% and 41%, respectively, compared to the full year
2014. Adjusted net income for the full year 2015 was $889 million, or
$1.77 per diluted share, an increase of 13% compared with full year
2014. Adjusted net income for the full year 2015 excludes the net impact
of $550 million, or $1.09 per diluted share, for purchase accounting
adjustments, acquisition-related costs and certain significant items. On
an operational basis, adjusted net income for the full year 2015
increased 24%, with foreign currency having a negative impact of 11
percentage points.

EXECUTIVE COMMENTARY

“In 2015, Zoetis continued to affirm our reputation as the global leader
in the animal health industry with a strong financial performance,
ongoing investments in our future growth, and a commitment to creating
value for our customers and our shareholders,” said Juan Ramón Alaix,
Chief Executive Officer at Zoetis. “In our three years as a public
company, we have been delivering consistent operational revenue growth,
and we expect our 2015 growth to show once again that we are growing
faster than the industry.”

“We also grew our adjusted net income faster than sales as we focus on
greater efficiency in our business,” continued Alaix. “We continue to
have confidence in our end markets, business model, new product
launches, improved product supply and progress toward our efficiency
goals. Despite the negative impacts of foreign currency and Venezuela,
we are pleased to reaffirm our 2016 and 2017 guidance for adjusted
earnings per share, which was updated in January to reflect the European
Commission tax decision.”

“We delivered 6% operational revenue growth in the fourth quarter, which
is particularly notable as compared against a strong fourth quarter of
2014,” said Paul Herendeen, Chief Financial Officer at Zoetis. “Our
commitment to improving the efficiency of our operations – expenses were
down 8% operationally in the quarter – enabled us to grow adjusted net
income by 29% operationally.”

“Our industry and our company continue to grow despite turbulence in
parts of the global economy. For 2015, we delivered operational revenue
growth of 8%, extending our history of growing faster than the animal
health market,” said Herendeen. “The same drivers that made 2015 a
financial success for Zoetis — a resilient and growing animal health
industry, new products, lifecycle innovations, business development
activities and fast-paced improvements to our cost structure — give us
great confidence in our future.”

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 fourth quarter of 2015:

Revenue in the U.S. segment was $636 million, an increase of 8%
compared with the fourth quarter of 2014. Sales of companion animal
products grew 30%, due to the addition of products acquired from
Abbott Animal Health and increased availability of APOQUEL^®.
Sales of livestock products declined 5%, primarily in swine and cattle
products, due to the timing of seasonal buying patterns compared with
the prior year.
Revenue in the International segment was $624 million, an
increase of 3% operationally compared with the fourth quarter of 2014.
Sales of companion animal products grew 6% operationally, led by
increased availability of APOQUEL in the UK and other European
markets, timing of buying patterns in Japan, and continued growth of
vaccines in China. Sales of livestock products grew 2% operationally,
led by growth in Brazil, Spain and Mexico. Growth in Brazil was due to
strength in the cattle market and successful new product launches.
Growth in Spain was driven by strong performance in swine, while
growth in Mexico was due to performance of key brands in cattle and
swine. Livestock growth in these markets was offset by business
reductions in Venezuela and India, weakness in anti-infective sales in
Western Europe, and unfavorable weather conditions in the UK.

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 innovative medicines, treatments and
solutions for emerging diseases and unmet customer needs. Some recent
highlights include:

Zoetis received approval in the European Union and New Zealand for SIMPARICA™
(sarolaner), a new oral parasiticide for dogs that will help the
company compete in the approximately $3 billion global market of flea
and tick products. Zoetis is also on track for approval in the U.S. in
the first quarter of 2016 and expects to launch there and in the EU at
that time, with other global markets to follow.
Zoetis continued to broaden its innovative vaccine offerings for both
companion animal and livestock as it strengthens its portfolio and
focus on disease prevention.

In November, the company was granted a conditional license from the
U.S. Department of Agriculture (USDA) to market Canine Influenza
Vaccine, H3N2, Killed Virus, the first conditionally licensed
vaccine to help control disease associated with canine influenza virus
H3N2 (CIV H3N2).
Zoetis also expanded its INNOVATOR® horse vaccine franchise in
the U.S. in November with the launch of LEPTO EQ INNOVATOR®, the first
and only vaccine licensed for use in horses, six months of age or
older, to aid in the prevention of leptospirosis caused by L. Pomona.
In December, the company received USDA licensure for VANGUARD®crLyme,
a vaccine that aids in the prevention of clinical disease and
subclinical arthritis associated with Borrelia burgdorferi, the
causative agent of Lyme disease in dogs.
Shortly after the company closed its deal in the fourth quarter to
acquire PHARMAQ, the global leader in vaccines for aquaculture,
one of their new vaccines for salmon received an emergency license in
Chile, one of the world’s largest farmed fish markets.

As part of bringing lifecycle innovation to its existing portfolio,
Zoetis received approvals for new indications and formulations of key
products.

In January, Zoetis received FDA approval for an update to the labeling
for CERENIA® (maropitant citrate) Injectable, which allows for
intravenous administration during surgical protocols, which use
medication that induces vomiting. Previously approved only for
subcutaneous injection, this CERENIA label update gives veterinarians
the flexibility of an additional delivery option to help prevent
vomiting in canine and feline patients.
The company also launched a new formulation of LUTALYSE®, a
reproductive product for use in dairy and beef cattle, in the U.S.
LUTALYSE HighCon is the first and only prostaglandin on the market
approved by the FDA for subcutaneous administration in addition to
intramuscular administration. This approval provides producers and
veterinarians with flexible administration options while allowing them
to abide by strict dairy and beef quality assurance standards.

FINANCIAL GUIDANCE

Zoetis’ guidance for the full year 2016 and the full year 2017 continues
to reflect the company’s confidence in its diverse portfolio, the
strength of its business model, and the stability and predictability of
the animal health industry. The guidance includes the previously
announced impact of the European Commission decision regarding Belgium
tax rulings.

Zoetis has also updated elements of its guidance today to reflect
foreign exchange rates as of late January, changes related to the
company’s accounting for its operations in Venezuela, and other
operational views. Considering these factors, the company’s guidance for
the full year 2016 and the full year 2017 is the following:

Full Year 2016:

Revenue of between $4.650 billion to $4.775 billion
Reported diluted EPS for the full year of between $1.30 to $1.48 per
share
Adjusted diluted EPS for the full year between $1.71 to $1.81 per share

Full Year 2017:

Revenue of between $4.950 billion to $5.150 billion
Reported diluted EPS for the full year of between $1.95 to $2.13 per
share
Adjusted diluted EPS for the full year between $2.18 to $2.32 per share

“Despite the continued negative impact of foreign currency since we
provided guidance in November, we have been able to offset that impact
on our adjusted diluted EPS, based on the strong momentum in our
business, advancement of our R&D pipeline and successful execution of
our efficiency plans,” said Paul Herendeen, Chief Financial Officer at
Zoetis.

Additional guidance on other items such as expenses and tax rate is
included in the financial tables and will be discussed on the company’s
conference call this morning.

WEBCAST & CONFERENCE CALL DETAILS

Zoetis will host a webcast and conference call at 8:30 a.m. (EST) today,
during which company executives will review fourth quarter and full year
2015 results, discuss 2016 and 2017 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://www.zoetis.com/events-and-presentations.
A replay of the webcast will be archived and made available on Feb. 16,
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 Operational revenue growth is defined as revenue
growth excluding the impact of foreign exchange.

²Adjusted 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.

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 other future events. In particular,
this press release contains forward looking statements that reflect the
current views of Zoetis with respect to our tax rate and tax regimes,
changes in the tax regimes in other jurisdictions and challenges to our
efforts to mitigate the impact of tax decisions such as the recent one
by the European Commission. 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.


ZOETIS INC. CONSOLIDATED STATEMENTS OF INCOME^(a) (UNAUDITED) (millions of dollars, except per share data)


	Fourth Quarter							Full Year
	2015			2014			% Change	2015		2014		% Change
Revenue	$	1,274		$	1,320		(3)	$	4,765	$	4,785	—
Costs and expenses:
Cost of sales^(b)	496			491			1	1,738		1,717		1
Selling, general and administrative expenses^(b)	425			497			(14)	1,532		1,643		(7)
Research and development expenses^(b)	109			124			(12)	364		396		(8)
Amortization of intangible assets^(c)	16			14			14	61		60		2
Restructuring charges and certain acquisition-related costs	40			15			*	320		25		*
Interest expense	38			30			27	124		117		6
Other (income)/deductions–net	81			(6		)	*	81		7		*
Income before provision for taxes on income	69			155			(55)	545		820		(34)
Provision for taxes on income	49			29			69	206		233		(12)
Net income before allocation to noncontrolling interests	20			126			(84)	339		587		(42)
Less: Net income (loss) attributable to noncontrolling interests	(2		)	—			*	—		4		*
Net income attributable to Zoetis	$	22		$	126		(83)	$	339	$	583	(42)

Earnings per share—basic	$	0.04		$	0.25		(84)	$	0.68	$	1.16	(41)

Earnings per share—diluted	$	0.04		$	0.25		(84)	$	0.68	$	1.16	(41)

Weighted-average shares used to calculate earnings per share (in thousands)
Basic	498,271			501,560				499,707		501,055
Diluted	500,639			503,269				502,019		502,025

* Calculation not meaningful.

(a)		The consolidated statements of income present the three and twelve months ended December 31, 2015 and 2014. Subsidiaries operating outside the United States are included for the three and twelve months ended November 30, 2015 and 2014.

(b)		Exclusive of amortization of intangible assets, except as discussed in footnote (c) below.

(c)		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.

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 December 31, 2015
	GAAP Reported⁽¹⁾			Purchase Accounting Adjustments			Acquisition- Related Costs⁽²⁾			Certain Significant Items⁽³⁾			Non-GAAP Adjusted^(a)
Revenue	$	1,274		$	—		$	—		$	—			$	1,274
Cost of sales^(b)	496			(2		)	—			(27		)		467
Gross profit	778			2			—			27				807
Selling, general and administrative expenses^(b)	425			—			—			(35		)		390
Research and development expenses^(b)	109			(1		)	—			(2		)		106
Amortization of intangible assets^(c)	16			(13		)	—			—				3
Restructuring charges and certain acquisition-related costs	40			—			(10		)	(30		)		—
Interest expense	38			—			—			—				38
Other (income)/deductions–net	81			—			—			(92		)		(11		)
Income before provision for taxes on income	69			16			10			186				281
Provision for taxes on income	49			4			1			15				69
Income from continuing operations	20			12			9			171				212
Net loss attributable to noncontrolling interests	(2		)	—			—			—				(2		)
Net income attributable to Zoetis	22			12			9			171				214
Earnings per common share attributable to Zoetis–diluted^(d)	0.04			0.03			0.02			0.34				0.43

	Quarter Ended December 31, 2014
	GAAP Reported⁽¹⁾			Purchase Accounting Adjustments			Acquisition- Related Costs⁽²⁾			Certain Significant Items⁽³⁾			Non-GAAP Adjusted^(a)
Revenue	$	1,320		$	—		$	—		$	—			$	1,320
Cost of sales^(b)	491			(1		)	—			(19		)		471
Gross profit	829			1			—			19				849
Selling, general and administrative expenses^(b)	497			(1		)	—			(46		)		450
Research and development expenses^(b)	124			(1		)	—			(1		)		122
Amortization of intangible assets^(c)	14			(10		)	—			—				4
Restructuring charges and certain acquisition-related costs	15			—			(3		)	(12		)		—
Interest expense	30			—			—			—				30
Other (income)/deductions–net	(6		)	—			—			—				(6		)
Income before provision for taxes on income	155			13			3			78				249
Provision for taxes on income	29			4			1			12				46
Net income attributable to Zoetis	126			9			2			66				203
Earnings per common share attributable to Zoetis–diluted^(d)	0.25			0.02			—			0.13				0.40


ZOETIS INC. RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION CERTAIN LINE ITEMS (UNAUDITED) (millions of dollars, except per share data)

	Twelve Months Ended December 31, 2015
	GAAP Reported⁽¹⁾		Purchase Accounting Adjustments			Acquisition- Related Costs⁽²⁾			Certain Significant Items⁽³⁾			Non-GAAP Adjusted^(a)
Revenue	$	4,765	$	—		$	—		$	—		$	4,765
Cost of sales^(b)	1,738		(9		)	—			(62		)	1,667
Gross profit	3,027		9			—			62			3,098
Selling, general and administrative expenses^(b)	1,532		—			—			(133		)	1,399
Research and development expenses^(b)	364		(2		)	—			(2		)	360
Amortization of intangible assets^(c)	61		(46		)	—			—			15
Restructuring charges and certain acquisition-related costs	320		—			(19		)	(301		)	—
Interest expense	124		—			—			—			124
Other (income)/deductions–net	81		—			(2		)	(94		)	(15		)
Income before provision for taxes on income	545		57			21			592			1,215
Provision for taxes on income	206		18			(1		)	103			326
Net income attributable to Zoetis	339		39			22			489			889
Earnings per common share attributable to Zoetis–diluted^(d)	0.68		0.08			0.04			0.97			1.77

	Twelve Months Ended December 31, 2014
	GAAP Reported⁽¹⁾		Purchase Accounting Adjustments			Acquisition- Related Costs⁽²⁾			Certain Significant Items⁽³⁾			Non-GAAP Adjusted^(a)
Revenue	$	4,785	$	—		$	—		$	—		$	4,785
Cost of sales^(b)	1,717		(4		)	—			(33		)	1,680
Gross profit	3,068		4			—			33			3,105
Selling, general and administrative expenses^(b)	1,643		—			—			(136		)	1,507
Research and development expenses^(b)	396		(2		)	—			(1		)	393
Amortization of intangible assets^(c)	60		(45		)	—			—			15
Restructuring charges and certain acquisition-related costs	25		—			(8		)	(17		)	—
Interest expense	117		—			—			—			117
Other (income)/deductions–net	7		—			—			(18		)	(11		)
Income before provision for taxes on income	820		51			8			205			1,084
Provision for taxes on income	233		17			3			37			290
Income from continuing operations	587		34			5			168			794
Net loss attributable to noncontrolling interests	4		—			—			—			4
Net income attributable to Zoetis	583		34			5			168			790
Earnings per common share attributable to Zoetis–diluted^(d)	1.16		0.07			0.01			0.33			1.57

(a)		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.

(b)		Exclusive of amortization of intangible assets, except as discussed in footnote (c) below.

(c)		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.

(d)		EPS amounts may not add due to rounding.

See Notes to Reconciliation of GAAP Reported to Non-GAAP Adjusted Information for notes (1), (2) and (3).

Certain amounts may reflect rounding adjustments.

Contacts

Zoetis Inc.
Media:
Bill
Price, 1-973-443-2742 (o)
william.price@zoetis.com
or
Elinore
White, 1-973-443-2835 (o)
elinore.y.white@zoetis.com
or
Investors:
John
O’Connor, 1-973-822-7088 (o)
john.oconnor@zoetis.com
or
Steve
Frank, 1-973-822-7141 (o)
steve.frank@zoetis.com