Zoetis Inc. reported on Aug. 2 its financial results for the second quarter of 2018 and updated its guidance for full year 2018.

The company reported revenue of $1.4 billion for the second quarter of 2018, an increase of 12% compared with the second quarter of 2017. Net income for the second quarter of 2018 was $384 million, or $0.79 per diluted share, an increase of 55% and 58%, respectively, on a reported basis.

Adjusted net income1 for the second quarter of 2018 was $375 million, or $0.77 per diluted share, an increase of 44% and 45%, respectively, on a reported basis. Adjusted net income for the second quarter of 2018 excludes the net impact for purchase accounting adjustments, acquisition-related costs and certain significant items.

On an operational2 basis, revenue for the second quarter of 2018 increased 9%, excluding the impact of foreign currency. Adjusted net income for the second quarter of 2018 increased 37% operationally, excluding the impact of foreign currency.

Executive commentary

“We continue to perform well through the first half of 2018 primarily based on the performance of new parasiticides and vaccines, our dermatology portfolio, as well as contributions from the rest of our in-line portfolio,” said Juan Ramón Alaix, Chief Executive Officer of Zoetis. “Our acquisition of Abaxis this week also demonstrates our ongoing commitment to strategic portfolio expansions and value creation for our customers and shareholders. We are updating our guidance to reflect the addition of Abaxis and changes in foreign exchange, and we are confident in our ability to meet these goals for the full year.”

Quarterly highlights

Zoetis organizes and manages its commercial operations across two regional segments: the United States (U.S.) and International. Within these segments, the company delivers a diverse portfolio of products for livestock and companion animals tailored to local trends and customer needs. In the second quarter of 2018:

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  • Revenue in the International segment was $728 million, an increase of 15% on a reported basis and 10% operationally compared with the second quarter of 2017. Sales of companion animal products grew 24% on a reported basis and 17% on an operational basis. Growth resulted primarily from increased sales across multiple markets for our dermatology portfolio, and two new parasiticide products, Simparica (sarolaner) for dogs and Stronghold Plus (selamectin/sarolaner) for cats. In China, we also saw increased sales of vaccines, as well as our Revolution (selamectin) parasiticide for dogs. Sales of livestock products grew 10% on a reported basis and 6% operationally, despite a decline in Brazil as a result of a national trucking industry strike. All species contributed to growth in the quarter, with cattle and swine products performing particularly well. Growth of cattle products was driven by favorable market conditions, with Canada, the UK and several smaller emerging markets also contributing to growth. Growth in our swine portfolio was largely driven by the Suvaxyn PCV combo vaccine that launched late last year, as well as a strong demand for our products in other emerging markets.
  • Revenue in the U.S. segment was $677 million, an increase of 9% compared with the second quarter of 2017. Sales of companion animal products grew 15% on a reported basis, driven primarily by our dermatology portfolio and Simparica. This growth was partially offset by lower sales of certain in-line products due to anticipated competition. Sales of livestock products grew 1%, with growth in poultry and swine, offset by cattle. Our poultry portfolio grew as a result of increased sales of alternatives to antibiotic medicated feed additives, while growth in our swine portfolio was the result of increased customer adoption of the recently launched Fostera Gold PCV MH vaccine. Sales of cattle products declined due to increased competition for certain medicated feed additives and unfavorable market conditions in dairy.

Zoetis continues to drive demand and strengthen its diverse portfolio through business development initiatives and approvals of major products in new markets. Since our last quarterly earnings announcement:

  • Zoetis completed the acquisition of Abaxis, Inc., a leader in the development, manufacture and marketing of diagnostic instruments for veterinary point-of-care services for $83 per share in cash, or approximately $2.0 billion in aggregate. The acquisition enhances Zoetis’ presence in veterinary diagnostics, a category of the animal health industry with approximately 10% compound annual growth3 over the last three years.
  • The company announced a five-year collaboration agreement with Regeneron Pharmaceuticals to develop monoclonal antibody (mAb) therapeutics. This collaboration exemplifies Zoetis’ commitment to lead the animal health industry in mAb therapeutics, and will enhance the company’s R&D platform and pipeline of monoclonal antibody therapeutics for veterinary use.
  • Zoetis continued to bring leading companion animal products to new markets.Cytopoint (lokivetmab), a mAb that is part of Zoetis’ canine dermatology portfolio, was approved in Brazil and Australia. Simparica, an oral flea and tick medication for dogs, was approved in Costa Rica. Additionally, Stronghold Plus/Revolution Plus, a topical combination parasiticide for cats was approved in Japan, New Zealand and Serbia.
  • The company continued to broaden its Fostera wine vaccine franchise with approval in Canada of Fostera Gold PCV MH. This vaccine, first approved in the U.S. earlier this year, provides livestock farmers with greater options and flexibility in protecting pigs from porcine circovirus (PCV2) and Mycoplasma hyopneumoniae (M. hyo).

Financial guidance

Zoetis is updating its full year 2018 guidance, which includes:

  • Revenue between $5.700 billion to $5.800 billion
  • Reported diluted EPS between $2.72 to $2.89
  • Adjusted diluted EPS between $3.00 to $3.10

This guidance reflects foreign exchange rates as of mid-July and includes the partial year impact of Abaxis, based on preliminary estimates for certain significant items and purchase accounting adjustments. Additional details on guidance are included in the financial tables and will be discussed on the company's conference call this morning.

1Adjusted 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.

2Operational revenue growth (a non-GAAP financial measure) is defined as growth excluding the impact of foreign exchange.

3Based on internal estimates and publicly available information.