Zoetis Inc. reported its financial results for the third quarter of 2018 on Nov. 1 and updated its guidance for full year 2018.
The company reported revenue of $1.5 billion for the third quarter of 2018, an increase of 10% compared with the third quarter of 2017. Net income for the third quarter of 2018 was $347 million, or $0.71 per diluted share, an increase of 16% on a reported basis.
Adjusted net income1 for the third quarter of 2018 was $403 million, or $0.83 per diluted share, an increase of 25% and 28%, respectively, on a reported basis. Adjusted net income for the third quarter of 2018 excludes the net impact of $56 million for purchase accounting adjustments, acquisition-related costs and certain significant items.
On an operational2 basis, revenue for the third quarter of 2018 increased 12%, excluding the impact of foreign currency. Adjusted net income for the third quarter of 2018 increased 32% operationally, excluding the impact of foreign currency.
Executive summary
“Zoetis continued delivering strong results in the third quarter, with 12% operational growth in revenue and 32% operational growth in adjusted net income,” said Juan Ramón Alaix, Chief Executive Officer of Zoetis. “Our companion animal products performed well, primarily based on our key dermatology brands, new parasiticides and the addition of the Abaxis diagnostics portfolio. Meanwhile, in livestock products, our swine, poultry and fish portfolios each delivered double-digit growth, with more modest growth in our cattle business. Our diverse portfolio provided us with steady performance across markets, species and therapeutic areas, and we continue to invest internally and externally to support future growth.”
“We are confident in our improved guidance as we complete 2018, and we expect to continue fulfilling our shareholder value proposition – growing revenue in line with or faster than the market, and growing adjusted net income faster than revenue – in the coming years,” said Alaix.
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 third quarter of 2018:
- Revenue in the U.S. segment was $757 million, an increase of 11% compared with the third quarter of 2017. Sales of companion animal products grew 20% driven primarily by our key dermatology brands, new products including Simparica, and the acquisition of Abaxis. Growth in companion animal products 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 largely offset by cattle. Our poultry business grew as a result of increased sales of alternatives to antibiotic medicated feed additives, while growth in our swine business was the result of both promotional efforts and increased customer adoption of our recently launched Fostera Gold PCV MH vaccine. Sales of cattle products declined due to resumption of supply of a competitor vaccine, as well as unfavorable market conditions in dairy.
- Revenue in the International segment was $709 million, an increase of 8% on a reported basis and 12% operationally compared with the third quarter of 2017. Sales of companion animal products grew 16% on a reported basis and 18% on an operational basis. Growth resulted primarily from increased sales across multiple markets for our key dermatology brands, new parasiticides (Simparica for dogs and Stronghold Plus for cats), and the acquisition of Abaxis. Sales of livestock products grew 5% on a reported basis and 10% operationally, with each of our core species making a significant contribution to growth. For swine, growth was largely driven by the recently launched Suvaxyn Circo+MH and PRRS vaccines in Europe, the timing of customer purchases in China, as well as strong demand for our products in other emerging markets. Growth of cattle products was primarily driven by Brazil due to a recovery from the effects of the national trucking industry strike in the prior quarter, increased local consumption of beef, and increased exports. Poultry growth was largely the result of solid performance in emerging markets. Our fish business grew on the strength of our vaccine portfolio in Norway and the UK, as well as increased customer adoption of our Alpha Ject LiVac SRS vaccine in Chile.
Zoetis continues to drive demand and strengthen its diverse portfolio through product lifecycle innovations, as well as expansion of key products into new geographies. Since our last quarterly earnings announcement:
- Zoetis received approval in the U.S. for an additional indication for Cytopoint. This novel monoclonal antibody (mAb) therapy for dogs is now approved to treat allergic dermatitis in addition to atopic dermatitis. Cytopoint is also approved in the European Union and several other international markets.
- The company enhanced its portfolio of equine vaccines with the introduction of Core EQ Innovator in the U.S., the first and only vaccine for horses to contain all five core equine disease antigens – West Nile, Eastern and Western Equine encephalomyelitis, tetanus and rabies – in one combination.
- Strengthening its portfolio in the Asia-Pacific region, Zoetis gained approvals for several key products. Draxxin 25 (tulathromycin), an injectable solution to help fight swine respiratory disease in nursery pigs, and Vanguard Plus 5, a vaccine to help protect dogs from five serious viruses, were both approved in Japan. Excenel RTU EZ (ceftiofur hydrochloride), an anti-infective that treats respiratory diseases in cattle, was approved in Australia, and Poulvac E.coli, the only commercially available modified-live E. coli vaccine for chickens, was approved in Taiwan.
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.
