10-QPeriod: Q1 FY2013

Zoetis Inc. Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 15, 2013For Securities:ZTS

Summary

Zoetis Inc. reported strong performance in the first quarter of 2013, with revenues increasing by 4% year-over-year to $1,090 million. This growth was driven by operational improvements across all geographic segments, particularly in the U.S. The company successfully navigated its separation from Pfizer and completed an Initial Public Offering (IPO) and a significant senior notes offering. Despite increased interest expenses due to the new debt, Zoetis maintained healthy profitability, with net income attributable to Zoetis Inc. rising 26% to $140 million. The company also benefited from a lower effective tax rate and a reduction in restructuring charges. Key financial activities include managing a substantial debt issuance and preparing for a potential tax-free distribution of remaining equity by Pfizer.

Financial Highlights

47 data points
Beta

Revenue

$1.09B

63.1% Gross Margin

Net Income

$140.00M

12.8% Net Margin

EPS (Diluted)

$0.28

Total Assets

$6.14B

Cash & Equivalents

$468.00M

Free Cash Flow

$259.00M

Financial Statements
Beta
Revenue$1.09B
Cost of Revenue$402.00M
Gross Profit$688.00M
SG&A Expenses$357.00M
Operating Expenses$891.00M
Interest Expense$22.00M
Net Income$140.00M
EPS (Basic)$0.28
EPS (Diluted)$0.28
Shares Outstanding (Basic)500.00M
Shares Outstanding (Diluted)500.11M

Key Highlights

  • 1Revenues grew 4% to $1.09 billion in Q1 2013 compared to Q1 2012.
  • 2Net income attributable to Zoetis Inc. increased 26% to $140 million.
  • 3Successfully completed its Initial Public Offering (IPO) and issued $3.65 billion in senior notes.
  • 4Operational revenue growth was observed across all geographic segments, with the U.S. leading the way.
  • 5Effective tax rate decreased from 34.5% to 27.1% due to tax rulings and changes in earnings mix.
  • 6Restructuring charges and acquisition-related costs decreased significantly by 72%.
  • 7Cash and cash equivalents increased by $151 million during the quarter.

Frequently Asked Questions

The separation from Pfizer was a significant event, reflected in the financial statements primarily through the issuance of $3.65 billion in senior notes to fund the separation and related activities. While this increased interest expense, the company reported revenue growth and a substantial increase in net income. The balance sheet shows significant changes, including new long-term debt and a decrease in 'Business unit equity' related to the separation transaction.

Zoetis experienced revenue growth across all its operating segments: U.S. (+7%), Europe/Africa/Middle East (EuAfME) (+5%), Canada/Latin America (CLAR) (-1% total, but +4% operationally excluding foreign exchange), and Asia/Pacific (APAC) (+1% total, but +2% operationally). The U.S. segment showed the strongest growth, driven by both livestock and companion animal products. CLAR's overall revenue was impacted by foreign exchange, but showed operational growth.

Adjusted Net Income is a non-GAAP measure that management uses internally to assess performance. It excludes items like purchase accounting adjustments, acquisition-related costs, and certain significant items (e.g., stand-up costs for becoming a standalone company). For Q1 2013, Adjusted Net Income was $179 million, compared to the reported Net Income of $140 million, indicating that the excluded items had a significant impact on reported results.

Following the senior notes offering on January 28, 2013, Zoetis has $3.65 billion in long-term debt. This is comprised of several tranches: $400 million of 1.150% senior notes due 2016, $750 million of 1.875% senior notes due 2018, $1.35 billion of 3.250% senior notes due 2023, and $1.15 billion of 4.700% senior notes due 2043. The company also has a $1 billion revolving credit facility, though no amounts were drawn as of March 31, 2013.