10-QPeriod: Q3 FY2013

Zoetis Inc. Quarterly Report for Q3 Ended Sep 29, 2013

Filed November 13, 2013For Securities:ZTS

Summary

Zoetis Inc. reported its financial results for the nine months ended September 29, 2013, marking its first period as a standalone public company following its separation from Pfizer Inc. in June 2013. The company demonstrated revenue growth, with total revenue increasing by 5% year-over-year for the nine-month period, reaching $3,307 million, driven by operational growth across all geographic segments. However, net income attributable to Zoetis Inc. decreased by 11% to $399 million, primarily due to a significant increase in selling, general, and administrative expenses, largely attributed to one-time costs associated with becoming an independent entity. The company also successfully completed a $3.65 billion senior notes offering and implemented robust financial covenants, indicating a strong focus on financial management post-separation.

Financial Highlights

49 data points
Beta

Revenue

$1.10B

65.1% Gross Margin

Net Income

$131.00M

11.9% Net Margin

EPS (Diluted)

$0.26

Total Assets

$6.26B

Cash & Equivalents

$389.00M

Free Cash Flow

$59.00M

Financial Statements
Beta
Revenue$1.10B
Cost of Revenue$385.00M
Gross Profit$718.00M
SG&A Expenses$399.00M
Operating Expenses$915.00M
Interest Expense$29.00M
Net Income$131.00M
EPS (Basic)$0.26
EPS (Diluted)$0.26
Shares Outstanding (Basic)500.00M
Shares Outstanding (Diluted)500.35M

Key Highlights

  • 1Total revenue increased by 5% to $3,307 million for the nine months ended September 29, 2013, compared to the same period in 2012.
  • 2Net income attributable to Zoetis Inc. decreased by 11% to $399 million for the nine months ended September 29, 2013, compared to the same period in 2012.
  • 3Selling, General, and Administrative (SG&A) expenses increased by 14% for the nine months ended September 29, 2013, largely due to one-time costs associated with becoming a standalone public company.
  • 4The company completed a $3.65 billion senior notes offering in January 2013 to fund its operations post-separation from Pfizer.
  • 5Cash and cash equivalents increased to $389 million as of September 29, 2013, from $317 million as of December 31, 2012.
  • 6Zoetis Inc. repaid $73 million in allocated long-term debt from Pfizer and now carries $3.642 billion in long-term debt related to the senior notes issuance.
  • 7The company reported basic and diluted EPS of $0.80 for the nine months ended September 29, 2013, down from $0.89 in the prior year period.

Frequently Asked Questions

The decrease in net income is primarily attributed to a significant increase in Selling, General, and Administrative (SG&A) expenses. This rise was largely driven by one-time costs associated with Zoetis's transition to a standalone public company following its separation from Pfizer, including expenses related to new branding, system infrastructure, and equity award adjustments.

Zoetis financed its operations through a combination of its existing cash reserves and a substantial $3.65 billion senior notes offering completed in January 2013. The company also has a $1.0 billion revolving credit facility, though it had no outstanding borrowings under it as of September 29, 2013.

The financial statements for periods prior to the separation reflect allocations from Pfizer and may not be indicative of future results as a standalone company. The current period's financial statements reflect Zoetis's operations as an independent entity, including the impact of the senior notes issuance and related interest expenses, as well as the one-time costs of the separation. This makes direct year-over-year comparisons challenging, especially regarding expense structures.

Zoetis provided financial guidance for the full year 2013, projecting revenue between $4.475 billion and $4.525 billion. The company also guided for adjusted diluted EPS in the range of $1.38 to $1.42. However, it also anticipates significant charges related to becoming a standalone company and acquisition-related costs, estimated between $220 million and $240 million.