10-QPeriod: Q2 FY2014

Zoetis Inc. Quarterly Report for Q2 Ended Jun 29, 2014

Filed August 12, 2014For Securities:ZTS

Summary

Zoetis Inc. reported solid performance for the second quarter and the first half of 2014, with total revenue increasing by 4% and 6% respectively compared to the prior year periods. This growth was driven by operational improvements, including a 3% volume increase and a 3% price increase in the second quarter, and a 3% volume and 2% price increase in the first half. The company demonstrated strong performance across its geographic segments, particularly in the U.S. and emerging markets like Brazil and China. Livestock sales saw a significant increase, while companion animal sales also showed positive growth, supported by new product introductions and price adjustments in high-inflation markets. Despite revenue growth, net income attributable to Zoetis Inc. saw a more modest increase of 6% and 9% for the respective periods, reaching $136 million and $291 million. This was partly due to increased expenses in certain areas such as the build-up of enabling functions post-separation from Pfizer, and higher foreign currency losses impacting the "Other (income)/deductions—net" line. The company also navigated the complexities of its recent separation from Pfizer, incurring associated costs while managing its standalone operations. Zoetis maintained a strong liquidity position with significant cash and cash equivalents and manageable debt levels.

Financial Statements
Beta
Revenue$1.16B
Cost of Revenue$413.00M
Gross Profit$745.00M
SG&A Expenses$396.00M
Operating Expenses$953.00M
Interest Expense$29.00M
Net Income$139.00M
EPS (Basic)$0.27
EPS (Diluted)$0.27
Shares Outstanding (Basic)500.98M
Shares Outstanding (Diluted)501.68M

Key Highlights

  • 1Revenue increased by 4% to $1,158 million for the three months ended June 29, 2014, and by 2% to $2,255 million for the six months ended June 29, 2014, compared to the prior year periods.
  • 2Net income attributable to Zoetis Inc. grew by 6% to $136 million for the quarter and 9% to $291 million for the six months, indicating profitable growth.
  • 3Operational revenue growth was 6% in the second quarter and 5% in the first half, driven by a combination of volume and price increases across segments.
  • 4The U.S. segment showed strong revenue growth of 5% for the quarter and 5% for the six months, contributing significantly to overall performance.
  • 5Livestock sales increased 9% operationally for the quarter and 6% for the six months, driven by strong performance in cattle and poultry portfolios.
  • 6The company maintained a healthy balance sheet with $578 million in cash and cash equivalents and total assets of $6,522 million as of June 29, 2014.
  • 7Foreign exchange rates had an unfavorable impact on revenue, decreasing it by approximately 2% ($23 million) in the second quarter and 3% ($55 million) in the first half.

Frequently Asked Questions

Zoetis Inc. reported a 4% increase in revenue to $1,158 million for the three months ended June 29, 2014, and a 2% increase to $2,255 million for the six months ended June 29, 2014, compared to the same periods in 2013. This growth was attributed to operational improvements, including higher volume and price increases across its global segments.

Revenue growth was primarily driven by operational performance, with contributions from increased sales volume and price adjustments. The U.S. segment performed strongly, alongside solid growth in emerging markets like Brazil and China. Both livestock (especially cattle and poultry) and companion animal product sales saw increases, bolstered by new product introductions and pricing strategies in inflationary markets.

Foreign exchange rates had an unfavorable impact on Zoetis's revenue. In the second quarter of 2014, currency depreciation decreased revenue by approximately 2% ($23 million), and for the first half of the year, it decreased revenue by approximately 3% ($55 million). This was mainly due to the depreciation of currencies in countries like Brazil, Australia, Argentina, and Canada against the U.S. dollar.

Net income attributable to Zoetis Inc. increased by 6% to $136 million for the second quarter and by 9% to $291 million for the first half of 2014, compared to the prior year. While revenue grew, profitability growth was moderated by factors such as increased operating expenses related to building standalone functions post-Pfizer separation and higher foreign currency losses.