10-QPeriod: Q3 FY2018

Zoetis Inc. Quarterly Report for Q3 Ended Sep 30, 2018

Filed November 1, 2018For Securities:ZTS

Summary

Zoetis Inc. reported strong financial results for the nine months ended September 30, 2018, with total revenue increasing by 11% to $4,261 million compared to the same period in the prior year. This growth was driven by a combination of price increases (2%), increased volume from in-line products (4%), new product introductions (2%), and the significant acquisition of Abaxis, which contributed 1% to revenue. The company also benefited from favorable foreign exchange movements, which added 2% to reported revenue growth. Net income attributable to Zoetis Inc. saw a substantial increase of 38% year-over-year, reaching $1,083 million. This was aided by a significant decrease in the effective tax rate, largely due to the Tax Cuts and Jobs Act of 2017, which reduced the U.S. federal corporate tax rate. The company also experienced increased operating expenses, including higher R&D spending and integration costs related to the Abaxis acquisition. Despite these increases, the overall profitability metrics demonstrate robust performance, highlighting Zoetis's continued market leadership and successful integration of strategic acquisitions.

Financial Highlights

54 data points
Beta

Revenue

$1.48B

68.0% Gross Margin

Net Income

$347.00M

23.4% Net Margin

EPS (Diluted)

$0.71

Total Assets

$10.46B

Cash & Equivalents

$1.29B

Free Cash Flow

$476.00M

Financial Statements
Beta
Revenue$1.48B
Cost of Revenue$473.00M
Gross Profit$1.01B
SG&A Expenses$367.00M
Operating Expenses$1.01B
Interest Expense$54.00M
Net Income$347.00M
EPS (Basic)$0.72
EPS (Diluted)$0.71
Shares Outstanding (Basic)482.00M
Shares Outstanding (Diluted)485.80M

Key Highlights

  • 1Total revenue for the nine months ended September 30, 2018, increased by 11% to $4,261 million compared to the prior year, driven by price, volume, new products, and the Abaxis acquisition.
  • 2Net income attributable to Zoetis Inc. grew by 38% to $1,083 million for the nine months ended September 30, 2018.
  • 3The effective tax rate decreased significantly to 15.2% for the nine months ended September 30, 2018, from 28.6% in the prior year, primarily due to the Tax Cuts and Jobs Act.
  • 4The acquisition of Abaxis, a diagnostics company, was completed on July 31, 2018, for approximately $1,962 million, contributing to revenue and goodwill.
  • 5Restructuring charges and acquisition-related costs increased significantly to $54 million for the nine months ended September 30, 2018, mainly due to integration costs and employee termination costs related to the Abaxis acquisition.
  • 6Interest expense increased by 18% for the nine months ended September 30, 2018, primarily due to the issuance of $1.5 billion in senior notes to finance the Abaxis acquisition.
  • 7Cash provided by operating activities increased by 63% to $1,206 million for the nine months ended September 30, 2018, indicating strong operational cash generation.

Frequently Asked Questions

The acquisition of Abaxis, completed on July 31, 2018, contributed approximately 1% to revenue growth for the nine months ended September 30, 2018. It also led to an increase in goodwill and identifiable intangible assets, as well as higher operating expenses including amortization, R&D, and acquisition-related costs due to integration efforts.

The Tax Cuts and Jobs Act of 2017 significantly reduced the U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018. This, along with a measurement-period adjustment related to the one-time mandatory deemed repatriation tax, led to a substantial decrease in Zoetis's effective tax rate to 15.2% for the nine months ended September 30, 2018, from 28.6% in the prior year, thereby boosting net income.

Zoetis demonstrated strong revenue growth of 11% for the nine months ended September 30, 2018, driven by a balanced strategy of price increases, volume growth from existing products, new product launches, and strategic acquisitions like Abaxis. The company's diversified portfolio across livestock and companion animals, along with its global presence, positions it for continued growth in the animal health market.

Zoetis has a substantial debt load, with long-term debt totaling $6,441 million as of September 30, 2018. The company issued $1.5 billion in senior notes in August 2018, partially to finance the Abaxis acquisition. Zoetis maintains a $1.0 billion revolving credit facility, which was undrawn at the end of the period, and had access to additional lines of credit, indicating a solid liquidity position to meet its financial obligations.