10-QPeriod: Q1 FY2020

Zoetis Inc. Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 6, 2020For Securities:ZTS

Summary

Zoetis Inc. reported solid financial results for the first quarter of 2020, demonstrating resilience amid early signs of the COVID-19 pandemic's impact. The company saw a 5% increase in total revenue to $1.534 billion, driven by a 7% operational increase, excluding foreign exchange fluctuations. This growth was fueled by price increases, contributions from new and existing products, and recent acquisitions. Profitability also improved significantly, with net income rising 36% year-over-year to $423 million, resulting in diluted earnings per share of $0.88, up from $0.65 in the prior year. This strong performance was supported by a notable improvement in the cost of sales as a percentage of revenue, which decreased from 35.6% to 29.9%, largely due to a favorable inventory costing estimate change in the prior year and price increases. While the company acknowledges the evolving uncertainties posed by COVID-19, particularly for the second quarter, the first quarter results indicate a strong operational foundation.

Financial Highlights

50 data points
Beta

Revenue

$1.53B

70.1% Gross Margin

Net Income

$423.00M

27.6% Net Margin

EPS (Diluted)

$0.88

Total Assets

$11.53B

Cash & Equivalents

$1.95B

Free Cash Flow

$314.00M

Financial Statements
Beta
Revenue$1.53B
Cost of Revenue$459.00M
Gross Profit$1.07B
SG&A Expenses$389.00M
Interest Expense$53.00M
Net Income$423.00M
EPS (Basic)$0.89
EPS (Diluted)$0.88
Shares Outstanding (Basic)475.60M
Shares Outstanding (Diluted)479.00M

Key Highlights

  • 1Total revenue increased by 5% to $1.534 billion, with a 7% operational increase excluding foreign exchange.
  • 2Net income surged by 36% to $423 million, leading to a diluted EPS of $0.88, up from $0.65 in Q1 2019.
  • 3Cost of sales as a percentage of revenue improved significantly, decreasing from 35.6% to 29.9%.
  • 4Selling, general, and administrative expenses increased by 5% to $389 million, in line with revenue growth and acquisitions.
  • 5Research and development expenses grew by 5% to $107 million, reflecting ongoing investment in innovation.
  • 6The company ended the quarter with a strong cash position of $1.951 billion.
  • 7Zoetis reported a 9% revenue increase in its U.S. segment, driven by companion animal products, while its International segment saw a 1% increase.

Frequently Asked Questions

Zoetis reported a 5% increase in total revenue to $1.534 billion for the first quarter of 2020. On an operational basis, excluding foreign exchange impacts, revenue grew by 7%. Key drivers included price increases (approximately 3%), volume growth from new products (approximately 2%), increased volume from in-line products particularly in dermatology (approximately 1%), and contributions from recent acquisitions (approximately 1%).

Zoetis demonstrated strong profitability growth. Net income increased by 36% to $423 million in the first quarter of 2020, up from $312 million in the same period last year. Diluted earnings per share (EPS) rose to $0.88 from $0.65, a 35% increase. This improvement was significantly aided by a reduction in the cost of sales as a percentage of revenue, from 35.6% to 29.9%.

Zoetis acknowledged that while the COVID-19 pandemic did not have a significant impact on its Q1 2020 results, it anticipates a more substantial impact in the second quarter and potentially beyond. The company is monitoring the situation closely, noting potential disruptions to its operations, supply chain, and customer demand, particularly for livestock and companion animal products. Management is taking actions to preserve liquidity and adapt business operations as needed.

The U.S. segment showed robust growth, with revenue increasing by 9% to $786 million, primarily driven by companion animal products like the dermatology portfolio and the Simparica franchise, as well as contributions from recent acquisitions. The International segment reported a 1% revenue increase to $728 million, with operational growth of 4% driven by companion animal products and certain livestock categories, partially offset by unfavorable foreign exchange. International earnings saw a modest 1% increase.