Why did reported EPS grow more slowly than adjusted EPS in Q1 2024?

Reported diluted EPS rose 10% to $1.31, while adjusted EPS was $1.38, up only 5% reported. The gap reflects the company's adjustments for purchase accounting ($0.06 per share), certain significant items ($0.01 per share) and acquisition costs. Adjusted growth was 17% on an operational basis, so the reported comparison was weighed down by foreign exchange, which reduced adjusted net income by about 11 percentage points.

Why did the company raise its operational growth guidance?

Management attributed the higher operational growth outlook to inflation-related price increases in Argentina and the underlying strength of the companion animal portfolio. The reported dollar guidance was tied to foreign exchange rates as of late April 2024, so the reported range may move if currencies shift.

How is the livestock business performing relative to companion animals?

Companion animal revenue rose 18% reported and 20% operationally to $1.45 billion, while livestock revenue fell 5% reported and 1% operationally to $720 million. Livestock weakness was concentrated in swine (China market conditions and generic competition), sheep (Australian weather and supply constraints) and cattle, which faced a difficult prior-year comparison.

What does the planned sale of the medicated feed additive portfolio mean for Zoetis?

On April 28, 2024, Zoetis signed an agreement to sell its medicated feed additive portfolio and related assets. The company said the divestiture lets it focus investment on other livestock solutions, including vaccines, biologics and genetic programs. The filing does not disclose the sale price or the financial impact on revenue or earnings.

ZTS 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed May 2, 2024. Cited figures are marked; the original filing is the authoritative source.

Zoetis Inc. (NYSE: ZTS) reported first quarter 2024 results on May 2, 2024, with revenue of $2.19 billion^a, up 10% reported and 12% on an operational (constant-currency) basis.

Reported net income was $599 million^b, or $1.31 per diluted share, up 9% and 10% respectively. Adjusted net income, which excludes purchase accounting adjustments, acquisition-related costs and certain significant items, was $634 million, or $1.38 per diluted share, up 4% and 5% on a reported basis and 15% and 17% operationally. Growth was led by the U.S. segment, where revenue rose 16% and companion animal sales rose 25%, driven by Simparica Trio, Apoquel/Cytopoint and the osteoarthritis pain products Librela and Solensia.

International revenue grew 3% reported and 8% operationally, while livestock revenue declined 5% reported and 1% operationally, with weakness in swine, sheep and cattle. Zoetis raised its full-year 2024 operational revenue growth outlook to 8.5%-10.5% and its operational adjusted net income growth outlook to 13%-15%. Revenue guidance is $9.050^c-$9.200 billion.

Reported diluted EPS guidance is $5.34^d-$5.44 and adjusted diluted EPS guidance is $5.71-$5.81. Management attributed the operational increase to inflation-related price increases in Argentina and continued strength in companion animal. The guidance reflects foreign exchange rates as of late April 2024, so the reported figures remain exposed to currency movements.

The company also disclosed a agreement to sell its medicated feed additive (MFA) portfolio, announced April 28, 2024, to concentrate investment on vaccines, biologics and genetic livestock programs. It also agreed to buy a manufacturing site in Melbourne, Australia. Investors will likely focus on the sustainability of companion animal growth, the drag from livestock and China, and the gap between reported and adjusted EPS.

02—Key points

Key Highlights

Q1 2024 revenue of $2.19 billion grew 10% reported and 12% operationally versus Q1 2023.
Reported net income of $599 million ($1.31 diluted EPS) rose 9% and 10%; adjusted net income of $634 million ($1.38 adjusted diluted EPS) rose 4% and 5% reported and 15% and 17% operationally.
U.S. revenue rose 16% to $1.16 billion, with companion animal sales up 25%, led by Simparica Trio, Apoquel/Cytopoint and Librela/Solensia.
International revenue rose 3% reported and 8% operationally to $1.01 billion; livestock sales fell 4% reported but grew 2% operationally.
Full-year 2024 revenue guidance was updated to $9.050-$9.200 billion, with operational growth of 8.5%-10.5%, and operational adjusted net income growth of 13%-15%.
Full-year reported diluted EPS guidance is $5.34-$5.44 and adjusted diluted EPS guidance is $5.71-$5.81, with about $60-$65 million of certain significant items and acquisition-related costs.
Zoetis agreed to sell its medicated feed additive portfolio (announced April 28, 2024) and to purchase a manufacturing site in Melbourne, Australia.

03—Questions

Frequently Asked Questions

Why did reported EPS grow more slowly than adjusted EPS in Q1 2024?
Reported diluted EPS rose 10% to $1.31, while adjusted EPS was $1.38, up only 5% reported. The gap reflects the company's adjustments for purchase accounting ($0.06 per share), certain significant items ($0.01 per share) and acquisition costs. Adjusted growth was 17% on an operational basis, so the reported comparison was weighed down by foreign exchange, which reduced adjusted net income by about 11 percentage points.
Why did the company raise its operational growth guidance?
Management attributed the higher operational growth outlook to inflation-related price increases in Argentina and the underlying strength of the companion animal portfolio. The reported dollar guidance was tied to foreign exchange rates as of late April 2024, so the reported range may move if currencies shift.
How is the livestock business performing relative to companion animals?
Companion animal revenue rose 18% reported and 20% operationally to $1.45 billion, while livestock revenue fell 5% reported and 1% operationally to $720 million. Livestock weakness was concentrated in swine (China market conditions and generic competition), sheep (Australian weather and supply constraints) and cattle, which faced a difficult prior-year comparison.
What does the planned sale of the medicated feed additive portfolio mean for Zoetis?
On April 28, 2024, Zoetis signed an agreement to sell its medicated feed additive portfolio and related assets. The company said the divestiture lets it focus investment on other livestock solutions, including vaccines, biologics and genetic programs. The filing does not disclose the sale price or the financial impact on revenue or earnings.

04—Continue

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