Zoetis 2016 and 2017 View Impacted by Tax Woes in Belgium
Animal health company, Zoetis Inc. ZTS issued a statement related to the European Commission’s (EC) order tax rulings in Belgium and its impact on the guidance for 2016 and 2017.
We note that the EC has recently stated that more than 35 multinationals, including Zoetis, will be required to pay approximately €700 million in additional taxes in Belgium after it came to the conclusion that they had benefited from an illegal tax scheme of “excess profit”.
In its press release, the company stated that it has been aware of the EC’s review of tax arrangements in Belgium since early 2015. However, the company did not expect such an adverse decision. Therefore, Zoetis plans to appeal to the EC regarding its decision.
Impact on Guidance
In light of the EC’s decision, management provided a preliminary outlook in consideration of its impact on Zoetis’ financial results. The company does not expect the tax ruling to impact its 2015 results. However, as a result of the ruling, the company expects to record a one-time, net tax charge of approximately $35–$45 million in the first quarter of 2016 based on preliminary estimates.
The EC’s decision is expected to hurt earnings by 13 cents and 6 cents in 2016 and 2017, respectively. The effective tax rate on adjusted income is expected to increase from 28% to approximately 33% for 2016 and 30% for 2017.
We expect more clarity on the company’s guidance on Feb 16, 2016, when the company releases its fourth-quarter 2015 and full year results.
Zoetis carries a Zacks Rank #2 (Buy). Other well-ranked stocks in the health care sector include Baxalta Incorporated BXLT, Anika Therapeutics Inc. ANIK and Aerie Pharmaceuticals, Inc. AERI. All three stocks sport a Zacks Rank #1 (Strong Buy).
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