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Zoetis Reports Fourth Quarter and Full Year 2020 Results

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  • For Fourth Quarter 2020, Zoetis Reports Revenue of $1.8 Billion, Growing 8%, and Net Income of $359 Million, or $0.75 per Diluted Share, on a Reported Basis

    • Reports Adjusted Net Income of $438 Million, or Adjusted Diluted EPS of $0.91, for Fourth Quarter 2020

    • Delivers 9% Operational Growth in Revenue and 3% Operational Growth in Adjusted Net Income for Fourth Quarter 2020

  • For Full Year 2020, Zoetis Reports Revenue of $6.7 Billion, Growing 7%, and Net Income of $1.6 Billion, or $3.42 per Diluted Share, on a Reported Basis

    • Reports Adjusted Net Income of $1.8 Billion, or Adjusted Diluted EPS of $3.85 for Full Year 2020

    • Delivers 9% Operational Growth in Revenue and 10% Operational Growth in Adjusted Net Income for Full Year 2020

  • Provides Full Year 2021 Revenue Guidance of $7.400 - $7.550 Billion, with Diluted EPS of $4.02 - $4.14 on a Reported Basis, or $4.36 - $4.46 on an Adjusted Basis

Zoetis Inc. (NYSE: ZTS) today reported its financial results for the fourth quarter and full year 2020 and provided full year guidance for 2021.

The company reported revenue of $1.8 billion for the fourth quarter of 2020, which was an increase of 8% compared with the fourth quarter of 2019. Net income for the fourth quarter of 2020 was $359 million, or $0.75 per diluted share, compared with $384 million, or $0.80 per diluted share, in the fourth quarter of 2019.

Adjusted net income1 for the fourth quarter of 2020 was $438 million, relatively flat compared with the fourth quarter of 2019, or $0.91 per diluted share, a decrease of 1%. Adjusted net income for the fourth quarter of 2020 excludes the net impact of $79 million for purchase accounting adjustments, acquisition-related costs and certain significant items.

On an operational2 basis, revenue for the fourth quarter of 2020, excluding the impact of foreign exchange, increased 9% compared with the fourth quarter of 2019. Adjusted net income for the fourth quarter of 2020 increased 3% operationally, excluding the impact of foreign exchange.

For full year 2020, the company reported revenue of $6.7 billion, an increase of 7% compared with full year 2019. Net income for full year 2020 was $1.6 billion, or $3.42 per diluted share, an increase of 9% and 10%, respectively.

Adjusted net income for full year 2020 was $1.8 billion, or $3.85 per diluted share, an increase of 5% and 6%, respectively. Adjusted net income for full year 2020 excludes the net impact of $206 million for purchase accounting adjustments, acquisition-related costs and certain significant items.

On an operational basis, revenue for full year 2020 increased 9%, excluding the impact of foreign exchange. Adjusted net income for full year 2020 increased 10% operationally, excluding the impact of foreign exchange.

EXECUTIVE COMMENTARY

"In 2020, Zoetis delivered another year of strong growth and market leadership thanks to our diverse and durable portfolio, our commitment to continuous innovation and the essential nature of our business," said Kristin Peck, Chief Executive Officer of Zoetis. "We grew revenue 9% operationally, which is once again above market growth in a competitive, global sector. We also grew our adjusted net income faster than revenue, at 10% operationally."

"Looking forward, we believe this momentum sets us up for a strong 2021, even amidst ongoing COVID-19 uncertainty. We expect to continue growing revenue faster than the market in 2021 driven by continued strength in petcare; ongoing expansion in markets outside the U.S., most notably China; and acceleration of our diagnostics portfolio penetration. As a result, we are guiding to full-year operational growth of 9% to 11% in revenue," said Peck.

QUARTERLY HIGHLIGHTS

Zoetis organizes and manages its commercial operations across two regional segments: the United States (U.S.) and International. Within these segments, the company delivers a diverse portfolio of products for companion animals and livestock tailored to local trends and customer needs. In the fourth quarter of 2020:

  • Revenue in the U.S. segment was $952 million, an increase of 11% compared with the fourth quarter of 2019. Sales of companion animal products increased 30% driven primarily by growth in Simparica Trio®, the recently launched triple combination parasiticide for dogs, as well as the company’s key dermatology portfolio across both the Apoquel® and Cytopoint® brands. The diagnostic portfolio also contributed to growth based on the continued recovery of veterinary clinic business following the impact of social distancing restrictions earlier in the year and the acquisition of a number of regional diagnostic reference labs in late 2019. Sales of livestock products decreased 15% in the quarter. Sales of cattle products declined as a result of an earlier fall cattle run than the same period in the prior year, supply constraints on vaccines and generic competition. Sales of both swine and poultry products also declined in the quarter due to unfavorable market conditions related to the COVID-19 pandemic.

  • Revenue in the International segment was $832 million, an increase of 5% on a reported basis and an increase of 7% operationally compared with the fourth quarter of 2019. Sales of companion animal products grew 17% on a reported and operational basis. Growth resulted from increased sales across the broader in-line portfolio and with key accounts. Also contributing to growth in the quarter was the Simparica® franchise, including Simparica Trio, which was recently launched in Australia, the European Union (EU) and Canada, as well as the company’s key dermatology portfolio across both the Apoquel and Cytopoint brands. Sales of livestock products decreased 2% on a reported basis and increased 2% operationally. Sales of swine products grew in China as a result of expanding herd production in key accounts and increased biosecurity measures in the wake of African Swine Fever. In other key global swine markets, vaccine sales increased as a result of favorable market conditions including increased production and export opportunities. Growth in the company’s fish portfolio was driven primarily by increased market share for salmon vaccines and the acquisition of Fish Vet Group. The company’s cattle portfolio remained flat, while poultry product sales decreased versus the same period due to rotation programs and COVID-19 restrictions.

INVESTMENTS IN GROWTH

Zoetis continues to pave the way in the development of monoclonal antibody (mAb) therapies to treat osteoarthritis (OA) pain in dogs and cats. Since its last quarterly earnings announcement, the company received approval in the EU, Brazil, Canada and Switzerland for Librela® (bedinvetmab), the first injectable mAb licensed for alleviation of pain associated with OA in dogs. Similarly, Zoetis received approval in Switzerland for Solensia® (frunevetmab), the first injectable mAb for the treatment of pain associated with OA in cats, a condition that is vastly underdiagnosed and treated in felines today.

In other companion animal product advancements, the company gained approval in the EU for an extended claim for Cytopoint (lokivetmab), an injectable monoclonal antibody therapy for dogs. The new claim, which is already approved in the U.S., includes the treatment of pruritus associated with allergic dermatitis, in addition to the original claim of clinical manifestations of atopic dermatitis. Zoetis also expanded the geographic reach of key parasiticide products, with approvals of Simparica Trio (sarolaner, moxidectin, pyrantel chewable tablets) for dogs in Latin America and Revolution Plus® (selamectin and sarolaner topical solution) for cats in Asia.

In livestock, Zoetis received approval in the EU for CircoMax® Myco (also known as Fostera® Gold PCV MH outside of the EU), a one-shot vaccine for pigs that offers the longest lasting combined protection on the EU market against porcine circovirus type 2 (PCV2) and Mycoplasma hyopneumoniae infections. In poultry, the company expanded its line of recombinant vector vaccines with the approval of Poulvac® Procerta HVT-IBD in the U.S., which provides early protection against the contemporary infectious bursal disease (IBD) viruses in chickens.

FINANCIAL GUIDANCE

Zoetis is providing full year 2021 guidance, which includes:

  • Revenue between $7.400 billion to $7.550 billion

  • Reported diluted EPS between $4.02 to $4.14

  • Adjusted diluted EPS between $4.36 to $4.46

This guidance reflects foreign exchange rates as of late January. Additional details on guidance are included in the financial tables and will be discussed on the company's conference call this morning.

WEBCAST & CONFERENCE CALL DETAILS

Zoetis will host a webcast and conference call at 8:30 a.m. (ET) today, during which company executives will review fourth quarter and full year 2020 results, discuss financial guidance and respond to questions from financial analysts. Investors and the public may access the live webcast by visiting the Zoetis website at http://investor.zoetis.com/events-presentations. A replay of the webcast will be archived and made available on Feb. 16, 2021.

About Zoetis

Zoetis is the leading animal health company, dedicated to supporting its customers and their businesses in advancing care for animals. Building on more than 65 years of experience in animal health, Zoetis discovers, develops, manufactures and commercializes medicines, vaccines, diagnostics, technologies and services, including biodevices, genetic tests and precision livestock farming. Zoetis serves veterinarians, livestock producers and people who raise and care for farm and companion animals with sales of its products in more than 100 countries. In 2020, the company generated annual revenue of $6.7 billion with approximately 11,300 employees. For more information, visit www.zoetis.com.

1 Adjusted net income and its components and adjusted diluted earnings per share (non-GAAP financial measures) are defined as reported net income attributable to Zoetis and reported diluted earnings per share, excluding purchase accounting adjustments, acquisition-related costs and certain significant items.

2 Operational basis and operational revenue growth (non-GAAP financial measures) are defined as growth excluding the impact of foreign exchange.

Forward-Looking Statements: This press release contains forward-looking statements, which reflect the current views of Zoetis with respect to: business plans or prospects, future operating or financial performance, future guidance, future operating models; expectations regarding products, product approvals or products under development, expected timing of product launches; the impact of the coronavirus (COVID-19) pandemic and any recovery therefrom on our business, suppliers, customers and employees; expectations regarding the performance of acquired companies and our ability to integrate new businesses; expectations regarding the financial impact of acquisitions; future use of cash and dividend payments; tax rate and tax regimes and any changes thereto; and other future events. These statements are not guarantees of future performance or actions. Forward-looking statements are subject to risks and uncertainties. If one or more of these risks or uncertainties materialize, or if management's underlying assumptions prove to be incorrect, actual results may differ materially from those contemplated by a forward-looking statement. Forward-looking statements speak only as of the date on which they are made. Zoetis expressly disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, including in the sections thereof captioned "Forward-Looking Statements and Factors That May Affect Future Results" and "Item 1A. Risk Factors," in our Quarterly Reports on Form 10-Q and in our Current Reports on Form 8-K. Such risks and uncertainties may be amplified by the COVID-19 pandemic and its potential impact on the global economy and our business. These filings and subsequent filings are available online at www.sec.gov, www.zoetis.com, or on request from Zoetis.

Use of Non-GAAP Financial Measures: We use non-GAAP financial measures, such as adjusted net income, adjusted diluted earnings per share and operational results (which exclude the impact of foreign exchange), to assess and analyze our results and trends and to make financial and operational decisions. We believe these non-GAAP financial measures are also useful to investors because they provide greater transparency regarding our operating performance. The non-GAAP financial measures included in this press release should not be considered alternatives to measurements required by GAAP, such as net income, operating income, and earnings per share, and should not be considered measures of liquidity. These non-GAAP financial measures are unlikely to be comparable with non-GAAP information provided by other companies. Reconciliation of non-GAAP financial measures and GAAP financial measures are included in the tables accompanying this press release and are posted on our website at www.zoetis.com.

Internet Posting of Information: We routinely post information that may be important to investors in the 'Investors' section of our website at www.zoetis.com, on our Facebook page at http://www.facebook.com/zoetis and on Twitter@zoetis. We encourage investors and potential investors to consult our website regularly and to follow us on Facebook and Twitter for important information about us.

ZTS-IR
ZTS-FIN

ZOETIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME(a)

(UNAUDITED)

(millions of dollars, except per share data)

Fourth Quarter

Full Year

2020

2019

% Change

2020

2019

% Change

Revenue

$

1,807

$

1,674

8

$

6,675

$

6,260

7

Costs and expenses:

Cost of sales

601

530

13

2,057

1,992

3

Selling, general and administrative expenses

520

472

10

1,726

1,638

5

Research and development expenses

133

132

1

463

457

1

Amortization of intangible assets

40

40

160

155

3

Restructuring charges and certain acquisition-related costs

3

18

(83)

25

51

(51)

Interest expense

58

56

4

231

223

4

Other (income)/deductions–net

32

(11

)

*

17

(57

)

*

Income before provision for taxes on income

420

437

(4)

1,996

1,801

11

Provision for taxes on income

62

53

17

360

301

20

Net income before allocation to noncontrolling interests

358

384

(7)

1,636

1,500

9

Less: Net loss attributable to noncontrolling interests

(1

)

*

(2

)

*

Net income attributable to Zoetis

$

359

$

384

(7)

$

1,638

$

1,500

9

Earnings per share—basic

$

0.75

$

0.81

(7)

$

3.44

$

3.14

10

Earnings per share—diluted

$

0.75

$

0.80

(6)

$

3.42

$

3.11

10

Weighted-average shares used to calculate earnings per share

Basic

475.6

476.4

475.5

478.1

Diluted

478.7

480.2

478.6

481.8

(a)

The Condensed Consolidated Statements of Income present the three and twelve months ended December 31, 2020 and 2019. Subsidiaries operating outside the U.S. are included for the three and twelve months ended November 30, 2020 and 2019.

* Calculation not meaningful.

ZOETIS INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION

CERTAIN LINE ITEMS

(UNAUDITED)

(millions of dollars, except per share data)

Quarter Ended December 31, 2020

GAAP
Reported(a)

Purchase
Accounting
Adjustments

Acquisition-
Related
Costs(1)

Certain
Significant
Items(2)

Non-GAAP
Adjusted(b)

Cost of sales

$

601

$

(2

)

$

$

(15

)

$

584

Gross profit

1,206

2

15

1,223

Selling, general and administrative expenses

520

(7

)

(2

)

511

Research and development expenses

133

133

Amortization of intangible assets

40

(34

)

6

Restructuring charges and certain acquisition-related costs

3

(3

)

Other (income)/deductions–net

32

(22

)

10

Income before provision for taxes on income

420

43

3

39

505

Provision for taxes on income

62

9

(1

)

(2

)

68

Net income attributable to Zoetis

359

34

4

41

438

Earnings per common share attributable to Zoetis–diluted

0.75

0.07

0.01

0.08

0.91

Quarter Ended December 31, 2019

GAAP
Reported(a)

Purchase
Accounting
Adjustments

Acquisition-
Related
Costs(1)

Certain
Significant
Items(2)

Non-GAAP
Adjusted(b)

Cost of sales

$

530

$

(2

)

$

$

(1

)

$

527

Gross profit

1,144

2

1

1,147

Selling, general and administrative expenses

472

(18

)

(2

)

452

Research and development expenses

132

(1

)

131

Amortization of intangible assets

40

(34

)

6

Restructuring charges and certain acquisition-related costs

18

(10

)

(8

)

Other (income)/deductions–net

(11

)

(11

)

Income before provision for taxes on income

437

55

10

11

513

Provision for taxes on income

53

19

1

73

Net income attributable to Zoetis

384

36

9

11

440

Earnings per common share attributable to Zoetis–diluted

0.80

0.08

0.02

0.02

0.92

(a)

The Condensed Consolidated Statements of Income present the quarter ended December 31, 2020 and 2019. Subsidiaries operating outside the U.S. are included for the quarter ended November 30, 2020 and 2019.

(b)

Non-GAAP adjusted net income and its components and non-GAAP adjusted diluted EPS are not, and should not be viewed as, substitutes for U.S. GAAP net income and its components and diluted EPS. Despite the importance of these measures to management in goal setting and performance measurement, non-GAAP adjusted net income and its components and non-GAAP adjusted diluted EPS are non-GAAP financial measures that have no standardized meaning prescribed by U.S. GAAP and, therefore, have limits in their usefulness to investors. Because of the non-standardized definitions, non-GAAP adjusted net income and its components and non-GAAP adjusted diluted EPS (unlike U.S. GAAP net income and its components and diluted EPS) may not be comparable to the calculation of similar measures of other companies. Non-GAAP adjusted net income and its components, and non-GAAP adjusted diluted EPS are presented solely to permit investors to more fully understand how management assesses performance.

See Notes to Reconciliation of GAAP Reported to Non-GAAP Adjusted Information for notes (1) and (2).

ZOETIS INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION

CERTAIN LINE ITEMS

(UNAUDITED)

(millions of dollars, except per share data)

Twelve Months Ended December 31, 2020

GAAP
Reported(a)

Purchase
Accounting
Adjustments

Acquisition-
Related
Costs(1)

Certain
Significant
Items(2)

Non-GAAP
Adjusted(b)

Cost of sales

$

2,057

$

(8

)

$

$

(19

)

$

2,030

Gross profit

4,618

8

19

4,645

Selling, general and administrative expenses

1,726

(54

)

(13

)

1,659

Research and development expenses

463

(1

)

462

Amortization of intangible assets

160

(135

)

25

Restructuring charges and certain acquisition-related costs

25

(18

)

(7

)

Other (income)/deductions–net

17

(4

)

13

Income before provision for taxes on income

1,996

198

18

43

2,255

Provision for taxes on income

360

56

(1

)

(2

)

413

Net income attributable to Zoetis

...

142

19

45

1,844

Earnings per common share attributable to Zoetis–diluted

3.42

0.30

0.04

0.09

3.85

Twelve Months Ended December 31, 2019

GAAP
Reported(a)

Purchase
Accounting
Adjustments

Acquisition-
Related
Costs(1)

Certain
Significant
Items(2)

Non-GAAP
Adjusted(b)

Cost of sales

$

1,992

$

(24

)

$

$

(77

)

$

1,891

Gross profit

4,268

24

77

4,369

Selling, general and administrative expenses

1,638

(72

)

(2

)

1,564

Research and development expenses

457

(2

)

455

Amortization of intangible assets

155

(136

)

19

Restructuring charges and certain acquisition-related costs

51

(43

)

(8

)

Other (income)/deductions–net

(57

)

20

(37

)

Income before provision for taxes on income

1,801

234

43

67

2,145

Provision for taxes on income

301

78

7

4

390

Net income attributable to Zoetis

1,500

156

36

63

1,755

Earnings per common share attributable to Zoetis–diluted

3.11

0.32

0.08

0.13

3.64

(a)

The Condensed Consolidated Statements of Income present the twelve months ended December 31, 2020 and 2019. Subsidiaries operating outside the U.S. are included for the twelve months ended November 30, 2020 and 2019.

(b)

Non-GAAP adjusted net income and its components and non-GAAP adjusted diluted EPS are not, and should not be viewed as, substitutes for U.S. generally accepted accounting principles (GAAP) net income and its components and diluted EPS. Despite the importance of these measures to management in goal setting and performance measurement, non-GAAP adjusted net income and its components and non-GAAP adjusted diluted EPS are non-GAAP financial measures that have no standardized meaning prescribed by U.S. GAAP and, therefore, have limits in their usefulness to investors. Because of the non-standardized definitions, non-GAAP adjusted net income and its components and non-GAAP adjusted diluted EPS (unlike U.S. GAAP net income and its components and diluted EPS) may not be comparable to the calculation of similar measures of other companies. Non-GAAP adjusted net income and its components, and non-GAAP adjusted diluted EPS are presented solely to permit investors to more fully understand how management assesses performance.

See Notes to Reconciliation of GAAP Reported to Non-GAAP Adjusted Information for notes (1) and (2).

ZOETIS INC.

NOTES TO RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION

CERTAIN LINE ITEMS

(UNAUDITED)

(millions of dollars)

(1) Acquisition-related costs include the following:

Fourth Quarter

Full Year

2020

2019

2020

2019

Integration costs(a)

$

2

$

5

$

17

$

18

Restructuring charges(b)

1

5

1

25

Total acquisition-related costs—pre-tax

3

10

18

43

Income taxes(c)

(1

)

1

(1

)

7

Total acquisition-related costs—net of tax

$

4

$

9

$

19

$

36

(a)

Integration costs represent external, incremental costs directly related to integrating acquired businesses and primarily include expenditures for consulting and the integration of systems and processes. Included in Restructuring charges and certain acquisition-related costs.

(b)

Represents employee termination costs, included in Restructuring charges and certain acquisition-related costs.

(c)

Included in Provision for taxes on income. Income taxes include the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction's applicable tax rate. For the twelve months ended December 31, 2020, also includes a tax charge related to a remeasurement of deferred taxes resulting from the integration of acquired businesses.

(2) Certain significant items include the following:

Fourth Quarter

Full Year

2020

2019

2020

2019

Operational efficiency initiative(a)

$

$

$

(18

)

$

(20

)

Supply network strategy(b)

4

7

Other restructuring charges and cost-reduction/productivity initiatives(c)

8

7

8

Certain asset impairment charges(d)

37

37

Other(e)

2

3

13

72

Total certain significant items—pre-tax

39

11

43

67

Income taxes(f)

(2

)

(2

)

4

Total certain significant items—net of tax

$

41

$

11

$

45

$

63

(a)

Represents a net gain resulting from net cash proceeds received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites, included in Other (income)/deductions-net.

(b)

Represents consulting fees, included in Cost of sales, related to cost-reduction and productivity initiatives.

(c)

Represents employee termination costs incurred as a result of the CEO transition and other cost-reduction and productivity initiatives, included in Restructuring charges and certain acquisition-related costs.

(d)

For the quarter and twelve months ended December 31, 2020, primarily represents asset impairment charges related to:

(e)

For the quarter and twelve months ended December 31, 2020, primarily represents the modification of share-based compensation related to CEO transition costs, included in Selling, general and administrative expenses. For the twelve months ended December 31, 2019, represents a change in estimate related to inventory costing, included in Cost of sales.

(f)

Included in Provision for taxes on income. Income taxes include the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction's applicable tax rate. For the quarter and twelve months ended December 31, 2020, also includes a tax charge related to changes in valuation allowance related to impairments of acquired businesses.

ZOETIS INC.

ADJUSTED SELECTED COSTS AND EXPENSES(a)

(UNAUDITED)

(millions of dollars)

Fourth Quarter

% Change

2020

2019

Total

Foreign
Exchange

Operational(b)

Adjusted cost of sales

$

584

$

527

11%

—%

11%

As a percent of revenue

32.3

%

31.5

%

NA

NA

NA

Adjusted SG&A expenses

511

452

13%

—%

13%

Adjusted R&D expenses

133

131

2%

2%

—%

Adjusted net income attributable to Zoetis

438

440

—%

(3)%

3%

Full Year

% Change

2020

2019

Total

Foreign
Exchange

Operational(b)

Adjusted cost of sales

$

2,030

$

1,891

7%

(1)%

8%

As a percent of revenue

30.4

%

30.2

%

NA

NA

NA

Adjusted SG&A expenses

1,659

1,564

6%

(1)%

7%

Adjusted R&D expenses

462

455

2%

—%

2%

Adjusted net income attributable to Zoetis

1,844

1,755

5%

(5)%

10%

(a)

Adjusted cost of sales, adjusted selling, general, and administrative (SG&A) expenses, adjusted research and development (R&D) expenses, and adjusted net income attributable to Zoetis (non-GAAP financial measures) are defined as the corresponding reported U.S. GAAP income statement line items excluding purchase accounting adjustments, acquisition-related costs, and certain significant items. These adjusted income statement line item measures are not, and should not be viewed as, substitutes for the corresponding U.S. GAAP line items. The corresponding U.S. GAAP line items and reconciliations of reported to adjusted information are provided in Condensed Consolidated Statements of Income and Reconciliation of GAAP Reported to Non-GAAP Adjusted Information.

(b)

Operational growth (a non-GAAP financial measure) is defined as growth excluding the impact of foreign exchange.

ZOETIS INC.

2021 GUIDANCE

Selected Line Items
(millions of dollars, except per share amounts)

Full Year 2021

Revenue

$7,400 to $7,550

Operational growth(a)

9% to 11%

Adjusted cost of sales as a percentage of revenue(b)

Approximately 30%

Adjusted SG&A expenses(b)

$1,775 to $1,850

Adjusted R&D expenses(b)

$500 to $520

Adjusted interest expense and other (income)/deductions-net(b)

Approximately $260

Effective tax rate on adjusted income(b)

Approximately 20%

Adjusted diluted EPS(b)

$4.36 to $4.46

Adjusted net income(b)

$2,080 to $2,130

Operational growth(a)(c)

9% to 12%

Certain significant items and acquisition-related costs(d)

$15 - $25

The guidance reflects foreign exchange rates as of late January 2021.

Reconciliations of 2021 reported guidance to 2021 adjusted guidance follows:

(millions of dollars, except per share amounts)

Reported

Certain significant

items and

acquisition-related

costs(d)

Purchase

accounting

Adjusted(b)

Cost of sales as a percentage of revenue

~ 30.3%

~ (0.2%)

~ (0.1%)

~ 30%

SG&A expenses

$1,820 to $1,895

~ $(45)

$1,775 to $1,850

R&D expenses

$501 to $521

~ $(1)

$500 to $520

Interest expense and other (income)/deductions

~ $260

~ $260

Effective tax rate

~ 20%

~ 20%

Diluted EPS

$4.02 to $4.14

$0.03 to $0.05

~ $0.29

$4.36 to $4.46

Net income attributable to Zoetis

$1,915 to $1,975

$15 to $25

~ $140

$2,080 to $2,130

(a)

Operational growth (a non-GAAP financial measure) excludes the impact of foreign exchange.

(b)

Adjusted net income and its components and adjusted diluted EPS are defined as reported U.S. GAAP net income and its components and reported diluted EPS excluding purchase accounting adjustments, acquisition-related costs and certain significant items. Adjusted cost of sales, adjusted SG&A expenses, adjusted R&D expenses, and adjusted interest expense and other (income)/deductions are income statement line items prepared on the same basis, and, therefore, components of the overall adjusted income measure. Despite the importance of these measures to management in goal setting and performance measurement, adjusted net income and its components and adjusted diluted EPS are non-GAAP financial measures that have no standardized meaning prescribed by U.S. GAAP and, therefore, have limits in their usefulness to investors. Because of the non-standardized definitions, adjusted net income and its components and adjusted diluted EPS (unlike U.S. GAAP net income and its components and diluted EPS) may not be comparable to the calculation of similar measures of other companies. Adjusted net income and its components and adjusted diluted EPS are presented solely to permit investors to more fully understand how management assesses performance. Adjusted net income and its components and adjusted diluted EPS are not, and should not be viewed as, substitutes for U.S. GAAP net income and its components and diluted EPS.

(c)

We do not provide a reconciliation of forward-looking non-GAAP adjusted net income operational growth to the most directly comparable U.S. GAAP reported financial measure because we are unable to calculate with reasonable certainty the foreign exchange impact of unusual gains and losses, acquisition-related expenses, potential future asset impairments and other certain significant items, without unreasonable effort. The foreign exchange impacts of these items are uncertain, depend on various factors, and could have a material impact on U.S. GAAP reported results for the guidance period.

(d)

Primarily includes certain nonrecurring costs related to acquisitions and other charges.

ZOETIS INC.

CONSOLIDATED REVENUE BY SEGMENT(a) AND SPECIES

(UNAUDITED)

(millions of dollars)

Fourth Quarter

% Change

2020

2019

Total

Foreign

Exchange

Operational(b)

Revenue:

Companion Animal

$

978

$

784

25

%

%

25

%

Livestock

806

868

(7)

%

(2)

%

(5)

%

Contract Manufacturing & Human Health

23

22

5

%

6

%

(1)

%

Total Revenue

$

1,807

$

1,674

8

%

(1)

%

9

%

U.S.

Companion Animal

$

634

$

489

30

%

%

30

%

Livestock

318

372

(15)

%

%

(15)

%

Total U.S. Revenue

$

952

$

861

11

%

%

11

%

International

Companion Animal

$

344

$

295

17

%

%

17

%

Livestock

488

496

(2)

%

(4)

%

2

%

Total International Revenue

$

832

$

791

5

%

(2)

%

7

%

Companion Animal:

Dogs and Cats

$

913

$

719

27

%

%

27

%

Horses

65

65

%

%

%

Total Companion Animal Revenue

$

978

$

784

25

%

%

25

%

Livestock:

Cattle

$

451

$

506

(11)

%

(3)

%

(8)

%

Swine

167

162

3

%

%

3

%

Poultry

125

142

(12)

%

(2)

%

(10)

%

Fish

47

44

7

%

%

7

%

Sheep and other

16

14

14

%

1

%

13

%

Total Livestock Revenue

$

806

$

868

(7)

%

(2)

%

(5)

%

(a)

For a description of each segment, see Zoetis' most recent Annual Report on Form 10-K.

(b)

Operational revenue growth (a non-GAAP financial measure) is defined as revenue growth excluding the impact of foreign exchange.

ZOETIS INC.

CONSOLIDATED REVENUE BY SEGMENT(a) AND SPECIES

(UNAUDITED)

(millions of dollars)

Full Year

% Change

2020

2019

Total

Foreign

Exchange

Operational(b)

Revenue:

Companion Animal

$

3,652

$

3,145

16

%

(1)

%

17

%

Livestock

2,940

3,030

(3)

%

(3)

%

%

Contract Manufacturing & Human Health

83

85

(2)

%

1

%

(3)

%

Total Revenue

$

6,675

$

6,260

7

%

(2)

%

9

%

U.S.

Companion Animal

$

2,391

$

1,984

21

%

%

21

%

Livestock

1,166

1,219

(4)

%

%

(4)

%

Total U.S. Revenue

$

3,557

$

3,203

11

%

%

11

%

International

Companion Animal

$

1,261

$

1,161

9

%

(3)

%

12

%

Livestock

1,774

1,811

(2)

%

(5)

%

3

%

Total International Revenue

$

3,035

$

2,972

2

%

(5)

%

7

%

Companion Animal:

Dogs and Cats

3,437

2,950

17

%

(1)

%

18

%

Horses

215

195

10

%

(1)

%

11

%

Total Companion Animal Revenue

$

3,652

$

3,145

16

%

(1)

%

17

%

Livestock:

Cattle

$

1,558

$

1,654

(6)

%

(4)

%

(2)

%

Swine

621

611

2

%

(2)

%

4

%

Poultry

537

559

(4)

%

(3)

%

(1)

%

Fish

148

134

10

%

(3)

%

13

%

Sheep and other

76

72

6

%

(2)

%

8

%

Total Livestock Revenue

$

2,940

$

3,030

(3)

%

(3)

%

%

(a)

For a description of each segment, see Zoetis' most recent Annual Report on Form 10-K.

(b)

Operational revenue growth (a non-GAAP financial measure) is defined as revenue growth excluding the impact of foreign exchange.

ZOETIS INC.

CONSOLIDATED REVENUE BY KEY INTERNATIONAL MARKETS

(UNAUDITED)

(millions of dollars)

Fourth Quarter

% Change

2020

2019

Total

Foreign

Exchange

Operational(a)

Total International

$

832.8

$

791.6

5

%

(2)

%

7

%

Australia

53.4

46.4

15

%

6

%

9

%

Brazil

77.0

86.9

(11)

%

(29)

%

18

%

Canada

66.1

64.9

2

%

%

2

%

Chile

28.3

26.5

7

%

(3)

%

10

%

China

68.0

44.4

53

%

8

%

45

%

France

35.3

33.7

5

%

7

%

(2)

%

Germany

46.5

42.6

9

%

7

%

2

%

Italy

27.8

30.1

(8)

%

6

%

(14)

%

Japan

43.9

40.5

8

%

3

%

5

%

Mexico

32.2

29.4

10

%

(9)

%

19

%

Spain

29.5

28.2

5

%

8

%

(3)

%

United Kingdom

52.5

52.7

%

4

%

(4)

%

Other Developed

105.9

100.7

5

%

4

%

1

%

Other Emerging

166.4

164.6

1

%

(6)

%

7

%

Full Year

% Change

2020

2019

Total

Foreign

Exchange

Operational(a)

Total International

$

3,035.4

$

2,972.2

2

%

(5)

%

7

%

Australia

207.2

195.9

6

%

(2)

%

8

%

Brazil

258.3

293.0

(12)

%

(26)

%

14

%

Canada

209.8

206.4

2

%

(1)

%

3

%

Chile

100.1

90.9

10

%

(5)

%

15

%

China

265.7

200.1

33

%

(1)

%

34

%

France

117.7

116.7

1

%

1

%

%

Germany

158.6

153.3

3

%

1

%

2

%

Italy

90.5

112.0

(19)

%

1

%

(20)

%

Japan

177.2

158.1

12

%

2

%

10

%

Mexico

115.8

116.6

(1)

%

(10)

%

9

%

Spain

112.2

114.4

(2)

%

1

%

(3)

%

United Kingdom

177.9

198.1

(10)

%

1

%

(11)

%

Other Developed

388.2

370.1

5

%

%

5

%

Other Emerging

656.2

646.6

1

%

(7)

%

8

%

(a)

Operational revenue growth (a non-GAAP financial measure) is defined as revenue growth excluding the impact of foreign exchange.

ZOETIS INC.

SEGMENT(a) EARNINGS

(UNAUDITED)

(millions of dollars)

Fourth Quarter

% Change

2020

2019

Total

Foreign

Exchange

Operational(b)

U.S.:

Revenue

$

952

$

861

11

%

%

11

%

Cost of sales

194

187

4

%

%

4

%

Gross profit

758

674

12

%

%

12

%

Gross margin

79.6

%

78.3

%

Operating expenses

184

176

5

%

%

5

%

Other (income)/deductions-net

3

*

*

*

U.S. Earnings

$

571

$

498

15

%

%

15

%

International:

Revenue

$

832

$

791

5

%

(2)

%

7

%

Cost of sales

274

263

4

%

(6)

%

10

%

Gross profit

558

528

6

%

%

6

%

Gross margin

67.1

%

66.8

%

Operating expenses

146

148

(1)

%

%

(1)

%

Other (income)/deductions-net

6

*

*

*

International Earnings

$

406

$

380

7

%

%

7

%

Total Reportable Segments

$

977

$

878

11

%

%

11

%

Other business activities(c)

(108)

(102)

6

%

Reconciling Items:

Corporate(d)

(261)

(195)

34

%

Purchase accounting adjustments(e)

(43)

(55)

(22)

%

Acquisition-related costs(f)

(3)

(10)

(70)

%

Certain significant items(g)

(39)

(11)

*

Other unallocated(h)

(103)

(68)

51

%

Total Earnings(i)

$

420

$

437

(4)

%

(a)

For a description of each segment, see Zoetis' most recent Annual Report on Form 10-K.

(b)

Operational growth (a non-GAAP financial measure) is defined as growth excluding the impact of foreign exchange.

(c)

Other business activities reflect the research and development costs managed by our Research and Development organization as well as our contract manufacturing and human health businesses.

(d)

Corporate includes, among other things, administration expenses, interest expense, certain compensation costs, certain procurement costs, and other costs not charged to our operating segments.

(e)

Purchase accounting adjustments include certain charges related to the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment not charged to our operating segments.

(f)

Acquisition-related costs include costs associated with acquiring and integrating newly-acquired businesses, such as transaction costs and integration costs.

(g)

Certain significant items includes substantive, unusual items that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis. Such items primarily include certain asset impairment charges and restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition.

(h)

Includes overhead expenses associated with our manufacturing and supply operations not directly attributable to an operating segment, as well as certain procurement costs.

(i)

Defined as income before provision for taxes on income.

* Calculation not meaningful.

ZOETIS INC.

SEGMENT(a) EARNINGS

(UNAUDITED)

(millions of dollars)

Full Year

% Change

2020

2019

Total

Foreign

Exchange

Operational(b)

U.S.:

Revenue

$

3,557

$

3,203

11

%

%

11

%

Cost of sales

709

655

8

%

%

8

%

Gross profit

2,848

2,548

12

%

%

12

%

Gross margin

80.1

%

79.6

%

Operating expenses

602

543

11

%

%

11

%

Other (income)/deductions-net

7

*

*

*

U.S. Earnings

$

2,239

$

2,005

12

%

%

12

%

International:

Revenue

$

3,035

$

2,972

2

%

(5)

%

7

%

Cost of sales

971

925

5

%

(4)

%

9

%

Gross profit

2,064

2,047

1

%

(4)

%

5

%

Gross margin

68.0

%

68.9

%

Operating expenses

510

560

(9)

%

(4)

%

(5)

%

Other (income)/deductions-net

7

*

*

*

International Earnings

$

1,547

$

1,487

4

%

(5)

%

9

%

Total Reportable Segments

$

3,786

$

3,492

8

%

(3)

%

11

%

Other business activities(c)

(372)

(348)

7

%

Reconciling Items:

Corporate(d)

(820)

(707)

16

%

Purchase accounting adjustments(e)

(198)

(234)

(15)

%

Acquisition-related costs(f)

(18)

(43)

(58)

%

Certain significant items(g)

(43)

(67)

(36)

%

Other unallocated(h)

(339)

(292)

16

%

Total Earnings(i)

$

1,996

$

1,801

11

%

(a)

For a description of each segment, see Zoetis' most recent Annual Report on Form 10-K.

(b)

Operational growth (a non-GAAP financial measure) is defined as growth excluding the impact of foreign exchange.

(c)

Other business activities reflect the research and development costs managed by our Research and Development organization as well as our contract manufacturing and human health businesses.

(d)

Corporate includes, among other things, administration expenses, interest expense, certain compensation costs, certain procurement costs, and other costs not charged to our operating segments.

(e)

Purchase accounting adjustments include certain charges related to the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment not charged to our operating segments.

(f)

Acquisition-related costs include costs associated with acquiring and integrating newly-acquired businesses, such as transaction costs and integration costs.

(g)

Certain significant items includes substantive, unusual items that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis. Such items primarily include certain asset impairment charges, restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition, costs associated with the operational efficiency initiative and supply network strategy, and the impact of divestiture-related gains and losses.

(h)

Includes overhead expenses associated with our manufacturing and supply operations not directly attributable to an operating segment, as well as certain procurement costs.

(i)

Defined as income before provision for taxes on income.

* Calculation not meaningful.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210216005661/en/

Contacts

Media Contacts:
Bill Price
1-973-443-2742 (o)
william.price@zoetis.com

Kristen Seely
1-973-443-2777 (o)
kristen.seely@zoetis.com

Investor Contacts:
Steve Frank
1-973-822-7141 (o)
steve.frank@zoetis.com

Keith Gaub
1-973-822-7154 (o)
keith.gaub@zoetis.com