In its financial results for the third quarter of 2014, Zoetis, Inc., has reported revenue of $1.2 billion for the third quarter of 2014, an increase of 10 per cent from the third quarter of 2013. Revenue reflected an operational increase of 10 per cent, with foreign currency having no material impact on revenue growth this quarter.

Net income for the third quarter of 2014 was $166 million, or $0.33 per diluted share, an increase of 27 per cent, compared to the third quarter of 2013.

Adjusted net income for the third quarter of 2014 was $207 million, or $0.41 per diluted share, an increase of 20 per cent and 21 per cent, respectively, compared to the third quarter of 2013. Adjusted net income for the third quarter of 2014 excludes the net impact of $41 million, or $0.08 per diluted share, for purchase accounting adjustments, acquisition-related costs and certain significant items.

On an operational basis, adjusted net income for the third quarter of 2014 increased 21 per cent, with foreign currency having a negative impact of one percentage point.

Executive Commentary

Zoetis Chief Executive Officer Juan Ramón Alaix, said: "In the third quarter, we generated 10 per cent operational growth in revenue and 21 per cent in adjusted net income, continuing to demonstrate our long-term value proposition of growing adjusted earnings faster than sales. This quarter’s performance was driven largely by 13 per cent operational revenue growth in our livestock products and continued discipline around our operating expenses.

“All of our geographical segments benefited from the strong sales of livestock products in the quarter. We saw an increase in the use of our premium cattle products in key markets, as well as continued acceptance of new products in our swine and poultry portfolios.

“Our overall companion animal product sales grew 5 per cent operationally, reflecting strong sales of Apoquel in the US and certain European markets. Meanwhile, we experienced increased competition and weaker performance in other companion animal products in the US, which somewhat offset double-digit operational growth for companion animal products in the CLAR and EuAfME segments.”

Paul Herendeen, Executive Vice President and Chief Financial Officer of Zoetis said: “Year to date, we have grown revenue at six per cent and adjusted net income at 13 per cent on an operational basis, and we are tracking in line with our full-year expectations.

“We didn’t see a material impact from foreign currency in our third quarter results, but we do expect to see a negative impact from foreign currency in the fourth quarter and into 2015, given the recent strengthening of the dollar against most major currencies. We remain confident about the remainder of 2014, despite the currency trends, and we are reaffirming our full-year guidance for adjusted earnings per share and narrowing our revenue guidance toward the high end of the range.”

Quarterly Highlights

Zoetis organises and manages its business across four regional operating segments: the United States (US); Europe/Africa/Middle East (EuAfME); Canada/Latin America (CLAR); and Asia/Pacific (APAC). Within each of these regional segments, the company delivers a diverse portfolio of products for livestock and companion animals tailored to local trends and customer needs.

In the third quarter of 2014, revenue in the US was $532 million, an increase of seven per cent compared to the third quarter of 2013. Sales of livestock products grew 12 per cent, with cattle and swine being the main contributors. Growth in cattle products benefited from higher demand for our premium products as producers continued to see strong market conditions. Swine product sales were driven primarily by the successful launch of new products, which was slightly offset by the continued impact of Porcine Epidemic Diarrhea virus (PEDv). Sales of companion animal products grew two per cent driven by APOQUEL® and other key brands but this growth was offset by increased competition in vaccines, pain products and parasiticides.

Revenue in EuAfME was $293 million, an increase of 12 per cent operationally compared to the third quarter of 2013. Sales of livestock products increased 13 per cent operationally as the region delivered positive results in France and the UK as well as emerging markets. The livestock growth was driven by increased sales across all species, with particular advances coming from cattle and poultry products. Sales of companion animal products increased 11 per cent operationally, driven by sales of APOQUEL® in Germany and the UK, as well as growth in parasiticides.

Revenue in CLAR was $194 million, an increase of 17 per cent operationally compared to the third quarter of 2013. Overall for the segment, sales of livestock products grew 16 per cent operationally and sales of companion animal products grew 19 per cent operationally. The CLAR segment results were largely driven by growth in Venezuela, Brazil, Argentina and Canada. Sales in Venezuela and Argentina grew significantly across all species. In Brazil, there was significant growth driven primarily by sales of cattle products and companion animal products. Meanwhile, growth in Canada was primarily driven by sales of companion animal products as well as cattle and swine products.

Revenue in APAC was $179 million, an increase of seven per cent operationally compared to the third quarter of 2013. Sales of livestock products grew nine per cent operationally, driven primarily by growth of swine products in Southeast Asia and sales of cattle products in Australia. Sales of companion animal products were flat operationally due to an inventory buyback related to the termination of a distributor agreement in Japan. Excluding this event, operational growth for companion animal products would have been eight per cent, driven by sales of parasiticides across the region, equine vaccines in Australia, and increased sales of vaccines in China.

Zoetis continues to drive demand and strengthen its diverse portfolio of products through product lifecycle development, strong customer relationships and access to new markets and technologies. The company is focused on improving the performance and delivery of its current product lines; expanding product indications across species; pursuing approvals in new geographies; and developing innovative medicines, treatments and solutions for emerging diseases and unmet customer needs. Some recent highlights include:

Continuous innovation

Zoetis continues to advance animal health science through innovations that address unmet market needs or improve veterinarians’ approach to treatment.

In the third quarter, the US Department of Agriculture (USDA) granted Zoetis a conditional license for a vaccine to help fight porcine epidemic diarrhea virus (PEDv) in pigs. The two-dose, inactivated vaccine is designed to help healthy pregnant female pigs develop antibodies that can be transferred to their newborn piglets. Zoetis began supplying the vaccine to veterinarians and pig farmers in September.

Zoetis also received a full licence from the USDA for its POULVAC® Bron GA 08 vaccine for poultry, the first commercially available vaccine to help reduce disease caused by the Georgia 2008 Type infectious bronchitis virus. The vaccine had been conditionally licensed last fall, and advanced to full licensure in August.

The company also received approval of Versican® Plus across the European Union. This combination vaccine for dogs contains nine vaccine antigens helping to protect against 10 key canine diseases in one vaccine dose. Based upon its combination of antigens and adjuvant, Versican Plus will help provide comprehensive protection for dogs in Europe and be a more convenient option for veterinarians than the currently available products. Versican® Plus is expected to be launched in the European Union in 2015.

Expanding the portfolio’s reach

Zoetis continues to receive approvals that help expand its key products into new markets or with new formulations.

DRAXXIN® 25, an injectable anti-infective, which was first approved in the US in November 2013 and has tapped an important market for swine, has now been approved in Canada and across the European Union. DRAXXIN 25 offers a convenient tool to fight swine respiratory disease (SRD) in nursery pigs by providing a lower concentration of DRAXXIN, making it optimized for use in small pigs to treat and control SRD.

EXCENEL® RTU EZ, a reformulated anti-infective that is easier to use and first approved in the US in July 2013, has now been approved in Canada.

The POULVAC® E. coli vaccine for poultry, which was the first E. coli vaccine in Europe and first approved in May 2012, continues to perform well and was recently approved for use in the Ukraine.