Zoetis reported revenue of $1.3 billion for the fourth quarter of 2014, an increase of five per cent from the fourth quarter of 2013; revenue reflected an operational increase of nine per cent, excluding the impact of foreign currency.

Net income for the fourth quarter of 2014 was $126 million, or $0.25 per diluted share, an increase of 20 per cent and 19 per cent, respectively, compared to the fourth quarter of 2013. Adjusted net income1 for the fourth quarter of 2014 was $203 million, or $0.40 per diluted share, an increase of 13 per cent and 11 per cent, respectively. Adjusted net income for the fourth quarter of 2014 excludes the net impact of $77 million, or $0.15 per diluted share, for purchase accounting adjustments, acquisition-related costs and certain significant items. On an operational basis, adjusted net income for the fourth quarter of 2014 increased 12 per cent, with foreign currency having a positive impact of 1 percentage point. In the fourth quarter, the company benefited from a lower than expected tax rate primarily due to the resolution of prior tax matters and the extension of the R&D tax credit; operational, adjusted pre-tax earnings for the fourth quarter declined one per cent.

For full year 2014, the company reported revenue of $4.8 billion, an increase of five per cent from the full year 2013. Revenue reflected an operational increase of seven per cent, with foreign currency having a negative impact of two percentage points.

Net income for the full year 2014 was $583 million, or $1.16 per diluted share, an increase of 16 per cent and 15 per cent, respectively, compared to the full year 2013. Adjusted net income for the full year 2014 was $790 million, or $1.57 per diluted share, an increase of 11 per cent, compared to the adjusted full year 2013. Adjusted net income for the full year 2014 excludes the net impact of $207 million, or $0.41 per diluted share, for purchase accounting adjustments, acquisition-related costs and certain significant items. On an operational basis, adjusted net income for the full year 2014 increased 13 per cent, with foreign currency having a negative impact of twp percentage points. In the fourth quarter, the company benefited from a lower than expected tax rate primarily due to the resolution of prior tax matters and the extension of the R&D tax credit; operational, adjusted pre-tax earnings for the full year increased 10 per cent.

Executive Commentary

Zoetis Chief Executive Officer Juan Ramón Alaix, said: “We completed a very successful year in 2014 as we continue to create value for shareholders, delivering operational growth of seven per cent in revenue and 13 per cent in adjusted net income for the full year.

“We generated growth across all four of our regional segments for the year based on our market-leading franchises and the continued adoption of our newer products. Our nine per cent operational growth in our livestock products for the year demonstrated very favourable market conditions for meat and dairy producers, and the value our premium medicines and vaccines bring to protecting animals and improving productivity.”

“On the companion animal side, we grew four per cent operationally for the year, mainly driven by the introduction of APOQUEL and growth in emerging markets. This growth was tempered by additional competition in certain key product categories. We expect to see stronger performance in this area in the future as we significantly increase the supply of APOQUEL in April 2015 and continue our investment in discovering, acquiring and launching new products for companion animals.

“The people of Zoetis take great pride and ownership in serving our customers and delivering results for our shareholders. As we enter the final stages of our stand-up, we will build on our leadership positions in animal health and continue to improve the efficiency and value of our business model,” said Mr Alaix.

Paul Herendeen, Executive Vice President and Chief Financial Officer of Zoetis, commented: “In 2014, we continued to deliver on our total value proposition for shareholders – growing revenue faster than the market, growing adjusted net income faster than sales, and returning excess capital to our shareholders.

“We continued to see strong underlying growth in our business in the fourth quarter, and we see good sales momentum as we head into 2015, despite ongoing currency headwinds.

“We are updating our full year guidance for 2015 to reflect foreign exchange rates as of late January, the closing of the Abbott Animal Health transaction, and other changes in our operating assumptions for 2015.

“There continue to be opportunities to grow our revenue and improve our margins over the next few years as we finalize our manufacturing strategy and focus on continuous improvement in our operations,” concluded Mr Herendeen.

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 fourth quarter of 2014:

• Revenue in the US was $589 million, an increase of 14 per cent compared to the fourth quarter of 2013. Sales of livestock products grew 19 per cent, led by strong anti-infective sales in cattle. Sales of swine products also saw notable growth as the result of new product introductions. Sales of companion animal products grew seven per cent, driven by APOQUEL® and other key brands such as CERENIA® and CONVENIA®. Growth was offset by competition to our RIMADYL® franchise and competitive pressure in vaccines and parasiticides.
  
  
• Revenue in EuAfME was $294 million, a decrease of one per cent on an operational basis compared to the fourth quarter of 2013. Sales of livestock products declined three per cent operationally as gains in swine products were offset by declines in poultry and cattle. Growth in livestock product sales in southern Europe and Germany were offset primarily by sales declines in the UK and France. Overall, emerging markets saw strong livestock product sales, partially offset by a decline in sales in Russia. Companion animal products generated growth of two per cent operationally due to strong APOQUEL sales in Germany and the UK, as well as continued growth across the small animal portfolio of medicines. This growth was tempered by the competitive environment for small animal vaccines in developed markets.
  
  
• Revenue in CLAR was $239 million, an increase of 16 per cent operationally compared to the fourth quarter of 2013. Overall for the segment, sales of livestock products grew 15 per cent operationally and sales of companion animal products grew 18 per cent operationally. The CLAR segment results were largely driven by growth in Canada, Brazil and Venezuela. Livestock products were driven by cattle sales in Canada as producers are taking advantage of strong profitability in the industry. Swine anti-infective sales also saw positive growth, primarily in Canada and Brazil. Sales of companion animal products benefited from growth in Venezuela and Brazil across all therapeutic areas.
  
  
• Revenue in APAC was $187 million, an increase of four per cent operationally compared to the fourth quarter of 2013. Sales of livestock products grew eight per cent operationally, driven primarily by the growth of swine products in Southeast Asia, and sales of cattle and sheep products in Australia, including the launch of a new parasiticide. Emerging markets performed well across the board, including China, despite soft market conditions in poultry and swine. Sales of companion animal products declined six per cent operationally, primarily due to the termination of a distributor agreement in Japan and increased competition in parasiticides.
  
  

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:

Expanding the portfolio’s reach

As part of developing the lifecycle of its products, Zoetis continues to receive approvals that help expand its key products into new markets or with new indications and formulations. In the fourth quarter, for example:

• The company received approval of new label claims in the US for DRAXXIN® 25, an injectable anti-infective, which can now be used to treat bovine respiratory disease in small calves. DRAXXIN 25 contains a lower concentration of tulathromycin than standard DRAXXIN, making it easier to dose small calves. DRAXXIN 25 was first approved in the US in November 2013 for treatment of swine respiratory disease (SRD) in nursery pigs by providing a lower concentration and making it optimised for use in small pigs to treat and control SRD.
  
  
• The company also received approval of additional label claims for its FOSTERA® PRRS vaccine for swine, with reproductive protection licensed in the US. FOSTERA PRRS is now licensed for whole herd protection against both the respiratory and reproductive forms of the disease caused by porcine reproductive and respiratory syndrome (PRRS) virus.
  
  
• In the fourth quarter in China, Zoetis launched SUVAXYN® MH-One, a vaccine for swine that was first approved in April 2014, to help in the prevention of Mycoplasma hyopneumoniae infections. This product adds to the company’s broad range of vaccines in the world’s largest market for swine production.
  
  

Strengthening the portfolio with business development

Zoetis recently completed the acquisition of the assets of Abbott Animal Health, a transaction that was announced in the fourth quarter. The products from Abbott focus on the veterinary surgical suite and strengthen Zoetis’ companion animal product portfolio, while expanding its diagnostics business. Zoetis continues to look at acquisitions as an important way to use capital to create long-term value for its shareholders and build more customised solutions for customers.

Advancing standards of care

Zoetis continues to be viewed as a partner of choice in the industry, advancing standards of animal care by forming research partnerships in areas like precision farming. In the fourth quarter, Zoetis announced its participation in a project with the UK Research Consortium to develop visual imaging methods and digital technologies to help improve the health and wellness of pig herds and enhance production efficiency.