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Zoetis adjusts full-year guidance due to COVID-19

TAGS: Business
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COVID-19 pandemic has minimal effect on first-quarter results, but estimated full-year impact reflected in lower 2020 guidance.

Zoetis Inc. on May 6 reported its financial results for the first quarter of 2020 and lowered its guidance for all of 2020 to reflect the company’s current view of the estimated full-year impact of the COVID-19 outbreak, recessionary conditions in the global economy and foreign currency headwinds.

The company reported revenue of $1.5 billion for the first quarter of 2020, a 5% increase from the first quarter of 2019. Net income for the 2020 first quarter was $423 million, or 88 cents per diluted share, up 36% and 35%, respectively, on a reported basis, Zoetis said.

Adjusted net income for the first quarter was $455 million, or 95 cents per diluted share, an increase of 7% on a reported basis. This figure excludes the net impact of $32 million for purchase accounting adjustments, acquisition-related costs and certain significant items.

On an operational basis, Zoetis reported that first-quarter revenue increased 7%, excluding the impact of foreign currency. Adjusted net income for the first quarter increased 10% operationally, excluding the impact of foreign currency.

“At Zoetis, we are privileged to play an essential role in sustaining and protecting animal and human life during the COVID-19 outbreak, as our products are necessary to keep pets healthy and help support a safe and productive food supply,” Zoetis chief executive officer Kristin Peck said. “In the first quarter, the pandemic had a limited impact on our results, given our February quarter-end for the International segment and the timing of shelter-in-place orders across the U.S. We generated 7% operational growth in revenue and 10% operational growth in adjusted net income thanks to the strength of our diverse portfolio and global scope of our business.”

“As we look ahead, our business continuity plans are working well, and we continue to show great agility and responsiveness to this crisis. I am extremely proud of our colleagues, who have been maintaining our supply of critical product inventories, keeping our research on track and serving our customers and communities in these extraordinary times,” Peck said. “While we saw a limited financial impact on our first-quarter results, we are realistic about the challenges and uncertainties that the COVID-19 pandemic presents to our society, global economy and Zoetis’s business in the coming months. We expect a more significant impact from COVID-19 for the full year as the lockdowns and recession have a continued impact on our business. Because of this, we are lowering our guidance to reflect our current outlook for the full year.”

Quarterly highlights

Zoetis organizes and manages its commercial operations across two segments: 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 first quarter of 2020, Zoetis said:

  • Revenue in the U.S. segment was $786 million, up 9% compared with the first quarter of 2019. Sales of livestock products increased 5% in the quarter. Both poultry and swine portfolios experienced double-digit growth in the quarter. Growth in poultry was driven primarily by increased sales of Zoamix, an alternative to antibiotics in medicated feed additives, while growth in swine was the result of increased sales of anti-infectives and vaccines. A decline in cattle products was the result of continued unfavorable beef and dairy market conditions.
  • Revenue in the International segment was $728 million, an increase of 1% on a reported basis and 4% operationally compared with the first quarter of 2019. Sales of livestock products declined 1% on a reported basis and grew 2% operationally. Sales of swine products grew as a result of expanding herd production and increased biosecurity measures in the wake of African swine fever in China. Alpha Flux, a recently launched parasiticide that controls sea lice in salmon, was the primary driver of growth in fish. Growth in the poultry portfolio was the result of price increases in Argentina, Mexico and Brazil. Sales of cattle products were flat this quarter.

Zoetis said it diversifies and grows its business through the introduction of new products, life-cycle innovations, business development initiatives and entries into new markets and technologies.

In livestock, the company enhanced its Improvest product for swine in the U.S. with the addition of a new claim for estrus suppression in female pigs. Improvest, a product with proven environmental sustainability benefits, is best known for providing a safe and effective alternative to physical castration in male pigs to manage an unpleasant odor or taste in cooked pork, the company said.

In addition to new product approvals and life-cycle innovations, Zoetis continues to support future growth through business development activities. In April, Zoetis acquired Performance Livestock Analytics, a technology company that simplifies data and analytics for the livestock industry. This acquisition will help Zoetis accelerate progress in precision livestock farming and improve sustainability of producers’ operations.

Financial guidance

Zoetis announced it is lowering its full-year 2020 guidance to reflect its current view of the estimated impact of the COVID-19 outbreak, recessionary conditions in the global economy and foreign currency headwinds. The updated guidance includes:

  • Revenue between $5.950 billion and $6.250 billion;
  • Reported diluted earnings per share between $2.80 and $3.07, and
  • Adjusted diluted earnings per share between $3.17 and $3.42.

This guidance reflects foreign exchange rates as of late April. Additional details on guidance are included in the financial tables in the full announcement.

Zoetis is a leading animal health company dedicated to supporting its customers and their businesses. Building on more than 65 years of experience in animal health, Zoetis discovers, develops, manufactures and commercializes medicines, vaccines and diagnostic products, which are complemented by 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 2019, the company generated annual revenue of $6.3 billion and had approximately 10,600 employees.

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