Zoetis(ZTS)2024-02-12 16:00Revenue Breakdown by Product and Region - 2023 revenue in the United States was 3,911 million, with 52% from companion animal products and 48% from livestock products[9] - Companion animal products represented approximately 65% of the company's total revenue for the year ended December 31, 2023[11] - Livestock products accounted for approximately 34% of the company's total revenue for the year ended December 31, 2023[11] - International operations accounted for 46% of total revenue in 2023, with emerging markets contributing 21%[16] - Revenue from companion animal products in the U.S. reached 3.341 billion in 2022 and 2.047 billion in 2023, compared to 1.699 billion in 2021[266] - The U.S. remains the largest market, contributing 4.313 billion in 2022[265] - Parasiticides generated 1.771 billion to total revenue in 2023, showing steady growth from previous years[269] Product Portfolio and Innovation - The company has approximately 300 comprehensive product lines, including products for both companion animals and livestock[11] - The company launched Librela™ (bedinvetmab), the first injectable mAb therapy for monthly alleviation of osteoarthritis pain in dogs, approved in the EU in 2020 and in the U.S. in 2023[11] - The company acquired Jurox in 2022, expanding its range of companion animal and livestock products and increasing manufacturing capacity in Australia[12] - The company added AI dermatology and AI fecal for equine to the Vetscan Imagyst platform in 2023, enhancing diagnostic capabilities[12] - The company completed the acquisition of Basepaws in 2022, a petcare genetics company providing genetic tests and early health risk assessments[12] - The company's Pharmaq business is the global leader in vaccines and innovation for aquatic health products, with leading products like Alpha Ject and Alpha Flux[12] - The company completed the acquisition of PetMedix Ltd and adivo GmbH in 2023, both R&D stage animal health biopharmaceutical companies[13] - The company's product portfolio includes parasiticides, vaccines, dermatology products, anti-infectives, and animal health diagnostics[262] Financial Performance - Revenue for 2023 increased to 8.080 billion in 2022 and 2.344 billion, compared to 2.037 billion in 2021[224] - Earnings per share (diluted) for 2023 were 4.49 in 2022 and 614 million in 2023, compared to 508 million in 2021[224] - Dividends declared per common share increased to 1.350 in 2022 and 2,340 million in 2023, up from 2,034 million in 2021[226] - Comprehensive income attributable to Zoetis Inc. rose to 2,061 million in 2022 and 2,041 million in 2023 from 1,304 million in 2023 from 2,564 million in 2023 from 14,286 million in 2023 from 6,564 million in 2023 compared to 10,295 million in 2023 from 4,991 million in 2023 from 1,102 million, with dividends declared at 2,353 million in 2023, compared to 2,213 million in 2021[232] - Capital expenditures increased to 586 million in 2022 and 155 million in 2023, down from 14 million in 2021[232] - Cash dividends paid increased to 611 million in 2022 and 2,041 million, down from 3,485 million in 2021[232] Manufacturing and Supply Chain - The company has a global manufacturing network of 29 sites operated by itself[20] - The company's global manufacturing network consists of 109 CMOs as of December 31, 2023, supporting its supply chain[22] - The company owns the majority of its manufacturing sites, with 9 leased facilities and a portion of the Tullamore site in Ireland also leased[22] - A new manufacturing site was purchased outside Atlanta, Georgia in 2023, with plans for future commercial production[22] - The company operates a global manufacturing network with 29 sites across 12 countries and relies on 109 third-party CMOs[72] - Manufacturing challenges during COVID-19 impacted production of products like Simparica Trio, Librela, and Solensia, leading to purchase limits and delayed launches[72] Research and Development - The company incurred R&D expenses of 539 million in 2022, and 508 million in 2021[19] - The company employed approximately 1,600 employees in global R&D operations as of December 31, 2023[19] - The company's R&D efforts may fail to generate new products or innovations, impacting future growth[75] - Delays in regulatory approvals or commercialization of new products could negatively affect revenue and earnings[76] - Animal testing regulations and negative publicity could impact R&D timelines and the company's reputation[77] Regulatory and Compliance - The company's regulatory compliance includes engagement with global agencies and adherence to U.S. FDA, USDA, and EPA regulations[25][26][27] - The company is subject to U.S. Foreign Corrupt Practices Act (FCPA) and foreign trade controls, including activities in Iran under OFAC regulations[27] - The company's product portfolio includes human medical devices regulated by the FDA, following the acquisition of Abaxis[26] - Regulatory scrutiny on animal health products and livestock operations is increasing, potentially requiring additional resources[48] - The company is subject to substantial global regulations, and non-compliance could result in fines, shutdowns, or product withdrawals[78] - Regulatory approvals are critical for marketing new products, and delays or failures in obtaining approvals could prevent the company from selling products in certain jurisdictions[79] - The company faces risks from economic sanctions, particularly in Russia and Iran, where it sells limited humanitarian animal health products[79] - Compliance with environmental, health, and safety laws could result in significant costs, including fines, penalties, and remediation expenses[79] - Climate change regulations, such as the EU's ESRS and California's Climate Corporate Data Accountability Act, may impose additional costs and disclosure obligations starting in 2026[79] - The company is subject to evolving chemical regulations, including restrictions on PFAS, with Maine banning products containing intentionally added PFAS by 2030[79] Competition and Market Risks - The company faces competition from major players like Boehringer Ingelheim, Merck Animal Health, Elanco, and IDEXX Laboratories, as well as generic products and startups[23] - The company faces increasing competition in the animal health industry, with potential impacts on revenue and profitability[53] - The company faces competition from generic alternatives, which may impact its market share[56] - Sales of Rimadyl chewable and Draxxin products declined by 33% and 47% respectively in the U.S. due to generic competition[57] - Global economic and political conditions, including COVID-19, Russia-Ukraine conflict, and inflation, could adversely affect the company's operating results and financial condition[58] - Consolidation of customers and distributors may lead to decreased product pricing and negatively impact financial performance[59] - Shift in distribution channels for companion animal products, particularly towards e-commerce, could reduce market share and margins[61] - Outbreaks of animal diseases like African Swine Fever and avian influenza could reduce demand for livestock products and impact sales[63] - Revenue from antibacterials for livestock was less than 950 million in 2023, with potential future declines due to regulatory restrictions and consumer preferences[64] - Adverse weather conditions and natural disasters could disrupt manufacturing and reduce demand for products[66] - Climate change may increase disease prevalence in livestock and disrupt supply chains, negatively impacting financial performance[67] - Changes in trade policies and tariffs, particularly involving the U.S. and China, could harm the company's business and financial condition[67] Intellectual Property and Patents - The company holds approximately 5,880 granted patents and 1,490 pending patent applications across more than 50 countries[24] - Key patent expirations include Draxxin (tulathromycin) in Japan and Brazil (2025), Excede/Naxcel (ceftiofur) in the U.S., Japan, and Brazil (2024-2027), and Cerenia injectable (2025-2028)[24] - The company maintains over 10,500 trademark applications and registrations globally for its animal health products[24] - The company's intellectual property rights are subject to challenges, which could allow competitors to take advantage of its research and development efforts[86] Employee and Diversity Initiatives - The company has approximately 14,100 employees worldwide, with 6,900 in the U.S. and 7,200 in other jurisdictions as of December 31, 2023[31] - The employee engagement rate was 86% in 2023, maintaining a high level in the high eighties for the last three years[32] - The company aims to increase the representation of women at the director level and above globally from 32% to 40% by the end of 2025[33] - The company aims to increase the overall representation of people of color in the U.S. from 21% to 25% by the end of 2025[33] - The company aims to increase the representation of Black colleagues in the U.S. from 4% to 5% by the end of 2025[33] - The company aims to increase the representation of Latinx colleagues in the U.S. from 5% to 6% by the end of 2025[33] - The global voluntary attrition rate decreased from 10% in 2022 to 8% in 2023[34] - The company tracks health and safety performance metrics including total injury rate (TIR) and lost time injury rate (LTIR), which are lower than industry averages[36] - The company has a leadership team with 64% of the executive team, including the CEO, being women[33] - The company offers nine Colleague Resource Groups to foster a diverse and inclusive environment[33] Environmental and Sustainability - Environmental-related capital expenditures in 2023 were approximately 19 million[48] - The company has indemnification obligations for environmental cleanups at sites it no longer owns or operates[48] - The company's future capital expenditures for environmental compliance and remediation are uncertain but not expected to have a material adverse effect[49] - Climate change regulations, such as the EU's ESRS and California's Climate Corporate Data Accountability Act, may impose additional costs and disclosure obligations starting in 2026[79] Legal and Litigation Risks - The company is subject to potential product liability claims and regulatory actions due to safety, quality, or efficacy concerns[55] - Litigation risks, including potential increases in liability for emotional distress claims related to companion animals, could materially impact financial results[80] - Counterfeit or illegally compounded versions of products, such as Apoquel and Simparica in Brazil, pose risks to the company's reputation and business[81] - Off-label use of products, such as Ketaset, could lead to increased liability and regulatory penalties[82] - Data privacy compliance is a significant challenge, with potential fines and penalties under laws like GDPR and CCPA[82] - ESG goals and disclosures, including the Driven to Care program, expose the company to reputational and operational risks[83] Financial Risks and Debt Management - The company has approximately 1.0 billion senior unsecured revolving credit facility expiring in December 2027, with the option to increase it to 56 million in available lines of credit and 1.35 billion in senior notes in November 2022, with 750 million due in 2032[293] - Long-term debt as of December 31, 2023, totaled 6.319 billion[294] - Expected interest payments on long-term debt for 2024 are 3.166 billion over the life of the debt[295] - Interest expense, net of capitalized interest, was 221 million in 2022 and 82 million change in cumulative translation adjustment (CTA) related to net investment hedges[202] - A 10% change in the U.S. dollar against other currencies would impact the fair value of foreign currency forward-exchange contracts by 3 million due to fixed to floating interest rate swap agreements[203] - A 100-basis point increase or decrease in SOFR-based interest rates would change the fair value of forward-starting interest rate swaps by (7) million, respectively[203] - The company's primary net foreign currency translation exposures include the Australian dollar, Brazilian real, British pound, Canadian dollar, Chinese renminbi, and euro[202] - The company's debt is predominantly fixed-rate, with interest rate risk managed through interest rate swap agreements and forward-starting interest rate swaps[203] - The company's foreign exchange risk is managed through operational means and financial instruments, including foreign exchange derivative instruments and forward-exchange contracts[202] - The company uses derivative financial instruments to manage foreign exchange risk, primarily in the Australian dollar, British pound, Canadian dollar, Chinese renminbi, euro, and Norwegian krone[297] - Foreign currency forward-exchange contracts used for hedging typically mature within 60 days, with some extending up to 4 years[298] - The company entered into forward-starting interest rate swaps with an aggregate notional value of 114 million in cash from the counterparties for settlement[299] - As of December 31, 2023, the company had outstanding forward-starting interest rate swaps with an effective date and mandatory termination date in March 2026 to hedge against interest rate exposure related to the anticipated future issuance of fixed-rate debt[299] - The aggregate notional amount of foreign currency forward-exchange contracts as of December 31, 2023, was 1,753 million in 2022[300] - The fair value of forward-starting interest rate swap contracts as of December 31, 2023, was 10 million in 2022[301] - The company had 33 million posted related to derivative instruments as of December 31, 2023[301] - Net losses on foreign currency forward-exchange contracts not designated as hedging instruments were 58 million in 2022[301] - The unrecognized net losses on foreign exchange derivative instruments, recorded net of tax in Accumulated other comprehensive loss, were 36 million in 2022[302] Tax and Accounting - The company recorded gross unrecognized tax benefits of 301 million