Zoetis(US:ZTS)2025-11-04 20:02Revenue and Income - Total revenue for the three months ended September 30, 2025, increased by $12 million, or 1%, compared to the same period in 2024, with operational revenue growth being flat [129]. - For the nine months ended September 30, 2025, total revenue increased by $141 million, or 2%, compared to the same period in 2024, with operational revenue growth of $206 million, or 3% [130]. - Net income attributable to Zoetis for the three months ended September 30, 2025, was $721 million, a 6% increase from $682 million in 2024 [128]. - Adjusted net income for the nine months ended September 30, 2025, was $2,070 million, reflecting a 9% increase from $1,905 million in 2024 [128]. - Adjusted net income for the three months ended September 30, 2025, was $754 million, a 5% increase from $716 million in the same period of 2024 [184]. - Non-GAAP adjusted diluted EPS for the three months ended September 30, 2025, was $1.70, an 8% increase from $1.58 in the same period of 2024 [185]. Expenses and Costs - The cost of sales as a percentage of revenue decreased to 28.5% for the three months ended September 30, 2025, compared to 29.4% in 2024 [128]. - Selling, general and administrative (SG&A) expenses increased by $14 million, or 2%, to $579 million in Q3 2025, maintaining 24% of revenue [135]. - Research and development (R&D) expenses rose by $3 million, or 2%, to $170 million in Q3 2025, consistent at 7% of revenue [139]. - Cost of sales decreased to $683 million in Q3 2025, representing 28.5% of revenue, down from 29.4% in Q3 2024 [132]. - SG&A expenses for the nine months ended September 30, 2025, increased by $66 million, or 4%, totaling $1,759 million [135]. - Cost of sales for the nine months ended September 30, 2025, was $1,954 million, or 27.6% of revenue, compared to 29.0% in the prior year [132]. Taxation - The effective tax rate for the three months ended September 30, 2025, was 18.7%, down from 20.8% in 2024 [128]. - The effective tax rate for the nine months ended September 30, 2025, was 20.4%, slightly up from 20.2% in the same period of 2024 [152]. - Provision for taxes on income was $166 million in Q3 2025, with an effective tax rate of 18.7%, down from 20.8% in Q3 2024 [151]. - The effective tax rate on adjusted pre-tax income was 18.6% for the three months ended September 30, 2025, compared to 20.8% for the same period in 2024 [184]. Segment Performance - U.S. segment revenue decreased by $24 million, or 2%, in Q3 2025, primarily due to a $25 million reduction in livestock products [156]. - International segment revenue increased by $34 million in Q3 2025, with operational revenue growth of $12 million, or 1%, driven by a $25 million increase in companion animal products [158]. - U.S. segment earnings increased by $10 million, or 1%, in Q3 2025, primarily due to higher gross profit [157]. - International segment earnings increased by $14 million, or 3%, in Q3 2025, primarily due to higher gross profit [160]. - U.S. segment revenue increased by $44 million, or 1%, in the nine months ended September 30, 2025, reflecting a $172 million increase in companion animal products [161]. - International segment revenue increased by $70 million in the nine months ended September 30, 2025, with operational revenue growth of $134 million, or 4% [163]. - U.S. segment earnings increased by $91 million, or 4%, in the nine months ended September 30, 2025, primarily due to higher gross profit [162]. - International segment earnings increased by $95 million, or 6%, in the nine months ended September 30, 2025, primarily due to higher gross profit [164]. Cash Flow and Liquidity - For the nine months ended September 30, 2025, net cash provided by operating activities was $2,011 million, a decrease of $37 million compared to $2,048 million for the same period in 2024 [200]. - The company reported a net cash used in investing activities of $582 million for the nine months ended September 30, 2025, compared to $441 million in 2024, primarily due to capital expenditures [201]. - Net cash used in financing activities was $1,375 million for the nine months ended September 30, 2025, a decrease of $540 million from $1,915 million in 2024, mainly due to the repayment of senior notes and the purchase of treasury shares [202]. - Cash and cash equivalents increased to $2,084 million as of September 30, 2025, up from $1,987 million at December 31, 2024 [204]. - The company's working capital improved to $4,776 million as of September 30, 2025, compared to $2,574 million at December 31, 2024, reflecting a stronger liquidity position [204]. - The ratio of current assets to current liabilities increased to 3.64:1 as of September 30, 2025, compared to 1.75:1 at December 31, 2024, indicating improved short-term financial health [204]. Debt and Financing - The company has outstanding debt securities totaling approximately $6.55 billion, with varying interest rates from 2.000% to 5.600% [212]. - The 2017 Senior Notes due 2027 amount to $750 million with a 3.000% interest rate, while the 2022 Senior Notes due 2032 total $750 million with a 5.600% interest rate [212]. - Moody's rates the company's long-term debt as A3 with a stable outlook, while S&P rates it as BBB+ with a stable outlook [214]. - The company entered into a new $1.3 billion senior unsecured revolving credit facility in August 2025, which expires in December 2027, with the option to increase to $1.75 billion [205]. - As of September 30, 2025, the company was in compliance with all financial covenants related to its credit facility [206]. Market Risks - The company is subject to risks from changes in foreign exchange rates and interest rates, which could impact earnings [221]. - The company has a significant exposure to market risks, including foreign exchange and interest rate fluctuations [221]. - The company’s financial risk management program aims to manage the impact of foreign exchange and interest rate movements on earnings [221]. - The company may indemnify counterparties against certain liabilities, but historically, it has not paid significant amounts under these provisions [216]. - The company is required to make an offer to repurchase senior notes at 101% of the aggregate principal amount under certain conditions [211]. Other Business Activities - Other business activities net loss increased by $3 million in Q3 2025, reflecting increased compensation-related costs and depreciation expense [166]. - Other business activities net loss decreased by $8 million in the nine months ended September 30, 2025, due to a decrease in R&D costs and improved contract manufacturing results [167]. - Other unallocated expenses increased by $12 million, or 17%, in the three months ended September 30, 2025, primarily due to higher manufacturing costs and unfavorable foreign exchange [171]. - Corporate expenses increased by $5 million, or 1%, in the nine months ended September 30, 2025, primarily due to an increase in compensation-related costs [172]. - Other unallocated expenses increased by $29 million, or 14%, in the nine months ended September 30, 2025, primarily due to higher manufacturing costs [173].