ZTS - Earnings call transcript Q1 2018

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Operator

Good day, and welcome to the First Quarter 2018 Financial Results Conference Call and Webcast for Zoetis. Hosting the call today is Steve Frank, Vice President of Investor Relations for Zoetis. The presentation materials and additional financial tables are currently posted on the Investor Relations section of zoetis.com. The presentation slides can be managed by you, the viewer, and will not be forwarded automatically.

In addition, a replay of this call will be available approximately two hours after the conclusion of this call via dial-in or on the Investor Relations section of Zoetis. participants floor placed your will the all mode, a questions time, presentation. the and be this have in been listen-only following At open for Steve turn now floor pleasure is to It over my to Frank. the Steve, you begin. may

Steve Frank

Good David, quarter earnings morning, Officer. our by Ramón Chief call. first Executive Chief today XXXX Alaix, joined Financial everyone, our to am Officer Zoetis welcome Juan and the I and Glenn

the section slides on Before our presented materially this results we you begin, our available Relations I'll could projections. call include and that the and that Investor will forward-looking of remind website, are differ today that those on remarks from statements, actual

in list differ, Form and XX-Q. our today's cause description and not factors certain SEC results filings, a including, I that to, on to to you on Report but our Annual could reports Form statements press For refer limited XX-K release of forward-looking our and the

will not the release, A included our today these financial remarks comparable U.S. the also GAAP. financial financial reconciliation to accordance certain measures GAAP press U.S. X, accompany accounting directly or tables in accepted May and to measures dated in earnings Our the generally X-K non-GAAP company's filing XXXX. prepared that which principles, references were most of include is today, measures, with

will cite also call the turn over I foreign operational to that, We results, Ramón. With which of exclude impact exchange. Juan the

Juan Ramón Alaix

Thank you, Steve. morning, Good everyone.

specialty products. to steady population A on more drivers health increase a saying products. as fundamental adoption industry that world of eggs, by of are fish pets strong. start require meat, growing interest continues as the dairy wellness more rates, medicalization leading and and efficient of their animal me production focus in well the The care Let in remain their and to health

animals may underlying cost will to their Our healthy type well but need face always exist, the fluctuations prices. conditions, as and is affordable and weather cycles economic food input as for customers essential. cycles, produce These safe livestock in of

to support a health, As in animal leader customers. our stayed well positioned Zoetis has

remains our have to our able manufacturing combination for R&D and discover, has revenue valuable XXXX. We based on sales, of continued and and bring to thanks quality we direct and to that success, first we diversity and deliver portfolio; formula innovations In the our way services been generating it also in to best-in-class growth, quarter, the of develop our capabilities. been profitable products This them, the the the international investments the as portfolio. new products customers. the and force X% our in for market sustained growth and on and of targeted of the our growth major effort value new the products our including U.S. across the We launch of in vaccines. field based support our in-line performance to dermatology deliver well portfolio, of operational We achieved driven as markets, the by we revenue, generated and

grew to income reform. net from also growth, by based margin recently tax XX% adjusted operationally, revenue our benefits the our We gross the U.S. and enacted on improvement

of above-market further dermatology In our We products. Animal our part gaining in expect for operationally, business. year share the growth expanding XX% we Companion of innovative grew terms see and return, another this for revenue and our of market products more opportunities

our continuing dermatitis atopic in other sales into digital and markets, our U.S. expand and canine them. around We itch. awareness are and extending efforts increase also overall to are category to markets new spend campaign derm and internationally, behind the direct-to-consumer portfolio putting marketing on In select the and we

in our in bivalent Companion Simparica, along Animal tablet molecule, to a sarolaner vaccine. the influenza first on chewable new a contributing are dogs, quarter, also Stronghold based products and the for formulation with for parasiticide Plus, products topical new Our cats, canine growth

on return at was developed this Zoetis our and illustrates positive of a R&D internally All investment.

faster PCVX top health the we products the growth. investment to the new we Zoetis, line make prevention business, stronger and lifecycle generated growth opportunities and quarter, is against market treatment. for innovation conditions investment our the our swine approval excellent in Livestock to by or the leading Xd the combination PCV swine products ever it discoveries. and There of the in The for XX are R&D provide at overall position to line product using cycle grow example, and are is genotypes expanded market. in vaccine poultry Xb swine the growth U.S. commercial new our long growth, Hyo. show of X% also protection cattle well. and and contain with the a The This healthcare, performance Xa in first of opportunities the led across livestock and protection prediction for vaccine Fostera we expect study fish priority in and products are And than – weeks. Fostera In PCVX first duration vaccines provide in as both breakthrough financial our operational a to cattle, from It poultry, cross support On in franchise stable with and and Gold see to stronger genotype. of side animal we our we enhance for with to and our

force markets. other we we'll our started digital to year, last marketing I diagnostics in have As and and maintain campaigns in DTC said, support field increasing advertising similar key

also have We which I executing in discussed investments, are manufacturing plans recently. our

country. new a groundbreaking enable a to and will in last manufacturing ceremony we for week fact, In expand in Suzhou, vaccine our China us facility that held R&D that

that, in in to our will external first our acquisitions more or from results an we'll we me of healthcare. In and can value who have value this With year across let gaps more confident always, achieve details growth of the XXXX areas things strength asset. proven existing and and opportunities more where business our closing, integrated we the or As company and model, customers on remain shareholders. we scrutinize and to can over term quarter generate cycle where we approach Zoetis provide our solutions business offer partnerships entire With full our long guidance. hand for and for identify the Glenn,

Glenn David

you, Ramón, Juan everyone. morning, good and Thank

Ramón adjusted again portfolio company we revenue quarter, Juan quarter grew the first impact in As Revenue includes income X% for rate and operational trends X% net grew we growth in the by Total delivering quarter market above foreign growth our revenue was key in first at excluding indicated, in performed the dermatology exchange. a well favorable products. line revenue. historical operationally a than our the from which driven faster

Livestock segments. from The breakdown products, our our international Of in U.S. in growth from saw a X% performance X% was also and and both We X% new price across products was X% line volume, products as and X% was including new of from volume. growth. growth the quarter X% to core X% virtually from strong driven and and tax our markets net improvement again revenue margin from effective a Adjusted growth, revenue operationally, this therapeutic products. rate. lower and gross areas, by key species XX% income key dermatology experienced balanced all We growth contributed grew price

$XXX again Our revenue APOQUEL the $XXX CYTOPOINT, quarter reaching million once in and the in key portfolio, of sales dermatology mark million. comprised with surpassed

call than sales in last earnings for $XXX indicated full and CYTOPOINT we year XXXX. APOQUEL combined achieve from quarter, million we the on As expect our to more

of growth XX% the Companion growth Now Companion Brazil. benefited new Animal markets in CYTOPOINT, the International first dermatology and of growth force. XX%, products success quarter operationally of grew with Stronghold Livestock such let's discuss increased China operational new as by Simparica and and Livestock driven segment and largely revenue. Animal in from operational X%. our key products and for such and revenue key APOQUEL protein, demand emerging as Plus animal field medicalization introductions our rates product was growing

rebuilding our Higher operational China, grew companion to growth sales Poland, Companion emerging summarize, benefit growth strength based on strength pets in we in revenue our to cattle sales distributor or portion favorable Companion also for Products, and this a with benefited In Poland, larger In helping we the we grew across consumer the co-promotion of contributed field Fel-O-Vax herd market. of from price on Russia stabilization quarter. all business Improvac investment, a XX% with portfolio results. cattle, as across and and key consistently segment of swine, came diversified a in An sales operationally, continue the registered market in market recovery of purchases and the was penetration Animal, only our on continued contributed all prices increased quarter. a increases our installation growth well are X% Brazil APOQUEL our higher in on animal in investments And population our poultry had and strategic the notable driven some Japan Favorable increased as In which the of medicalization achieved due largely milk increasingly quarter first elsewhere, And Growth force return all sector a penetration Companion growth. Australia Animal Other regions devices products grew with feed medicated international producer to very KL to the year and species. the decline had execution to Vivax, the we conditions, represents and the and usage force from in acquired revenue positive of performance investments known the strong poultry. with grew in by continues both there. to by it's to To available tempered poultry. commercial Brazil, market. return Animal were of vaccine particularly customers. increasing by poultry, a was In consolidation. in on were see Turning growth. and XX% beef to in performances and XX% and penetration market related strong cats a cattle, in in contributions which perform of business with experienced to These In of the operationally driven performed additives greater larger a Russia due line Revolution operationally growth Livestock focus increased businesses. for the with vaccine as markets to the the and from additional higher portfolio. to field export conditions. strong in penetration. particularly markets, market timing within led across In such have species, an due of direct key Other cattle. well. Simparic drive of result clinic coverage the hatchery and and last XXXX. quarter to vaccine market vet a as

number a to offset Companion X%. primarily Animal all grew while the sales X% first growth. in our to and products. Livestock partially launched certain the the dermatology Simparica. portfolio in Companion by grew Animal CYTOPOINT dermatology sales exhibiting and quarter the were species contributing U.S. with both and These the growth were recently in the line over gains in same U.S., of driven for Turning quarter were quarter products grew decreases by X% strong APOQUEL quarter revenue with million year. prior in $XX

and line higher QX was Simparica weather over last QX the due in revenue in and QX with anticipated, As customer QX year. and declined in to QX of with seasonal activity. QX of the we XXXX same the warmer timing purchases expect driving sales of quarter

penetration product the this are investments grow XXXX. consumer of maintaining and benefit we in as clinic to continue gain we expect to realize direct market and in share our which to We QX

flu launches treatment RIMADYL including bivalent continued contributions Partially business for and Additional Companion product Companion offsetting expected on VANGUARD our growth in Animal to our new heartworm. and growth the competition CLAVAMOX. impact canine Animal the was from of of vaccine REVOLUTION, came DIROBAN

continental to quarter, the off Livestock the U.S. species. to and building weather first quarter across of thanks a risk with supported more all of disease greater and volatile incidence X%, and to this business conditions led fourth of performance strong parts the sales sales Our in across continued a premium increasing the Colder outbreak grow positive U.S. products.

be sales first in offset declines driver by to to business of anti-infectives the growth in in returned performance moving continues comparable poultry, In primary in in and in prices The feedlots was than Swine Our animals beef portfolio in dairy the through feed of dairy alternatives period to led the lower to where growth. the of also our XXXX. benefited reduction intramammaries. numbers quarter. of antibiotics higher due to partially herds beef Zoetis medicated from additives cattle positive

Fostera in our Gold We of of are the benefits vaccine hyo see PCV in to and starting including launch M. investments the future expect quarters. we our further line Fostera contribution

Adjusted items will moving basis the Now reported for the key basis the on Operating improvements gross the approximately in discuss benefit as total increased a chronic This year. reflects reflects XXX points manufacturing line and XXXX. on a and few guidance of quarter R&D the for our efficiencies P&L. and period of margin continued in of to an and increased rest I network. areas then versus cover in such grew last monoclonal in cost antibodies in operationally pain. same diagnostics X% expenses XX.X% investment

revenue We guidance. lower the than recently realized remainder grew XXXX vesting income quarter The such our Adjusted SG&A, the certain equity the the comparable operationally XX% We a employee rate XX% anticipate versus in lower the quarter effective manufacturing XX.X%. in do, with tax spend Adjusted the benefit of and higher compensation improvements significantly through a was grew net in the period combination operationally quarter for to XXXX. adjusted enacted The of however, also a the reform rate. higher rate for and in related line period strong for EPS of of favorable year the in discrete the of U.S. in to due the same from rate growth, tax tax as due costs. items effective diluted primarily impact awards. effective cost the tax increased tax quarter is rate

guidance to is moving start, solid as The year off Now a for XXXX. full expected. year to

provided reaffirming rates earnings our during XXXX are guidance of this note representing We is foreign call. our mid-April. shown Please therefore that as exchange February

XX% strong calendar and to X% to growth to the less net year, performance revenue have fourth a adjusted change to of expect will Livestock we comparisons calendar. and operational to due In to the income U.S. X% we our growth For XX%. continue accounting in achieve of quarter, a operational days in

repurchased our nearly first $XXX and of in quarter shares we shares adjusted through reflects our the the share reported QX. Finally, per repurchased earnings guidance and million for

a start a and novel growth across to in species. before to good new lifecycle line from to across our and Q&A. to including and of our we balance pipeline balanced go with We're Just portfolio summarize, We're growth our off seeing areas management. therapeutic markets, price portfolio, contribution products innovation

than growth innovate continue geographic continue to or presence will diversity, provide Our platform ability And a faster the line invest is with to to that in will and market. for both operator hand open and questions. internally support return Operator? that, sound business to over excess externally in line capital investments the With things and our I'll your to the to shareholders. to for we

Operator

our go ahead. take John Kreger Please We'll you. Blair. question Thank with from first William

Your line open. is

John C. Kreger

Hi. all Ramón, business bit Thanks your see very any changes to do business? we that, talk maybe much. months? in in you to tariffs if your And impact can at that Juan Thanks. exposure recent you little a about you the discussion NAFTA, Livestock see Livestock all? seen U.S. about related Have

Juan Ramón Alaix

you, Thank John.

proteins time, some implementation areas is the remain we Livestock expect of a will supplied We on maybe U.S. tariff Same activity. be of because is have seen and that we animal tariff our which produced on business. importation producers. because have biggest because international is not But represent the the not impact same, China of the have Definitely, that can of price where that yeah, markets the and the impact by our any in will something an of on other concerns, pork. to in consumption talking also the two one anything that presence U.S. of the

X% U.S. of of of revenue. in represent is about and is of represent U.S. case exports. the XX% in XX% But business production consumption for only swine of about in these the China export. the Our XX% exports, our XX% the local total for

Definitely, it's and hopefully the impact export will any NAFTA that customers something support they Canada, these and What agreement is to with manage agriculture impact. we U.S. is to something the our to countries good working percent any Mexico we'll export livestock bigger would discussions. and they our to Definitely ensure the that supporting want think this the not for So continue I significant have in government and continue impact. of two achieve are will U.S. U.S. that total revenues, a the

So next question, please.

Operator

ahead. We'll Craig-Hallum. question Kevin next from go take with Please Ellich our

Kevin Ellich

the increased Ramón detail little I Glenn, guess you us on for more could priorities Good capital allocation structure? questions. the dividend XX%. morning. taking a your Juan bit You give capital Thanks and and

than your past. You in do quarter had this what's bought guess, things outlook more for you the back how M&A? you stock and Thanks. I prioritize strategic

Juan Ramón Alaix

And Thank you, the Kevin. our capital same. priorities allocation remain

we'll So internally. continue investing

is expanding ensure increasing be We a we have we will expenditure will year any that to is been are support And it to programs that are of return. in something and ensuring the on future focused future. communicated our the a return our on also key been This the support growth. remain in to capabilities manufacturing that we cash of dividends remain share these field backs have at showing we'll very will disciplined We'll that having this time through buying investments the same type and in criterias are but and are have also continue capacity at acquisition, of external paying and needed in the line to the and previous generated high meet support We'll that that asset, contemplate with assessing the regulating position. capital DTC in opportunities continue we really continue strategic also external type to We'll discussions. portfolio we divisions. investing diagnostic value anything force creation, what

Glenn David

changed. Kevin, said, as haven't Juan the and our Ramón Yeah, I'll only thing priorities add,

flexibility have also mentioned, our reform. continue generation increase tax And flow cash to priorities. to we and continues as to with we additional capacity those However, execute on

terms versus repurchase repurchase, as in give indicated execute your and allocation continue our to that other capital does of flexibility dividends have priorities. to more flexibility it we on you around share We us share and to access prefer cash as question

Juan Ramón Alaix

Next question, please.

Operator

Chen go go Cantor we'll next Please And ahead. to Louise Fitzgerald. with

Louise Chen

in how Hi. the in potential cash it of the in us earnings about increase? of magnitude Thanks generation, Kevin's a my metric as your also should little Maybe that? to not bit color, earnings behind a question. the today. for taking is share cash, ask of just Maybe think reflected flow And you your question per then we that's differently. acceleration give that I'll try little really terms more could

So about Thanks. could that how years? next over how magnitude think the should we improve several

Juan Ramón Alaix

Okay.

question, comments. I asking a time type then, similar to So since of this Glenn are you will ask to different provide a answer

Glenn David

cash and particularly much we I to how XXXX, expect adjusted the XXXX, of that terms at don't magnitude the we you net pace increase pretty to it guidance of could as generation income. In while at specific expect think we generation, of provide for on cash increase for our that, the look

also then XXXX continued expense generation, our extent Our execute right continued internally. repurchases down depending we see rationale. that and of on continue either be that strategic on We've share financial capital we'll that allocation for look opportunities capital investments or development the Right? materialize, up to in we'll current we have that To up business again development. So guidance includes and adjust our to referenced have we'll in flexibility for both the to investments those business the the magnitude expect XXXX priorities. cash

Juan Ramón Alaix

Next question, please.

Operator

with Credit go And Erin we'll go next Wright Suisse. ahead. to Please

Unknown Speaker

you metrics? about on to quarterly how do is and your elements actually about, growth of to This profit where the question of potential think conservatism in for for progression there think are (XX:XX) a product taking our relative sort question. the Erin ask We would Thanks. you today. of Thanks guide do in like Hi. metrics

Glenn David

to a as necessarily does growth. QX about of days indicated, benefit in accounting and That quarter, a to things quarterly calendar the to will in we where to tune half we That that a point impact don't point calendar. guidance. reverses related as to provide provide So a referenced X% A though in from particularly in by slight QX change the see growth of X%. number negative we revenue, about QX we on a of our call, out growth the to point couple we'll

based perspective, U.S. obviously on out just point XXXX. tough in a Livestock strength performance thing, we other the comparison from The QX of growth in face QX, the to particularly

Juan Ramón Alaix

Next question, please.

Operator

to Bank of We'll go Bruin next with Please Derik de ahead. America. go

Michael Ryskin

Thanks. on This Derik. Ryskin Mike for is

on the U.S. the market? where those the are about in more you of portfolio also, in for and then line levers products is is it's forward, it the those more competition, talk can if expectations then products, competition And you I can seeing you're you mentioned – also You pull you strengthen price volume? mentioned there the your sort in one the terms on in, squeeze of what sort going overall. to the are diagnostics actually what RIMADYL that? the the you products, talked you the that force? on about launched sales been for having in Or on months specifically areas us strength about, you Can can REVOLUTION, it to build-out more And with remarks. In a few and price an a of briefly with give it since you prepared cut products, Thanks. talk adjust the for the talked in update there

Juan Ramón Alaix

Thank you Mike. the questions, for

consistent in in terms or volume, of It's of be U.S. line portfolio our species, about But terms price what the of will we in areas, we Animal total times, us advantages quarter Animal the this maybe in of terms X% U.S. in we but talk is growth are and will When impact we have many quarter moving we in diversity helping say be this portfolio to Glenn So as and reported some expectations first that, some describe, you growth. the one generating in Zoetis that saw Glenn U.S. the problems the diversity will forward. higher the of geographies. of that of revenue Companion impacts year, said expect therapeutic the that for in I growth. say, Companion

Glenn David

volume, price CLAVAMOX, as was was It which really the the expense competition impacted well. there And that will minimize impact launched the and with impact factor forward. products U.S., a as do competition. really last were year. really was as year-over-year sellers, of but in we Galliprant in continued and in CLAVAMOX penetration faced CLAVAMOX, expect generic three the RIMADYL this competition RIMADYL REVOLUTION. move CLAVAMOX, it's some coming Yeah, especially the primarily comparison of terms Galliprant the from Chewables growth competition we throughout of by expanded have we of and

toughest of in year-over-year. REVOLUTION, perspective. terms again, really And for volume a was then more competition challenge quarter comparison the competition in growth Bravecto the cats And biggest we're So, there. from

Juan Ramón Alaix

March. And also portfolio we that also maybe from the that adding is a cold by our parasiticide was This the affected parasiticide REVOLUTION but overall portfolio something for including have Zoetis, seen also affecting only competitor. not

asked and about field our Animal, continue forces started that in portfolio. U.S. will (XX:XX) be all support you products we in and develop supporting support it's already is So in field locations We to the the what started current mainly progress area. (XX:XX) are that building our we in and investing Well, portfolio we also in diagnostics, field offering have We we our future this diagnostics. Companion internally veterinarians, to are making and

support key also now international what field we'll expanding complete we our needs markets We and diagnostic think will are the of in we portfolio. continue for be until

please. question, Next

Operator

go Morgan go We'll David next with to Please Stanley. ahead. Risinger

David R. Risinger

much. very two please. I have questions, Thanks

R&D. prospects just think comps X% know R&D, outlook. for I talk about quarters. cost a in and don't just sense paid U.S. ask in accelerating over second, as R&D to tougher a expensive you past Companion spending and projects the well? outlook wanted Animal, which year. And have but much. Companion growth growth I I little be now year-over-year Animal growth below year-over-year in the in, R&D about the guess, obviously was about efficiency then that the you're in more off with as we coming very had marginally the past, is getting the the in you're to what you invest bit course of how growth U.S. First for your Thanks of reinvesting expected, may has the initiatives Could respect I to R&D

Juan Ramón Alaix

of year. the parasiticides the growth started investment growth coming also first And the be now be that dermatology Companion on season in increasing total higher Animal for Thank the in in you, that higher conditions April, impact quarter. investing expect the Also month DTC also Dave. has And for DTC for no We'll is and from, we strong expect Simparica. we on our in awareness the in campaigns well, starting. for DTC for will that U.S. so the we'll be increasing

expansion should of market all this also So of in for in dermatology terms a market grow and continue share the generate Simparica.

are higher about in the we Animal So optimistic in growth Companion a a generating XXXX. total for U.S.

of terms R&D R&D. our increasing In investment, we allocation are for the

supporting. a strategic have program we are that We

Nexvet the added acquisition we We some also additional products with of that now are supporting.

also are investment We also in increasing as increasing well for as our R&D diagnostic allocation fish.

that maintain past. we really some or comments additional to you to So either of of allocation – (XX:XX) increasing the in that we Glenn, all R&D, reallocating activity this that the want we same level are it's add U.S. level we'll we total are the show the that R&D, and if please... on are confident very

Glenn David

Yeah.

S. growth Companion add Animal comment. to the to U. Just

quarter, in to driven really the that Just Simparica growth a by QX one thing by impacted quarter was was comparator tough to consider the XXXX. particularly negatively the of and for quarter

you and if then QX strong sharp back a XXXX, sales to in to going go that sales XXXX. pattern had in So in same decline we see not QX. in We're

growth So drive in throughout then year. expect decliner growth QX in will help that the which in to in well, QX, Animal QX Companion while growth accelerate Simparica to was we a as

Juan Ramón Alaix

Thank you, Glenn.

Next please. question,

Operator

go Gilbert Gregg to Bank. ahead. Please with next Deutsche go we'll And

Gregg Gilbert

acquisitions that, an how relative you species there's Thanks. Again over this overall. to this an is is others business how other give missed small but breakdown fish but strategic I'm Glenn, U.S. become I numbers if world relative categories rest at more that And area organic be as with of clearly story you my can grower well? for the R&D looking business. about the large longer sorry long term? the I'm spend Obviously for could you. this, term. ripe could a Thank and for us question APOQUEL, very curious and nice conceptually CYTOPOINT, just the to large business

Juan Ramón Alaix

the Thank provide you, want portfolio? the of Gregg. you details to Glenn derm

Glenn David

Yeah.

break had so in terms the The growing million derm for out growth. $XX XX% CYTOPOINT, of in nicely, we bit between In that, numbers the and just CYTOPOINT was the million portfolio, little U.S., sales $XXX rounding million million two. $XX the quarter, million international. was APOQUEL obviously derm in between APOQUEL, $XX $XX a million there and of in Of there's $XXX over and was

Juan Ramón Alaix

provide fish Today estimate It long-term our salmon, is about coming fish. the we some from case and to are most difficult be will will on I for And focused comments are of generated opportunities salmon. in revenues fish. what in the

We market salmon for in portfolio the be the will in for for mortality into very antibiotics vaccines. vaccines are are But water. in high that products dropped have that the be of species, expanding also which fresh are the most today the growth and fish, are rates generated future mainly will fish other the share where used XX% of

the way are the today antibiotics we fish. vaccines salmon many that almost same So that the in expect moved in years antibiotics production we ago using of from and not to industry

poultry there the many similar poultry, to expect ago. well, same future. it's billion fish was see for and years in revenue We the In in protein where $XX We other generated very in small species revenues. way now some

– in revenues $X total the no (XX:XX), billion poultry. billion sorry animal total health $X – So billion. $X for

delivered and think billion producers. the revenue, $X already asset, fish million, but the industry more is moving that industry products So to also $XXX over this reaching of to of $XXX an not will that we greatest about that the level we million time and for generate that that in terms generate from revenues maybe expect future infrastructure will to the today expertise the be fish, an than

So next question, please?

Operator

go with go Please we'll Jon Block to ahead. Stifel. And next

Jonathan David Block

or to Great. guys. XXXX. And I'm you Thanks. actually to first, going half three last Good two to squeeze one. try up roll through, in dairy that morning, had just maybe conviction back pick would the into of quarter

as fish a in half B we pricing the be back see if did Just still up that modestly the seemingly from curious difficult. that's run I XXXX. of remains would big rate step but guess part year-over-year, intact down

lastly, then $XXX the annual PHARMAQ of the about update that sorry, positive gate think the the on Simparica? out Simparica, but I just the from guys CYTOPOINT of So negative I a this guys. and the an And And contribution million? by is you Is how do there year? initial update goal? What's we revisions. think mean to APOQUEL seen a Thanks, $XXX or million sort have pointed We've to latest product. an positive in there

Juan Ramón Alaix

Thank you, Jon.

prices. question with seen realistic conversations XXXX in prices exception, had in me that In previous Let dairy we that of XXXX. the we expect of dairy, been and have the Maybe general, on Livestock, we terms these in that (XX:XX) dairy stable look challenge because the where declining in have it's of February. profitability will start and face it's for farmers

cases some as negative, in the in expect next the that are so be supply prices will many industry We the volume and other then species we'll there and they will see in occasions cycle it's even and compensate. expect that adjusting profits. if we in be the happening dairy that that to in cycles XXXX, more will will are other more always Livestock the recover positive dairy, back and But

that total year. that remain we livestock the the will beginning So with confident be the line we the in of made at projections

fish this quarter the portfolio terms was fish, In flat. of

for much We which of level. we in in Chile are prices where and the following in something process volume. are quarter was priced with comparing SRS in our probably our a adjusted terms higher vaccine comparing is at We

but growth maybe on increasing talk Glenn, about that impact of And the faster continue will you a be We be for growth, the will fish in Price in we what's to than want growing for animal but revenue the Simparica? health. growth overall the is line have negative market having penetration. total expect the our

Glenn David

only sequential mention the other second of in I'll versus on thing year. we've is really half indicated, is the of the Yeah. season, fish The quarters terms in QX as PD

So that's QX down step as of and between well. performance the part QX

million still we and blockbuster expect In that is our terms with expectation of Simparica. than Simparica, that product sales have we $XXX that indicated of be to a greater for

Juan Ramón Alaix

please. Next question,

Operator

And we'll Chris to ahead. Schott go Please with next go JPMorgan.

Christopher Schott

much. very Thanks Great.

Just two questions here.

second in My making excited breakthrough lifecycle most you're management we just portfolio? you're you R&D, the that investments as incremental tax. much And think R&D that a are focused focused side, you on of investments? the what the think on about about about on question on is versus one First how areas when on quick was breakthrough

quarter. companies rebound expect year. the rate But a rules. number lower had as the have I expectations to you know obviously in seen digest of to of the tax they've the You a that rest new more we lower their time had

to time? XX% is to about business good the tax think XXXX, as you. trends you improvement one about rate forward? over we think Zoetis as XX%, Thank Or rate So beyond the could a going see

Juan Ramón Alaix

lifecycle Thank product And the new investing you, are Chris. same. in or about innovation we

investments And we compare we are much of into most new some market balance monoclonal much in So that additional how excited these be antibody. growth. what about about excited the are to will and terms we Definitely, current our are very the in products creating R&D. very portfolio

which as well monoclonal one and for and APOQUEL. a very growth our antibody is missing monoclonal especially a positive is complementing now of and state pain But see significant for see it's this working today. generate have we monoclonal and We is the nothing positive indications platform We which from extremely antibodies and dogs need. customers will antibody cover demand we that that, will many generating other CYTOPOINT which need specific market. very There's the cats, including for for feedback cats unmet cats

diagnostic all the our Simparica healthcare, and analytics prediction to our information, treatment value active internal And of aspects We to are cats across data investment with market, continue to detection, to not to ways treatment. but of detection integrating is different and build ingredients prediction, or and cover also use really external. also dogs increase just our excited the other ensuring of with the in vaccination prevention also portfolio combining we from the we investment. R&D and and with genetic that genetic also the And molecule more sarolaner will investing parasiticides finding other of this excited about which protection extend and of including continue also that digital

all these for an impact So opportunities Glenn XXXX that our And these to they but customers. and that we'll great aspects see Livestock. delivering that be and R&D elements in we in definitely will rate have talk value we an Companion are let are me also both think to integrating Animal healthcare we of And the working on all impact also and on XXXX. ask about our tax

Glenn David

Yeah.

had new law that In see XXXX. substantially for that XX% haven't changes And we providing February, date for that the learned but expectations to ways for a trying new that down spent our we terms of to we'll continue don't grind understand lot tax to really XX% rate, changing it we approximate guidance XX% the the the provided we guidance. had rate and Over time, to XX%. look anything have we to to of in time from the the

Juan Ramón Alaix

Glenn. you, Thank

question, Next please.

Operator

with And we'll go Goldman go Please next ahead. to Jami Sachs. Rubin

Jami Rubin

you. Thank

to guys this and there trying JAK to Glenn, going know much. the seen Elanco there, U.S. moving technology. you those specifically what growth business future Companion then competitive business that growth products? have expect what normalized Thanks is Those were inhibitor lot has to with you strong out quarter. secondly, you Animal either have of for us, you pieces I do tell Just competition, growing sort – of to two when can back and was And that intelligence such excluding that have CYTOPOINT? APOQUEL? if around for and business of competition up APOQUEL very you But a certainly done CYTOPOINT? been X%, and Simparica What APOQUEL of materialize is the a rate drivers exclude

Juan Ramón Alaix

Thank line of the rest then you, we the the for also U.S. that growth will expect also I and answer the first and will talk may Jami APOQUEL, and Glenn about CYTOPOINT about competition and in portfolio.

still R&D big offering and There details because like support some little of should is competitors human several complicated. activity monoclonal it It's need industry. the Most take some that to disclosing there about they is pharma information they future competition health some competitors early antibody was but the in on know the Apart market. this portfolio. APOQUEL far of and developing So maybe maybe provided. reaching in the CYTOPOINT. years company development was about part and more allergy, very that of the future are R&D They're companies market from We the for are that the will stage have also so indications working have our of it it something is are from that, as reach that our to don't type information in have growth. very you in we'll expect much that of

and for are products that two very been go by We the for extremely has And market. be XXXX protection demonstrated that APOQUEL, confident first we accepted will well we strong very will asset it through efficacy safety has that and have and that longer. CYTOPOINT have also been even that

portfolio. about And but So will have very between we're and the growth in talk strong and strong Animal line definitely very our come breakdown competition one day U.S. that problems will the very way Companion portfolio. we confident key to Glenn support still portfolio and

Glenn David

For described. to of a the experienced for competition of get that on Companion that A, the was And especially derm, portfolio. the driven three flat number we U.S. the about growth, of that we Animal when factors. products the growth you back by rest you out impact we talked

the negative and the growth from that do to had Simparica contributed some quarterly the portfolio variation some well. also other was in other of Offsetting We as with as impact expect in nicely product that reverse new that we year. throughout some well of line as we growth move

So out overall, dermatology. flat were when impact we the you take of

Juan Ramón Alaix

please. Next question,

Operator

Barclays. next We'll go ahead. to go Please Tsao Doug with

Douglas D. Tsao

for taking Hi. Thanks questions. morning. Good the

business we've business just your the there, business, about the that seen negative side in you U.S.? vet does of Companion the in Companion in the have of if sort or terms positive And of terms curious customer perspective clinics. on think the any consolidation could on you Just the some in impact provide when

Juan Ramón Alaix

consolidation it's we will continue on that something clinics, and expect the in the that Well, vet future. happening is that

and And Banfield and significant now X,XXX clinics a have it's in total. it's VCA, consolidating about representing, customer. We they're

or in buying other see But this consolidating to or groups We forming VCA and and we us have differentiated many individual be sorts at which excellent also pricing. other with There to that relationship clinics the networks. are have and group time, of that we also we'll same which that have help are includes This and will terms products Banfield. highly very in manage this buying manage situation will of will in are pressure And be definitely are both with that the France. of in confident now should also UK of portfolio can the will that U.S. incorporating future, offer we what expect things of the opportunity are more also It's something the our increasing groups in some It's also same consolidation, type that to countries we these we clinics. We'll the the to part something volume many it's happen also that price discussions. time, or but is this see the projections. like with integrate at

So next please. question,

Operator

And go we'll Markets. Please go ahead. next Capital BMO Arfaei with to Alex

Alex Arfaei

appreciate helpful comments morning, back expectations good obviously about U.S. ex made and we taking Hey, at You Thank about you your the your looking by And progress. for Can ex the U.S. performance. questions. margins, great thoughts U.S. for you've provided some and Would get then folks. Simparica your sales please? stepping Glenn, U.S.

recently spend. of your kind as optimal you I to that need for appreciate invariably better in competition be margin is imagine about would gross with efficiency getting in also as need what mix business just operating I an you there's SG&A pointed for some earlier to – and going but the scenario. margin possible dermatology, comments out, Just increases wondering

So us margin, more Thank were business optimally if much help room on your you have operating out to figure you very left much. look there. at you an how

Juan Ramón Alaix

growing revenues Simparica. see part the growing than future interaction in there growth can significant we that markets the on very But and international in international the continue higher in we reach more maybe, seen detail. that go But we will in in both Glenn, markets have I you comment very into our line or expectation Glenn are markets. a of and international even nicely. of that start are And Simparica confident with more will Simparica provide will opportunities continue a of the detail.

Glenn David

Yeah.

quarter; Just strong was internationally. so over $XX internationally quarter, million point, million to $XX that XXX%, very was in the was in Simparica the U.S., growth that so million international. for To there for the XXX% grew to add $XX sales in of out, Simparica break

our margins. we've In operating driving be terms both purely And in overall flow. our past, (XX:XX) We're focus we're pace faster being to our That at that's pace said, than improving growth grow profitable so as generating and value forward. operating going on to drive the our margin, income higher terms focused a revenue proposition in cash to said revenue. we of not on moving a term ability long believe growth continue adjusted revenue much OpEx is at of place in faster and very net than therefore

be You infrastructure competition the majority revenue markets to and anticipated support global scale in and that in have needed, and materially. currently moving extent the the we forward. of changes have more growth not terms reference additional that in growth they'll we probably of change incremental are we we structure house cost scale, our believe some the the that would (XX:XX) operate, there revenue To support to the

Juan Ramón Alaix

Next question, please.

Operator

Company. Cowen to go with Please ahead. go and Kathy We'll next Miner

Kathy M. Miner

Thank morning. questions. you. Good Two

First on pain. canine

small products in for you. of Thank you canine demand or are that meds the second And offset in focus types And monoclonals? development? your is that the the increasing sales? interest the some Zoetis it's on making update antibiotic antibiotic-free inroads, monoclonals timing proteins. have does of the stabilized? in of Do is can pain services Given next antibiotic give you see molecule U.S. on think is have some or that loss Galliprant question the on an do the seen proteins what or we've providing Zoetis you you us the of any And to free

Juan Ramón Alaix

We Kathy, symptoms on that excellent solutions are that mostly treatment bringing see provide and efficacy focused safety other but of or Thank market you the that, think me in pain current let for questions, for exists treat start for the saying covered, antibodies also the monoclonal well well, NSAIDs to we to antibodies. dogs and the of on of we pain opportunity profile. monoclonal the excellent will related are type that

good a in we terms terms antibodies. in extremely are increase RIMADYL, have reaching product with and years. seen Galliprant been on well, formulations for we'll had plateau has And that are that of there the growth. these in injectable they oral We monoclonal RIMADYL accepted the well have It's market Maybe some RIMADYL, today portfolio developing equity, continue supporting with in of of brand level and many formulation we a convinced that, XXXX. it's based

in of poultry. protocols. much (XX:XX) other been production move are and have growing it's antibiotic-free antibiotics In to antibiotic-free, we species, to poultry. offer demand because have we working In alternative of that of will much the with have alternative to to and terms more this biosecurity seen that exposure, other this been of reduction also production they're the has much not with is and in more external the alternative advantage to for we any to It so to and of continue non-antibiotic we'll infections very seen pathogens antibiotic-free complicated protect can complicated more antibiotics the In case, or impact there, proteins, nicely increasing internally negative protein the exposed the antibiotics that achieve identify with and healthcare animals.

use protocols to get and to are will vaccinations investing the antibiotics. of they is animals Otherwise in all alternatives get is we potential healthcare we animals, when negative. in and where they humans and that will need sick these impact the but of also continue vaccination. there, be investing One know impact sick, But extremely productivity, the despite

work some can in on replaced see pork. antibiotics beef alternative, be I of like that even or we don't the don't – but we'll So species

Next question, please.

Operator

next ahead. Liav go to go We'll Abraham Citi. Please with

Your open. line is

Liav Abraham

for Thanks morning. Good squeezing in. me

Thank years, fruition you opportunities talked any to of pipeline call to when say? get over question Just sense let's about for the next catalysts the and some out can couple into you Thank of that the provided. of you've color come revenues. a want specific pipeline. follow-up some of Can you quick Just on you. a the qualitatively translate

Juan Ramón Alaix

and information you competitor. we want That of to provide will than More for to launch sure want we as that reduce years external I with we'll timing other in and when And probably cover providing the and our to product new the ingredients specific be that our first, but launches. product, internal combination be we profits providing to to in details a definitely the fast make maximize negative see a the opportunity some But can. mentioned. don't as launching we'll us, will next of parasiticides, coming that launch know, to cases, maximize sarolaner as revenues as we product active we

innovation and are see You bringing combining In and will XXXX that Xb, Fostera terms protection in of we PCVX, expansion also and monoclonal vaccines. also our we an cross with against in line for for vaccination the continue first introducing introduce cats. Xd. new antibodies pain We'll Xa of dogs providing

future. this is in are at are investing our time, we that or are the this said prefer I we we programs So protect not to will and continue to because things we other launches in with pleased too And provide that not of portfolio. that details many very to information competitors. provide specific – too be something way want there we'll discussing many point to the our much our we future But

please. Next question,

Operator

King. go Westenberg David with go we'll Please C.L. next And ahead. to

David Westenberg

squeezing right. All Thank you for in. me

compliance. upcoming the the a First they Schein or that's of paradigm merger the can So of lot Vets merger Henry Choice, increase believe they on and

the what market you compliance work and Choice are in as that And the grow Is there market? Zoetis, of your own kind combined in to a you the follow-up with companion Henry in what do opportunity to the a see that First encouraged potential of to Schein, for products? kind animal Now, a company? opportunities Vets real merger, see

Juan Ramón Alaix

area First with of will treatment of expect decision. we with definitely to that of combination We think we collaboration we be support also also good a benefit compliance, today, that at to focused the and benefits a JV are an XXX% this center benefit aligned type owners, And excellent Schein mainly expand that veterinarians the with they presence collaboration expand markets. will mainly maintained that it's pet We have will for chronic veterinarians and think type this the and JV also Vets international for this the Choice Henry on any the on is and in veterinarians a JV in for their and terms expect First we this area the manufacturers. have collaboration in will that increase Well, both Vets that also the of we of we healthcare with have other them. Choice. an to future and increase maybe U.S. keeping JV will this but markets see

Next question, please.

Operator

next we'll go Craig-Hallum. And Please with to ahead. Kevin go Ellich

Kevin Ellich

been question's asked Thanks. My and answered.

Juan Ramón Alaix

Thank you.

Operator

And we to ahead. De of next Derik will Bruin Please America. go with Bank go

Michael Ryskin

Thanks.

It's to line. top or lumpy but one orders? you the small quick one bps the forward squeeze and to something you talk in. to is XX a timing was continue going by Can headwind little this I Just of this bps business? that the that quarter just XX expect contract core about in estimates a but a not it's our to slipped decent know amount manufacturing business in was

Glenn David

it performance. into just is business, wouldn't orders. really first by anything so varies one That the I quarter That of Yeah. timing read quarter

Juan Ramón Alaix

But through some with It's are not facilities you increase And or promoting are third-party which manufacturing. we we to this absorption the us overhead. is core. said, these is volume helping and of increase in area to that definitely in a as the contact business an trying the not business is, of our

question, next our So please.

Operator

we you, any have remarks. the questions. to it floor Ramón, And for no closing appears Juan further I'll return

Juan Ramón Alaix

for results us in as Thank our said the were today. in quarter very strong. joining And much very you comments, we our

results. for very with to future year provide the confident projections continue the you are and on interactions we'll We having

thank So very you much.

Operator

And for participation. your today's conclude this Thanks will program.

now great Have may day. disconnect. You a

Zoetis (ZTS) 2 May 182018 Q1 Earnings call transcript