Zoetis, Inc. (NYSE:ZTS)
On November 3rd, Zoetis reported another strong quarter. Operational revenue grew 9% and operational adjusted net income grew 31%, excluding the impact of foreign exchange. Growth was driven by strong performance in the U.S. livestock business, the integration of the Abbott Animal Health business that was acquired in the first quarter of 2015, and growth in recently launched products in the companion animal sector. Reported revenue of $1.2 billion was flat year-on-year, while reported EPS of $0.38 represented a 15% increase over third quarter 2014 reported EPS.
Adjusted diluted net income per share, which excludes purchase accounting adjustments and certain one-time costs, was $0.50. This is an increase of 22% compared to third quarter 2014, and significantly in excess of the Wall Street consensus adjusted EPS estimate of $0.40 per share.
Management continues to demonstrate its expense discipline. Operating expenses grew 3% while operational revenue grew 9% excluding the impact of foreign exchange. Management reaffirmed its commitment to meet or exceed the previously announced $300 million expense reduction target by 2017.
During the quarter, the company announced the $765 million acquisition of PHARMAQ, the global leader in vaccines for aquaculture, or farmed fish. Aquaculture is the fastest growing segment of the global animal health industry and is the only segment in which Zoetis had limited presence. The PHARMAQ acquisition provides a market-leading portfolio of vaccines and pharmaceuticals for farmed fish as well as a late-stage development pipeline anticipated to deliver important new vaccines and next-generation parasiticides in the near term. PHARMAQ is a good strategic fit with Zoetis, and provides another pillar for long-term growth. The company believes this acquisition will enjoy a long period of sustainable growth in revenue, profits, and cash flow when added into its business.
From Bill Ackman (Trades, Portfolio)'s Pershing Square Holdings third quarter 2015 letter to shareholders.
