Zoetis(ZTS) - 2025 Q1 - Quarterly Report

Financial Performance - Total revenue for the three months ended March 31, 2025, was $2,220 million, a 1% increase compared to$ 2,190 million in the same period of 2024, with operational revenue growth of 5%[100] - Net income attributable to Zoetis for the three months ended March 31, 2025, was $631 million, reflecting a 5% increase from$ 599 million in the same period of 2024[112] - Adjusted net income for the same period was $662 million, up 4% from$ 634 million in 2024[100] - U.S. segment revenue increased by $20 million, or 2%, to$ 1,183 million in Q1 2025, driven by an increase in companion animal products[133] - International segment revenue was relatively flat, but operational revenue increased by $73 million, or 7%, in Q1 2025, primarily due to growth in companion animal products[135] - Total operating segments revenue increased by$ 29 million, or 1%, to $2,220 million in Q1 2025 compared to$ 2,190 million in Q1 2024[130] - Gross profit for the U.S. segment increased by $38 million, or 4%, to$ 984 million in Q1 2025, with a gross margin of 83.2%[132] - International segment earnings increased by $16 million, or 3%, to$ 551 million in Q1 2025, with operational earnings growth of $35 million, or 7%[137] - Diluted earnings per share (EPS) for Q1 2025 was$ 1.48, an increase of 7% compared to $1.38 in Q1 2024[154] Expenses and Costs - Cost of sales decreased to 28.0% of revenue in Q1 2025 from 29.4% in Q1 2024, primarily due to price growth of approximately 4% and volume growth from key franchises[115] - Selling, general and administrative expenses increased by$ 16 million, or 3%, to $563 million in Q1 2025 compared to$ 547 million in Q1 2024[118] - Research and development expenses decreased by $5 million, or 3%, to$ 157 million in Q1 2025, attributed to timing of spend related to projects[119] - Amortization of intangible assets decreased to $32 million in Q1 2025 from$ 37 million in Q1 2024, primarily due to assets becoming fully amortized[120] - Interest expense, net of capitalized interest, decreased by $4 million, or 7%, to$ 54 million in Q1 2025 compared to $58 million in Q1 2024[126] - Provision for taxes on income increased by$ 21 million, or 14%, to $179 million in Q1 2025, with an effective tax rate of 22.1% compared to 19.8% in Q1 2024[128][129] - Corporate expenses decreased by$ 17 million, or 6%, in Q1 2025, primarily due to favorable foreign exchange and lower compensation-related costs[140] Cash Flow and Liquidity - Net cash provided by operating activities decreased to $587 million in Q1 2025 from$ 595 million in Q1 2024, primarily due to timing of receipts and payments[164] - Net cash used in investing activities increased to $175 million in Q1 2025 from$ 131 million in Q1 2024, mainly due to capital expenditures[165] - Net cash used in financing activities rose to $677 million in Q1 2025 from$ 524 million in Q1 2024, driven by treasury share purchases and dividend payments[166] - As of March 31, 2025, cash and cash equivalents totaled $1,721 million, down from$ 1,987 million on December 31, 2024, indicating a decrease of approximately 13.4%[168] - The current ratio of current assets to current liabilities was 1.74:1 as of March 31, 2025, slightly down from 1.75:1 on December 31, 2024[168] - The company anticipates that global economic conditions may impact liquidity, but it believes it can meet liquidity needs for the foreseeable future due to operating cash flows and access to capital markets[173] Debt and Credit Facilities - The company has a multi-year $1.0 billion senior unsecured revolving credit facility, which can be increased to$ 1.5 billion under certain conditions, expiring in December 2027[169] - As of March 31, 2025, the company had access to $51 million of additional lines of credit, with no borrowings outstanding related to these facilities[171] - The company’s outstanding debt securities include$ 750 million in 2015 Senior Notes due 2025 with a 4.500% interest rate and $600 million in 2022 Senior Notes due 2025 with a 5.400% interest rate[176] - Moody's assigned a long-term debt rating of A3 with a stable outlook, while S&P assigned a rating of BBB+ with a stable outlook[179] - The company maintains compliance with all financial covenants as of March 31, 2025, with no amounts drawn under the credit facility[170] Share Repurchase and Other Activities - The company repurchased 2.7 million shares for$ 443 million during the first three months of 2025, with $5.2 billion remaining under the authorized share repurchase program[180] - Other business activities net loss decreased by$ 3 million in Q1 2025, reflecting a decrease in R&D costs[139] - Total purchase accounting adjustments for Q1 2025 were $31 million, down from$ 35 million in Q1 2024[156] - Interest expense for Q1 2025 was $54 million, a decrease from$ 58 million in Q1 2024[155] - The company regularly monitors accounts receivable, which were collected within the standard range of 45 to 75 days, with accounts receivable net totaling $1,361 million as of March 31, 2025[168] Market Presence - Zoetis operates in approximately 45 countries and is a market leader in nearly all major regions, with a diversified product portfolio of around 300 product lines[97]