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Text: I am joined today by Kristin Peck, our Chief Executive Officer; and Glenn David, our Chief Financial Officer.
Our remarks today will also include references to certain financial measures, which were not prepared in accordance with Generally Accepted Accounting Principles or U.S. GAAP.
We also cite operational results, which exclude the impact of foreign exchange.
I hope you and your loved ones are all staying healthy.
As we all know, we're still experiencing hard times in many regions as COVID cases continue, and new variants of the virus emerge.
But I hope you share my optimism that with progress in vaccinations and continued adherence to safety protocols, better days are ahead.
The year 2020 will be remembered for COVID-19, but for Zoetis, it also reaffirms the resilience of our business, the essential nature of animal health and the agility and dedication of our colleagues in the face of industry and personal challenges.
Throughout the year, we successfully ensured colleague safety and maintained reliable supply for our customers.
We kept driving innovation and strengthening our diverse portfolio of 13 blockbusters and more than 300 product lines across eight species and seven major product categories.
We successfully launched our triple combination parasiticide, Simparica Trio.
We also achieved approvals for the first ever long-acting monoclonal antibodies for osteoarthritis pain in dogs and cats.
With Librela's authorization for dogs in the European Union and several other markets, and Solensia's authorization for cats in Switzerland.
We also continue to build on our vaccine portfolio in livestock with the approval of our CircoMax Myco swine vaccine in the European Union.
Meanwhile, in diagnostics, we successfully launched VetScan Imagyst, a breakthrough platform using cloud based artificial intelligence for veterinary clinics.
We were able to do all this while staying anchored to our purpose and advancing the five long-term priorities, that I set out at the beginning of the year, including sustainability, where we made important progress in our ESG programs and metric reporting.
We look forward to sharing our long-term ESG goals in the coming weeks.
And finally, we delivered financial results for 2020 that were in line with the guidance we provided last February, before the impact of the global pandemic was known.
For the full year, we generated 9% operational growth in revenue primarily based on new products in our companion animal business, the continued strength of our key dermatology portfolio and growth in China.
And as part of our long-term value proposition, we once again grew revenues faster than the anticipated growth for 2020, and faster than the historical industry rates of 4% to 6%.
As part of our value proposition, we also delivered on growing our adjusted net income faster than revenue.
For the full year, we delivered operational growth of 10% in adjusted net income while adapting our operations in the pandemic and continuing investments in our pipeline and new product launches.
We generated strong fourth quarter results which Glenn will discuss in a minute, and these performance trends give us confidence in our growth drivers and strong momentum for 2021.
We expect to continue growing revenues faster than the market in 2021, driven by ongoing strength in petcare, continued expansion in markets outside the U.S., most notably China, and acceleration of our diagnostics portfolio penetration.
We are guiding operational growth of 9% to 11% in revenue for full year 2021.
Positive pet care trends during the pandemic, based on increased adoptions and people spending more time with their pets, should continue driving market growth in the near-term.
Data in the U.S., shows visits to veterinary clinics have rebounded and the average revenue per visit has continued to increase.
Over the long term, we see these trends moderating as adoption rates normalize and people eventually return to the workplace.
The Specialty Care regimens and chronic care treatments that began in the pandemic should continue, and our innovative portfolio across dermatology, parasiticide, pain, vaccines and diagnostics have us well positioned for continued growth and capturing share as these shifts occur.
In terms of livestock market, we expect low single digit market growth in 2021 as the impact from COVID-19 will still be felt, and a number of products experience loss of exclusivity.
We expect Zoetis to grow in line with the market even as we faced increased headwinds from generic competition for DRAXXIN, our leading anti-infective product.
We are confident we can leverage our lifecycle innovation strategies together with the overall diversity of our livestock portfolio, including swine product sales in China to help us address the loss of exclusivity for DRAXXIN and maintain livestock growth that will support our 2021 guidance.
Longer term, we will continue to invest in livestock innovations and data driven animal agricultural solutions.
As we continue through 2021, we will be building on the progress against our five priorities.
Driving innovative growth, enhancing customer experience, leading in digital and data analytics, cultivating a high performing organization and championing a healthier, more sustainable future.
Our investment plans and focus on growth for 2021 include, continuing the successful launch of Simparica Trio in the U.S. and other markets as well as the ongoing adoption of other new parasiticides, Revolution Plus and ProHeart 12, driving growth in dermatology through increased use of direct-to-consumer advertising and disease awareness campaigns in the U.S. and globally.
Our focus remains on growing this market and increasing customer loyalty through our innovative treatments, which we expect to help us top $1 billion in annual sales for the first time.
As noted earlier, we will be investing in the launch of the first monoclonal antibodies for osteoarthritis pain in dogs and cats in Europe in the first half of 2021, and advancing the regulatory process in the U.S. and other markets.
While we remain confident in the eventual U.S. approval of these products based on the safety and efficacy data we submitted, at this point, we believe it is unlikely we will receive approvals for Solensia or Librela in the U.S. in 2021.
We continue to work through regulatory reviews and manufacturing inspections with the FDA and we will continue to keep you updated on this progress on future calls.
And finally, we're continuing our development of digital and data solutions that will support more individualized animal care and more efficient and sustainable operations for producers.
In conclusion, I'm incredibly proud of what our people accomplished in the face of such uncertainties during 2020, and it gives me great confidence in our continued success and full-year guidance for 2021.
As we navigate through recovery from the global pandemic, and capitalize on the growth opportunities we see ahead, my optimism comes from what drove us over the last year.
The resilience and essential nature of animal health industry, the diversity, innovation and market leadership of our portfolio, and the agility and passion of our colleagues to face any challenge.
Now, let me hand it off to Glenn who will speak more about our fourth quarter results and guidance for the full year 2021.
We had another exceptional year with revenue of $6.7 billion and adjusted net income of $1.8 billion, both exceeding the high end of our November full-year guidance range.
Full year revenue grew 9% operationally and 7% on a reported basis with adjusted net income increasing 10% operationally and 5% on a reported basis.
Going deeper into the numbers, price contributed 2% to full year operational revenue growth with volume contributing 7%.
Volume growth consisted of 3% from new products, 3% from key dermatology products and 1% from acquisitions, with other in-line products flat for the year.
We again saw broad-based revenue growth with the U.S. growing 11% and International growing 7% operationally.
The innovation we brought to the market and the diversity of our portfolio was key to our strong performance, as companion animal grew 17% while livestock was flat on a year-over-year basis.
Performance in companion animal was led by our parasiticide portfolio, bolstered by the launch of Simparica Trio which generated revenue of $170 million.
This added approximately $150 million of incremental revenue and exceeded our expectations set prior to the pandemic.
Sales of Simparica also grew double-digits for the year with operational revenue growth of 16%.
Our key dermatology portfolio demonstrated continued strength in 2020 growing 23% operationally, generating revenue of $925 million and increasing more than $170 million versus prior year.
The COVID-19 pandemic created a difficult market environment for livestock.
However, we are encouraged by the resiliency displayed in 2020.
We remain optimistic that global livestock will return to modest growth in 2021 as the recovery from African swine fever in China continues and consumption patterns normalize.
Operational growth and adjusted net income of 10% were driven mainly by strong revenue growth and operating margin expansion.
Now, moving on to our Q4 financial results where we posted another strong quarter with revenue of $1.8 billion representing an increase of 9% operationally and 8% reported.
Adjusted net income of $438 million is an increase of 3% operationally and flat on a reported basis.
Operational revenue grew 9% with 2% from price and 7% from volume.
Volume growth of 7% consisted of 4% from new products, 3% from key dermatology products, 1% from acquisitions and a decline of 1% from other in-line products.
Companion animal products led the way in terms of species growth, growing 25% operationally, while livestock declined 5% operationally in the quarter.
Companion animal parasiticides grew 52% in the quarter, gaining market share in the U.S. of more than 7% within the flea, tick and heartworm segment, versus the same period in the prior year.
This includes the continued adoption of Simparica Trio which generated sales of $60 million in Q4.
Our key dermatology products, Apoquel and Cytopoint again had significant global growth in the quarter with $257 million of revenue, representing 27% operational growth versus an extremely difficult comparative period in which key derm grew 29% for the fourth quarter of last year.
Our diagnostics portfolio again made positive contributions to revenue with reference lab expansion and double-digit growth in consumables and instrument revenue.
The recovery in wellness visits continued to be a catalyst for growth following the slowdown from social distancing restrictions earlier in the year.
As we noted on our previous earnings call, the early fall cattle run pulled a portion of fourth quarter sales into the third quarter, leading to a weaker quarter in cattle than we would typically expect.
This was the primary driver of the 5% operational decline in livestock for the fourth quarter.
For the remainder of the livestock portfolio, swine posted a second consecutive quarter of growth with the herd rebuild continuing key accounts, as the market recovers from African swine fever in China.
Our aquaculture business grew high single digits in the quarter, and along with swine partially offset the decline in cattle and poultry.
Now moving on to revenue growth by segment for the quarter, U.S. revenue grew 11% with companion animal products growing 30% and livestock sales declining by 15%.
For companion animal, the positive trends at the vet clinic continued in Q4 with patient visits up 2% and revenue per visit increasing by 13%.
Companion animal growth in the quarter were driven by sales of our Simparica franchise as well as key dermatology products.
We maintained an increased investment in direct-to-consumer advertising in both therapeutic areas and continue to see a good return on that investment.
Simparica Trio performed well again in the quarter with sales of $56 million.
We remain extremely encouraged for the future growth of our product and the growth of the overall market segment as a material portion of Trio sales came from new patients to the category.
Key dermatology sales were $176 million for the quarter, growing 32% with significant growth for Apoquel and Cytopoint.
Our investments to support the franchise have been instrumental in driving more patients into the clinics.
Companion animal diagnostic sales increased 22% in the quarter as a result of reference lab expansion and growth in point-of-care instruments and consumables.
U.S. livestock declined 15% in the quarter driven primarily by cattle, which had a portion of Q4 sales pulled into the third quarter as a result of the earlier movement from pasture to feedlot.
The remaining species declined as well with COVID-19 and pricing pressure negatively impacting our swine business.
Poultry declines are largely attributed to product rotation and less producer profitability, leading to reduced usage of our premium products.
To summarize U.S performance, innovation and return on investment once again drove exceptionally strong growth in companion animal.
While livestock was down in the quarter, the results were in line with our expectations.
Revenue in our International segment grew 7% operationally in the quarter.
Companion animal revenue grew 17% operationally and livestock revenue grew 2% operationally.
Increased sales of companion animal products resulted from growth in our parasiticide portfolio, vaccines and key dermatology products.
Parasiticide growth in the quarter was again driven by the Simparica franchise with further adoption of Simparica Trio.
In Q4, we observed a series of favorable market trends, such as increased pet ownership and medicalization rates in Asia.
Overall, companion animal grew in every major market except Italy and the U.K., which had arguably the strictest lockdown protocols.
Companion animal diagnostics grew 16% in the quarter, led by an increase in point-of-care consumable usage.
Swine revenue grew 14% operationally, posting a third consecutive quarter of double-digit growth.
Swine sales in China grew in excess of 100% for the second straight quarter.
Key accounts expanded their use of vaccines and other products as they continue to rebuild herds from smaller farms to large-scale operations.
China total products grew 45% operationally in the quarter and 34% operationally for 2020.
Brazil was also a significant contributor to international growth in the quarter, growing 18% operationally.
For the fourth quarter and full year 2020, Brazil delivered double-digit growth in all species except poultry which modestly declined.
Overall, our International segment delivered strong results despite the challenges presented by COVID-19.
Our diversity across products and geographies enabled our international segment to again be a significant driver of growth.
Now moving on to the rest of the P&L for the quarter.
Adjusted gross margin of 67.7%, fell 80 basis points on a reported basis compared to the prior year resulting from other manufacturing costs, inventory charges, recent acquisitions and elevated freight expense.
This was partially offset by favorable product mix and price increases.
Adjusted operating expenses increased 10% operationally, resulting from increased advertising and promotion expense for Simparica Trio and Apoquel, partially offset by T&E savings.
Return on investment from our DTC campaigns has been very favorable and we remain -- and will remain an important investment to support future growth of the business.
The adjusted effective tax rate for the quarter was 13.5%, a decrease of 70 basis points, driven by the impact of net discrete tax benefits, partially offset by the jurisdictional mix of earnings.
And finally, adjusted net income and adjusted diluted earnings per share for the quarter grew 3% operationally.
In December, we announced 25% annual dividend increase, continuing our commitment to grow our dividend at or faster than the growth in adjusted net income.
In addition, we resumed our share repurchase program in January with $1.4 billion of remaining capacity under the current authorization.
Now moving on to guidance for 2021, please note that guidance reflects foreign exchange rates as of late January.
For 2021, we are projecting revenue between $7.400 billion and $7.550 billion representing 9% to 11% operational growth.
We are expecting foreign exchange favorability in 2021 of approximately 200 basis points.
We expect companion animal to be the primary driver of growth in 2021 with the continued strength of our diverse parasiticide portfolio which includes full year Simparica Trio sales.
We believe market dynamics for companion animal will remain strong in 2021 allowing for further expansion of our key dermatology products as well as our diagnostics offerings, which we anticipate will grow faster than the overall animal health market.
While we expect the pace of certain trends that accelerate in 2020 to moderate, such as increased spend per visit, our view is that 2020 has a status [Phonetic] of the higher base for future growth.
We anticipate livestock will return to global growth in 2021, primarily driven by more normalized food consumption patterns.
Geographically, we expect total Company sales growth to be relatively balanced between our U.S. and International segments.
However, we do expect continued and meaningful growth in China and other emerging markets.
I'd like to touch upon the key assumptions that underpin our expectations for revenue growth.
Beginning with dermatology, our guidance does not assume a meaningful competitive entrant in 2021 and with continued investment behind the franchise, we believe revenue will exceed $1 billion for the full year.
We also do not assume a triple combination product will launch in the U.S. in 2021 to compete against Simparica Trio.
We're extremely excited about our monoclonal antibodies for pain with both Librela and Solensia having long term blockbuster potential.
However, as Kristin mentioned, while both products will launch in the first half of 2021 in the EU and other international markets, we do not currently expect either product to receive approval in the U.S. this year.
For the remainder of the P&L, adjusted cost of sales as a percentage of revenue is expected to be approximately 30% which is relatively consistent with our cost of sales in 2020.
Adjusted SG&A expenses for the year are expected to be between $1.775 billion and $1.85 billion with the increase from 2020 focused on supporting primary drivers of revenue growth, including recent and future product launches, key brands and recent acquisitions and reference lab expansion in diagnostics.
Adjusted R&D expense for 2021 is expected to be between $500 million and $520 million as we remain committed to investing in pipeline opportunities for new therapies and lifecycle innovation.
Adjusted interest and other income deductions is expected to be approximately $260 million with the increase over 2020 driven by increased interest expense as well as lower interest income.
Our adjusted effective tax rate for 2021 is expected to be approximately 20%.
The increase in 2021 is primarily related to the impact of favorable non-recurring discrete items that occurred in 2020.
Adjusted net income is expected to be in a range of $2.08 billion to $2.13 billion, representing operational growth of 9% to 12%.
Our guidance reflects our value proposition of growing revenue in line with or faster than the market and growing adjusted net income faster than revenue, during a year when we'll be making meaningful investments to support future growth.
Consistent with 2020, we are anticipating elevated capital expenditures in 2021 to support investments in manufacturing, focused on internal sourcing of API, capacity increases and facilities to support pipeline opportunities.
We're also investing in information technology to support our recent acquisitions as well as digital capabilities and data analytics.
Finally, we expect adjusted diluted earnings per share to be in the range of $4.36 to $4.46, and reported diluted earnings per share to be in the range of $4.02 to $4.14.
While guidance represents full year expectations, we do anticipate growth will be more heavily weighted toward the first half of the year.
This is largely due to full year Simparica Trio sales and a favorable comparison versus Q2 2020 as a result of COVID-19.
To summarize, 2020 was another exceptional year in which we delivered 9% operational revenue growth and 10% operational growth in adjusted net income.
In the year that presented a unique set of challenges.
Our guidance for 2021 highlights our ability to grow revenue organically above the market and grow adjusted net income faster than revenue, even during times of elevated investment.
Before turning it over to Q&A, I'd like to express how proud I am of our colleagues and all we've accomplished amid an unprecedented set of circumstances.
While there is no assurance that the new year will be without similar challenges faced in 2020, we cannot be more excited about the opportunity to again deliver on our long-term shareholder value proposition.

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q4 revenue $1.8 billion versus refinitiv ibes estimate of $1.73 billion.
sees fy 2021 earnings per share $4.02 to $4.14.

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