Zoetis Inc.

Good day and welcome to the fourth quarter and fiscal year 2019 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. It 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.com. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star and 1 on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. In the interest of time, we ask that you limit yourself to one question and then queue up again with any follow-ups. Your line will be muted when you complete your question. When posing your question, please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star and zero. It's now my pleasure to turn the floor over to Steve Frank. Steve, you may begin.

Thank you, Keith. Good morning, everyone, and welcome to the Zoleta's fourth quarter and full year 2019 earnings call. I am joined today by Kristen Peck, our Chief Executive Officer, and Glenn David, our Chief Financial Officer. Before we begin, I'll remind you that the slides presented on this call are available on the Investor Relations section of our website, and that our remarks today will include forward-looking statements, and that actual results could differ materially from those projections. For a list and description of certain factors that could cause results to differ, I refer you to the forward-looking statement in today's press release. and our SEC filings including, but not limited to our annual report on Form 10-K and our reports on Form 10-Q. Our remarks today will also include references to certain financial measures, which were not prepared in accordance with generally accepted accounting principles or US GAAP, A reconciliation of these non-GAAP financial measures for the most directly comparable U.S. GAAP measures is included in the financial tables that accompany our earnings press release and in the company's 8K filing dated today, February 13th, 2020. We will also cite operational results, which exclude the impact of foreign exchange. With that, I will turn the call over to Kristen.

Thank you, Steve. Good morning, everyone. By now, you've read our press release and financial tables on the Zoetis website, so it'll take just a few minutes to recap the full year, talk about our outlook for 2020, and outline some of the long-term investment plans and growth opportunities we see for Zoetis. Our CFO, Glenn David, will then cover the fourth quarter and I'll throw your guidance for 2020 before we open the lines up for your questions. So let's get started. Zoetis delivered another year of strong growth and market leadership in 2019, thanks to our diverse and durable portfolio and our commitment to continuous innovation. We grew revenue 10% operationally, which includes about 2% of growth from the abacus acquisition. This is once again above the market growth for animal health, which is expected to be about 3% to 4% for 2019, reflecting the negative impact of African swine fever. we grew our adjusted net income faster than revenue at 14% operationally, continuing to achieve our goal of growing profitability faster than revenue over the long term. In terms of other elements of our value proposition, we achieved several new approvals in areas that will strengthen our traditional portfolio of parasiticides and vaccines, and we invested in critical acquisitions and partnerships that will accelerate our growth in areas where we are expanding, such as diagnostics. For example, we received approvals for new parasiticides such as ProArt12 in the U.S. and Semperica Trio in the EU and Canada. We are enhancing our vaccine portfolio with new products like Versacan Plus BB Oral, the first oral vaccine for dogs in Europe, and Polvac Preserta HVTNB, our first vector vaccine for poultry. We also continue to invest in building our overall diagnostics capabilities with acquisitions in the reference lab space, which will give us a more holistic offering to veterinarians. And we've expanded our equine and pet care portfolio into nutritional formulas with the acquisition of Platinum Performance, a premier leader in this market. Finally, in terms of our commitment to returning excess capital to shareholders, we generated a 2019 quarterly dividend of 16 cents per share, an increase of 30% from the 2018 dividend rate, and we completed approximately $625 million in share repurchases. We've built a strong record of delivering on this value proposition for shareholders over the last seven years. And I'm very confident we can continue on this path of long-term growth and value creation based on the capabilities, colleagues, and customer focus we bring to every market opportunity. Looking ahead now to the rest of 2020, animal health remains a steady and reliable market based on people's increasing commitment to their pet's health and based on the steady demand for safe and affordable animal proteins. For 2020, we currently expect the overall industry to return to growth of approximately 4% to 5%, excluding the impact of foreign currency. The market took a dramatic hit in 2019 from African swine fever in China, with at least a 50% reduction in herd size, according to reports. While this disease had a significant impact on our business in China last year, we see early signs of stabilization and the opportunity for the industry in terms of farms consolidating, investments being made in better infrastructure and biosecurity, and the frozen pork supply being reduced. As the global pork market and trade picture sorts out more in 2020, and with increased export opportunities for many markets, we could see the overall animal health market return to slightly better growth rates. In terms of species, the swine market should be below the overall market growth for 2020. The companion animal and poultry markets are expected to be somewhat above the market growth, and cattle is expected to be a little more limited than the market, based on the continuing challenges faced by beef and dairy customers. For zoetis, we expect to grow faster than the markets for companion animal and poultry, and in line with the cattle market. For the swine market, we would expect to be in line or faster than the market, depending on the pace of recovery from African swine fever and its impact on additional markets this year. In terms of our guidance for 2020, Zoetis expects to grow revenue significantly faster than the industry, in a range of 7% to 9.5% operationally. And in terms of adjusted net income, we expect operational growth in the range of 8% to 11%. To meet our goals for 2020, we will continue supporting our latest product launches and lifecycle innovations with direct-to-consumer advertising and the recently expanded pet care field force in the U.S. And in international markets, we're focused on supporting new products with field force expansions in certain markets and differentiating ourselves with a focus on direct field force's effectiveness and technical expertise. We will also continue investing in other accelerated growth areas such as diagnostics, genetics, precision livestock farming, and digital and data analytics. This will be an important year in diagnostics as we complete the integration of our systems and look to accelerate sales growth with more integrated offerings of medicines and diagnostics, an important way we can deliver more value to our customers. And we will continue advancing our pipeline with investments in parasiticides, vaccines, monoclonal antibodies, and other therapeutic areas. The Laudis and Perica Trio, our triple combination parasiticide, is highly anticipated for 2020. And we remain confident in a U.S. approval in the fourth quarter with a launch shortly thereafter. As we have said recently, we completed the technical sessions of the Semperica Trio package for the U.S. and are currently in the administrative review, awaiting a final approval. We have already received approvals for Semperica Trio in the EU and Canada, and we expect the Semperica Trio launch in Europe to begin in certain markets this month, as we take a phased approach to the launch there. Based on these assumptions, we continue to expect to generate incremental global sales of Semperica Trio in 2020 at approximately $150 million. I am energized by the opportunities ahead of us in 2020. We have a vibrant and growing companion animal portfolio driven by internal innovation and more to come with Semperica Trio. We are delivering steady performance across our livestock products, despite the market challenges some of our customers face from economic conditions, emerging infectious diseases, and natural disasters. We're partnering with our customers in innovative ways to help them stay ahead of the curve on evolving technology, new commercial opportunities, and shifts in consumer trends. We are building out our capabilities in digital and data analytics to bring meaningful solutions to the challenges facing their farms and clinics. and we are executing on a strategy for growth with internal and external investments that have us well positioned for long-term growth. I look forward to carrying on the company's successful formula of customer focus, innovation, and execution as we continue to deliver on our long-term value proposition to shareholders. Now, I'll hand things over to Glenn.