Prompt:
Human: I am joined today by Kristin Peck, our chief executive officer; and Wetteny Joseph, 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.
We grew revenue 15% operationally, which is once again above the anticipated growth rate for the animal health market, and these results were highlighted by 27% operational growth in our companion animal portfolio with 1% operational growth in livestock.
Our parasiticide dermatology vaccines, diagnostics, and monoclonal antibody therapies all contributed to these strong results driven by the positive trends in pet care, trends that we see continuing to be a key growth driver in 2022 and beyond.
From a segment perspective, we saw solid balance across our global footprint with the U.S. up 14% and international growing 17% operationally.
Operationally, for the year, China grew 25%, Brazil grew 28% and other emerging markets grew 22%, leading the way for our international performance.
Another major growth driver for the year has been our global diagnostics portfolio, which grew 21% operationally with significant strength in international markets and the continued launch of VetScan Imagyst, our AI-driven diagnostics platform.
Based on the strong revenue performance, we were able to deliver 19% operational growth in adjusted net income for the year while investing significantly in our latest product launches as well as staffing, R&D, and manufacturing projects for future growth.
Looking ahead, we believe this momentum sets us up well for 2022.
We expect to continue growing revenue faster than the market in the coming year driven by continued strength in pet care, expansion of our diagnostics portfolio internationally as significant growth in both companion animal and livestock product sales for emerging markets, including China and Brazil.
As a result, we are guiding to full year operational growth of 9% to 11% in revenue.
Wetteny and I will discuss more details about the full year 2022 guidance.
But let me share some views on the year and other updates.
First, the essential nature of animal health continues to be affirmed by our performance during the COVID-19 pandemic.
We have seen the fundamental drivers such as increased emphasis on pet wellness, a growing global population, and continuous consumption of animal-based proteins all reinforce the animal health industry as a positive investment choice.
In terms of the companion animal market, people's commitment to the health and well-being of their pets has continued to drive higher spending and new opportunities for innovation, geographic expansion, and increasing levels of care.
Pet owners spending in animal health remains one of the more durable trends in consumer spending as people place a premium on the health and wellbeing of their pets, even during challenging economic times.
In January, the Human Animal Bond Research Institute and Zoetis released the results of a new global survey of more than 16,000 pet owners and 1,200 small animal clinics which reinforce how deep the connection is between pets and pet owners and how that dynamic relates to views on veterinary care and the related benefits of pet ownership.
In the study, 92% of respondents said there was no reason they could ever be convinced to give up their pets and 86% said they would pay whatever it takes if their pet needed extensive veterinary care.
The strength of the human-animal bonds strongly correlated with higher rates of veterinary treatment for both preventative care and specific conditions in their pets.
This study and other research support our focus on advancing an innovative pipeline for pain, dermatology, and parasiticide for pets, and we continue to invest in our field force, direct-to-consumer marketing, and manufacturing capacity to bring these products to market.
Moving on to the livestock industry.
The need for safe and reliable sources of animal protein continues to be a fundamental growth driver for the industry, particularly in emerging markets.
In any given year, weather, disease, and market dynamics may have various regional impacts, but the underlying demand continues to be served locally or through global trade across more than 100 markets where Zoetis products are sold.
We've continued to see Zoetis' livestock business show modest growth during the pandemic and recent economic challenges based on our strength internationally.
We see that international growth continuing this year while we continue to see declines in the U.S. driven primarily by generic competition in certain product lines.
Our competitive strategies in pricing and new life cycle innovations will help us mitigate some of that impact.
Livestock products are a key element of our global strategy and long-term growth, and we've continued to expand our vaccine product lines like Poulvac Procerta for poultry and Alpha Ject micro for fish, as well as Draxxin KP as a treatment for cattle.
We're also exploring more livestock innovations around greater efficiency, precision animal health, and more sustainable food production.
We've been focusing on our investments in vaccines for prevention and maintaining healthy animals, data analytics for more individualized animal care, and research into other sustainability improvements around immunotherapies.
I was particularly excited by two recently announced additions to our precision animal health portfolio, Performance Ranch, a new cloud-based cow-calf management software this simplified tracking of individual animal performance and health product usage, and our new Blockyard platform, which is blockchain technology developed in cooperation with IBM to provide a secure way to share information across different segments of the animal production supply chain.
For Zoetis, we continue to stay focused on our five strategic priorities for the long term, and we are optimistic about the growth drivers we see for 2022.
Pet care will remain a major growth driver for Zoetis globally based on our diverse and innovative portfolio.
We see continued growth potential for our dermatology portfolio which surpassed $1 billion in revenue for the first time in 2021.
Our parasiticide, driven by our triple combination, Simparica Trio as well as Revolution Plus, Stronghold Plus, Simparica, and ProHeart 12 will continue to achieve growth as we gain market share in major markets and look at further life cycle innovations and label gains across the portfolio.
Librela and Solensia are monoclonal antibodies for control of osteoarthritis pain in dogs and cats will continue to increase their revenue in 2022 primarily in the EU, and we're making regulatory progress for these products in the U.S.
We received FDA approval for Solensia in January with the launch expected in the second half of the year, and we still anticipate approval of Librela in the second half of the year, assuming FDA inspections are completed at a facility outside the U.S. As we begin 2022, we are seeing strong demand in the EU for Librela and Solensia and we remain confident in the blockbuster potential for Librela in 2022 and Solensia in the longer term.
We continue to optimize our global supply chain and manage ongoing challenges, which have been creating isolated constraints for Librela, Solensia, and some of our other products.
As always, maintaining a consistent reliable supply for our customers is our top priority, and we've been communicating with them about any impact to their orders.
We want to ensure all pets can continue their treatments without interruption especially for chronic treatment of OA pain.
Our global manufacturing network is working around the clock to ensure reliable supply for our customers as they did throughout 2021, and our full year guidance and strong growth reflects our views on supply.
Diagnostics is our next major growth driver in 2022 with a fully integrated point-of-care business that is prime for strong growth internationally, along with the expansion plans for a relatively new reference lab operations.
We are making significant progress in one of the fastest-growing markets for animal health.
We're adding more dedicated field force and customer service resources while developing more offerings that will leverage our portfolio across the continuum of care.
And finally, we see significant growth opportunities in emerging markets, including China and Brazil, where we see excellent opportunities for both our companion animal and livestock products based on increased medicalization and other positive trends.
Meanwhile, our R&D team, along with external partners, will continue to generate the industry's most productive pipeline in the years to come with more than $500 million in R&D spending in 2021 our largest ever annual investment for R&D.
We continue progressing research to address allergies, livestock health, chronic pain and inflammation, chronic kidney disease and diagnostics through our vaccines, therapeutics, and digital technology platforms.
Zoetis remains well-positioned in terms of our market leadership, financial strength, investment strategies, and diverse portfolio to deliver sustainable growth to investors in 2022 and beyond.
Now let me hand things off to Wetteny.
2021 was an exceptional year for us with revenue of $7.8 billion and adjusted net income of $2.2 billion both exceeding the high end of our November full year guidance range.
Full year revenue grew 16% on a reported basis and 15% operationally with adjusted net income increasing 21% on a reported basis and 19% operationally.
Looking deeper into the 2021 numbers, price contributed 1% to full year operational revenue growth with volume contributing 14%.
Volume growth consisted of 6% from other in-line products, 5% from new products, including Simparica Trio, and 3% from key dermatology products.
Revenue growth was again broad-based with the U.S. growing 14% and international growing 17% operationally.
Our strong performance was driven by our innovative, diverse and durable companion animal portfolio, which grew 27% operationally.
Our livestock business, which faced generic competition on key franchises as well as challenging macro conditions in certain markets, grew 1% operationally on a year-over-year basis.
Performance in companion animal was led by our small animal parasiticide portfolio bolstered by full year sales of Simparica Trio, which generated revenue of $425 million, an increase of $305 million compared to 2020 sales.
Sales of Simparica also grew double digits for the year with operational revenue growth of 13%.
For the year, the Simparica franchise grew 82% operationally with revenue of approximately $0.75 billion.
Our key dermatology products performed incredibly well, growing 24% operationally with approximately $1.2 billion in revenue for the year, performing above our expectations.
Our diagnostics portfolio grew 21% operationally in the year with strong contributions from our U.S. and international segments, and we will continue to make meaningful investments in the coming years to drive global growth.
represents larger growth opportunities geographically and feel we are favorably positioned to capture future growth in those markets.
Our livestock performance in 2021 depicts the importance of geographical diversification.
Generic competition and challenging market conditions weighed on our U.S. performance but were offset by solid growth internationally primarily in emerging markets.
The modest lifestyle growth on a global basis was in line with our expectations for the year.
Moving on to our Q4 financial results.
We posted another strong quarter with revenue of $2 billion, representing an increase of 9% on both a reported and operational basis.
Adjusted net income of $474 million is an increase of 8% on a reported basis and 5% operationally.
Of the 9% operational revenue growth, 1% is from price and 8% from volume.
Volume growth of 8% consisted of 5% from new products, which includes Simparica Trio, 2% from key dermatology products, and 1% from other in-line products.
Companion animal products led the way in terms of -- growth, growing 21% operationally, with livestock declining 6% on an operational basis in the quarter.
Small animal parasiticides were the largest contributor to growth in the quarter where our innovative and diverse flea, tick, and heartworm portfolio was 32% operationally.
Simparica Trio posted revenue of $124 million, representing operational growth of 106% versus the comparable 2020 period and the third consecutive quarter with sales exceeding $100 million.
Meanwhile, our key dermatology products, Apoquel and Cytopoint, again, had significant global growth in the quarter with $316 million of revenue, representing 23% operational growth against a robust prior year in which key derm grew 27% in the fourth quarter of 2020.
Our livestock business declined 6% in the quarter as a result of generic competition for DRAXXIN unfavorable market conditions in the U.S., primarily resulting from elevated input costs as well as softer conditions in China, loss driven by reduced pork prices.
Our fish business grew double digits in the quarter, and along with the strength of our emerging markets, partially offset the broader decline.
Overall livestock performance in the fourth quarter was in line with our expectations.
Now moving on to revenue growth by segment for the quarter.
U.S. revenue grew 9%, with companion animal products growing 20% and livestock sales declining by 13%.
U.S. pet care vet practice trends remained robust in Q4, with practice revenue growing approximately 8% with visits growing 3% despite challenging prior year comps.
Companion animal growth in the quarter was driven by sales from our Simparica franchise as well as key dermatology products.
We are driving growth in both therapeutic areas by making meaningful investments primarily through direct-to-consumer advertising and field force, and we continue to be pleased by the return on investment the programs are yielding.
growth in Simparica Trio was again strong in the quarter with sales of $114 million growing more than 100%.
We also met our clean penetration target and continue to take share within the clinics.
Key dermatology sales were $216 million for the quarter, growing 22% with Apoquel and Cytopoint each growing significantly.
Our investments to support the franchise have been instrumental in driving more patients into the clinic, and we'll continue to invest meaningfully in this space as the large portion of dogs with dermatitis remain untreated, representing an opportunity to further expand the market.
U.S. livestock fell 13% in the quarter, primarily resulting from our cattle business which, as expected, was challenged by generic competition for Draxxin as well as elevated input costs continuing to weigh on producer profitability.
Our poultry business was negatively affected by reduced disease pressure from smaller flock sizes as well as generic competition while swine faced competitive pricing pressure on anti-infectives and vaccine products.
Moving on to our International segment, where revenue grew 8% on a reported and operational basis in the quarter.
Companion animal revenue grew 23% operationally, and livestock revenue declined 2% operationally.
Increased sales of companion animal products resulted from growth of our key dermatology products, our monoclonal antibodies for alleviation of OA pain, and our parasiticide portfolio.
Several key brands are benefiting from our international DTC campaigns in Latin America and parts of Europe, and we remain excited with the long-term prospects of these programs.
Overall, companion animal grew double digits operationally in every major market in the quarter.
We are encouraged by the performance of our monoclonal antibodies for OA pain with Librela generating $15 million and Solensia delivering $3 million in fourth quarter sales.
In the fourth quarter, Librela became the No.
1 pain product in the EU in its first year with the underlying performance metrics being very favorable for future growth.
Reordering rates were in excess of 90%, and compliance rates exceeded our initial expectations.
In the past, we've highlighted the significant opportunity to expand the pain market.
Therefore, we were extremely pleased to see approximately 40% of Librela and Solensia sales were from patients receiving medication for the first time.
International livestock declined 2% operationally in the quarter as declines in cattle and swine were partially offset by growth in fish and poultry.
Cattle declines were largely in the EU and Canada as generic competition for Draxxin weighed on sales.
The decline in swine sales was primarily the result of lower pork prices in China negatively impacting producer profitability.
Our fish portfolio grew double digits again this quarter driven primarily by growth of Alpha Flux in Chile and the growth in poultry was largely attributed to further key account penetration.
Now moving on to the rest of the P&L for the quarter.
Adjusted gross margin of 69.6% increased 190 basis points on a reported basis compared to the prior year resulted from favorable product mix, lower inventory charges, favorable FX, and price.
This was partially offset by higher freight, manufacturing, and other costs.
Adjusted operating expenses increased 12% operationally with compensation-related costs being the primary driver of the 15% operational increase in SG&A as well as 3% operational increase in R&D expenses.
Increased international advertising and promotion expense for key brands also contributed to higher SG&A, while R&D had increased project spend in the quarter.
The adjusted effective tax rate for the quarter was 18.6%, an increase of 510 basis points driven by the impact of prior year discrete tax benefits and changes to the jurisdictional mix of earnings.
And finally, adjusted net income grew 5% operationally, and adjusted diluted earnings per share grew 6% operationally for the quarter.
In December, we announced a 30% annual dividend increase continuing our commitment to grow our dividend at or faster than the growth in adjusted net income.
In the quarter, we repurchased approximately $200 million of Zoetis' shares and announced the authorization of a $3.5 billion multiyear share repurchase program.
Because we generate significant free cash flow, we have the ability to grow our business through organic investments and business development and return excess cash to shareholders without consuming our cash balance or being dependent on elevated leverage.
Now moving on to guidance for 2022.
Please note that guidance reflects foreign exchange rates as of late January.
We are expecting an unfavorable foreign exchange impact versus prior year by approximately $160 million on revenue, which is roughly 200 basis points, and approximately $0.12 on EPS, which is about 250 basis points.
For 2022, we are projecting revenue between $8.325 billion and $8.475 billion, representing 9% to 11% operational growth.
We again expect companion animal to be the primary growth driver in 2022 with the continued strength of our diverse parasiticide portfolio, further expansion of our key dermatology products, the adoption of our monoclonal antibodies for OA pain, and the growth in point-of-care diagnostics and reference labs.
We see a very favorable companion animal backdrop for 2022 while expecting certain vet clinics trends to moderate over time, we believe they will remain above pre-pandemic levels.
The catalyst for growth in 2022 and beyond stem from a younger pet owner demographic and the standard of care increases, which took shape over the prior two years.
We anticipate modest livestock growth again in 2022 led by the contributions of our emerging markets.
The macro trends, which makes livestock and essential business remain intact, and we believe more normalized growth will occur in 2023.
I'd like to touch upon the key assumptions that underpin our expectations for revenue growth.
in 2022 to compete against Simparica Trio or competitive entrants for our key dermatology products, Apoquel and Cytopoint.
As Kristin mentioned, in 2022, we expect Librela to become a blockbuster product in the first full year of sales with revenue exceeding $100 million largely from the EU markets.
We remain very optimistic about the potential of Solensia as well.
While the revenue curve will have a different shape due to the lack of an established feline pain market, we view Solensia as a long-term blockbuster product, which suggested a significant unmet need in animal health.
In livestock, we expect generic competition to negatively impact Draxxin revenue by approximately 20% in 2022 comparable to the impact we saw this year.
For the remainder of the P&L, adjusted cost of sales as a percentage of revenue is expected to be approximately 29%, where favorable product mix and price are expected to generate margin expansion.
Adjusted SG&A expenses for the year are expected to be between $2.07 billion and $2.12 billion with the increase from 2021 focused on supporting primary drivers of revenue growth, including investments to support new and existing products as well as diagnostics.
Adjusted R&D expense for 2022 is expected to be between $540 million and $560 million.
Zoetis is the leader in animal health because of the novel products, disruptive innovation, and life cycle enhancements we bring to the market.
Our internal R&D engine remains the primary source of innovation, and we are committed to ensuring it will continue to be significantly funded as a priority in capital allocation.
Adjusted interest and other income inductions are expected to be approximately $240 million, representing a minimal year-over-year change.
Our adjusted effective tax rate for 2022 is expected to be approximately 20%.
The increase in 2022 is primarily related to the favorable impact of foreign-derived intangible income and nonrecurring net discrete tax benefits that occurred in 2021.
Adjusted net income is expected to be in the range of $2.415 billion to $2.470 billion, representing operational growth of 10% to 13%.
Our guidance once again reflects our value proposition of growing revenue in line with or faster than the market and growing adjusted net income faster than revenue.
We are anticipating a significant increase in capital expenditures in 2022 primarily related to investments in manufacturing expansions in Ireland, the U.S., and China.
Finally, we expect adjusted diluted earnings per share to be in the range of $5.09 to $5.19 and reported diluted earnings per share to be in the range of $4.75 to $4.87.
While guidance represents our expectations for full year financials, I would like to provide some color on the expected phasing of growth in 2022.
We expect top-line growth to be fairly consistent between the first half and Second half of the year.
However, due to the impact of generic competition for Draxxin, isolated supply constraints, and the continued weakness of our swine business in China, we expect growth in the first quarter of 2022 to be lower than the remaining three quarters.
In addition, the significant investments we are making early in the year to support revenue growth, primarily in companion animal, including diagnostics, along with very challenging comparative periods for T&E and other expenses, will impact Q1 materially more than the subsequent quarters.
2021 was another exceptional year, our best performing year with 15% operational revenue growth and 19% operational growth in adjusted net income.
Our guidance for 2022 reflects the strength of our innovative portfolio, our ability to successfully launch new products and establish new markets, and our confidence in the end market dynamics for the spaces we compete in.
 Assistant:

Chosen response:
sees fy earnings per share $4.75 to $4.87.
sees fy revenue $8.325 billion to $8.475 billion.
q4 revenue rose 9 percent to $2.0 billion.
sees fy adjusted earnings per share $5.09 to $5.19.