Welcome to the Second Quarter 2013 Financial Results Conference Call and Webcast for Zoetis. Hosting the call today from Zoetis is Vice President of Investor Relations Dina Fede. The presentation materials and additional financial tables are currently posted on the Investor Relation sections of Zoetis.com. The presentation slides can be managed by you the viewer and will not be forwarded automatically. In addition, a replay of this call will be available approximately two hours after the conclusion of the 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 opened for your questions following the presentation. (Operator instructions) It is now my pleasure to turn the floor over to Dina Fede, Vice President of Investor Relations. Dina, you may begin.

Thank you Josh. Good morning and welcome to the Zoetis Second Quarter 2013 Earnings Call. I am joined today by Juan Ramón Alaix, our Chief Executive Officer; and Rick Passov, our Chief Financial Officer. Before we begin let me remind you that the earnings press release and financial table can be found on the Investor Relation section of the company’s website. We’re also providing a simultaneous webcast of this morning’s call. Advancement of the slides on the webcast is user controlled. As such the slides will advance only when on your prompt. A PDF version of the slides we're presenting and a transcript of the call will be available on the website later today. Our remarks today will include forward-looking statements and actual results could differ materially from those projections. For a list and descriptions of certain factors that could cause the result 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 2012 10-K and Q1, 2013 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 U.S. GAAP. Our reconciliation of these non-GAAP financial measures to the most directly comparable U.S GAAP measure is included in the financial table that accompany our earnings press release and in the company's 8-K filing dated today, August 6th, 2013. With that I will turn the call over to Juan Ramón. Juan Ramón: Thank you Dina and hello everyone. Welcome to our earnings call. I’ll share highlights of the progress Zoetis is making now that we’re a fully independent company but to start let me go right to the numbers. I’m very pleased with our 4% operational revenue growth and diluted EPS of $0.36. I…

Thank you Juan Ramón, as you mentioned we’ve become a fully independent company since the last earnings call and with more than 400 million shares exchanged in the Pfizer offer we have many new shareholders in Zoetis and hopefully many of you are joining us today. This is just our second earnings call so let me take a minute to recap the basis of how we will be presenting our financials before we get into the results. While the results are reported in accordance with U.S. GAAP our commentary will largely speak to financial results on an adjusted basis these adjusted figures including adjusted net income and adjusted earnings per share are non-GAAP measures, they exclude the impact of purchase accounting adjustments, acquisition related costs and certain significant item such as the non-recurring cost are becoming stand-alone public company. We also sight operational results these figures exclude the impact of foreign exchange and demonstrate the underlying performance of our business. Operational results are used by management to evaluate the business and we believe that providing these use of our performance we will enhance your understanding of our financial results. And in addition to the company’s overall income statement our financial reports and discussion also reflect how we manage our business on a regional basis as you can see in the tables accompanying our press release we provide revenue and pretax earnings for our four regional operating segments as well as our consolidated results. We also provide supplemental revenue breakdowns by livestock and companion animal categories for the regions to provide additional insight into our quarterly and year-to-date results. And as you know Zoetis was not a standalone company in 2012 so our financial statements for 2012 in prior years in our public fillings happen to heighten the consolidated financial statements…

Operator we’re ready for our first question please.

(Operator Instructions). Our first question comes from Robert Willoughby with Bank of America. Please go ahead. Your line is open.

Juan Ramón: So we define our expenses based on marketable committees and also the activities that we think that are needed to support our revenues. That’s why in these second quarter you saw some decline of expenses but is the result of really identify the opportunities that we need to really maximize during the quarter and then allocate the resources based on these opportunities. Maybe Rick you can expand on some additional comments.

Sure, first of all and thank you for the question. A couple of things to note in our expenses to-date there are a couple of what I would call program changes as we went into 2013 to lower compensation and other costs as a percent of revenue and you will see the benefit of that throughout the year. In addition as one Ramón said there has been good expense control into this year and also spend on advertising and promotional campaigns not occurring as a result for example of the parasiticide season in Europe being delayed. And then finally for the second half of the year we expect the same seasonality in our expenses as a percent of revenue in 2013 that you saw in 2012 aside from some carve out anomalies particularly in the fourth quarter of 2012.

Next question please.

Yes. Our next question comes from Louise Chen with Guggenheim. Please go ahead. Your line is open. Louise Chen – Guggenheim: I was curious as to if you could give more color on when you will expect recovery for your cattle sales and what do you incorporated into your 2013 guidance for that. Thank you. Juan Ramón: And definitely we anticipated that in 2013 we will see the impact of the drought, the drought has been having lower impact than expected in poultry and swine and cattle is inline with the industry expectations and sure for the growth impact. Positive signs on the cattle industry is that the price of the grain and especially the corn is now much lower than in 2012 and also projected to be lower in the last part of the year. So this is a good indicator that we will see significant movement of animals from pasture to (inaudible) large and this will increase the opportunities for animal health care products. So we see that the recovery of cattle will be happening in the second half, definitely the number of animals it's lower than in 2012 but at the same time because of the price of beef is still positive the value of these animals also is higher we expect that the producers will invest really to keep these animals healthy and productive.

I’ll just add two points to that, with respect to your comment on this has baked into our guidance, I’ll just point out that Q3 of 2012 was the quarter where we really experienced the impact of the drought especially in the cattle market and so in Q3 of 2013 we are expecting relatively good growth quarter-over-quarter and then in Q4 of 2012 you saw I don’t want to say an anomaly but the decisions that livestock producers are making to call herds made Q4 relatively a good quarter for us so if you balance those two things across 2012 and compare them to 2013 that’s included in our guidance that we’re reaffirming today.

Operator next question please.

Yes, this comes from Chris Schott with JPMorgan. Please go ahead. Your line is open. Chris Schott – JPMorgan: Just a bigger picture question here, you’re seeing some nice leverage in your P&L over the past few years, as we think about the longer term model for Zoetis is there any reason we should anticipate that your margin progression or improvement slows, we’re going to stabilize this at any point in the next few years if in fact the company is able to let’s say grow inline with a mid-single digit type of top-line growth or maybe see more broadly for the industry. Juan Ramón: Well we have provided guidance for 2013, we have not provided yet guidance for 2014 definitely we will provide at the end of the year these guidance. So in 2013 the guidance that we’re providing is showing a significant improvement in our margins and we are convinced that the price leverage we will have a positive impact in our growth margin, our efforts in attempts of being more efficient and for our manufacturing also have positive impact and the discipline in managing our expenses and going by our expenses lower than our revenues. We have a positive impact in our earnings per share. So in summary we’re convinced that we have the elements to make products in terms of margin and we will provide guidance for 2014 at the end of the year.

Operator next question please.

Absolutely. This will be from Kevin Ellich with Piper Jaffray. Please go ahead. Your line is open.

I guess could you may be talk about capital allocation and potentially what you guys could be looking at on the acquisition front and then I was also wondering if you could also mention what’s driving that weakness in Equine and when you expect that to recover? Juan Ramón: Let me answer this question in general and maybe Rick will provide some of these from other comment. So in the next couple of years we will be funding a certain onetime cost which are related to a standing up (inaudible) company including new systems, including the infrastructure also including the separation of our some plants that were also co-located with Pfizer. We also have some obligations in terms of our debt, these debt it's come in due between 2015 and 2018 for more than $1 billion that really after all these couple of years or three years will be a really discussing that what will be the allocation of capital. That’s really in terms of long term we will follow a prudent cash management philosophy to assure that we meet our commitments and also we balance the needs of our key shareholders. We expect to be a company that strikes the right debt balance when allocating that capital for long term growth and returning cash to investors. Rick maybe some additional comments on the onetime cost or maybe the debt situation.

Well I think Kevin you also asked about the Equine? So the only thing I would add to the point one Ramón made is just to say that yes after we get through a period of elevated cost we would like to be a company that demonstrates very strong capital discipline in how we allocate capital. And the Equine market we’re seeing couple of factors first of all in Canada very significant slowdown in Equine sales due to perhaps a cyclical or maybe a longer term impact in the horse-racing industry, economic and similar factors also impacting on sales on the U.S. and generally in few other regions as well. So, it's a profitable business for us but we’re certainly watching what happens in that market to understand the permanence of some of the trends that we’re seeing now.

Operator next question please.

Yes, this will be Jeff Holford with Jefferies. Please go ahead. Your line is open.

So now that you’re separate from Pfizer are you able to comment a bit more about 2015 and some of the service agreements and step-ups for the (inaudible) just how you’re thinking about how you might be able to mitigate some of those increases in charge kind of those agreements? Thank you. Juan Ramón: I guess that you’re relating to the service that we have up for manufacturing? Jeff Holford – Jefferies: On manufacturing, SG&A and R&D I think there is some levels particularly in manufacturing. Juan Ramón: Okay let’s then focus on manufacturing, so the manufacturing we’ve agreement there for which Pfizer is producing for us certain products at cost for the next two years from the separation. After these two years their aim is also including a margin increase of 15% and these at the time of the separation we also evaluated about 30 million, the team has been already working on reducing these 30 million and I’m pleased to see that this amount has been reduced by half already and we’re working at really to reduce even further before 2015. So you see that is something that we’re working hard really to minimize the impact and the impact has already reduced significantly.

And maybe I will just comment on some of the areas, the other areas that you mentioned. On R&D, R&D has been standalone in animal health since about 2003. I mean I think that the majority of the relatively small amount of transitional services that Pfizer was providing to the animal health organization are pretty much behind us and on SG&A there is a good amount of work, a significant amount of work that remains to move us to our own transaction or financial service organizations as well as to move us off of the IT, the information technology services that Pfizer is providing to us. I mean that will be generally complete by the end of 2015 for the IT services and generally by mid to late 2014 for transaction finance services.

Operator next question please.

Absolutely. This is from Alex Arfaei with BMO Capital Markets. Please go ahead. Your line is open.

First on the U.S. companion animal business, it appears a bit slower than we expected I think only 2% operational growth. I was wondering if you can comment on that further and whether it was related to the entry of the competitive product and your outlook for that business and if a follow-up if I may how much improvement do you see in manufacturing and could you comment on your longer term product mix expectations. Thank you. Juan Ramón: I will answer the first question and then Rick will answer the improvement in manufacturing. In companion animal I will describe that in the second quarter we had two impacts, the most important one was related to the cold weather and we already described these cold weather also effecting Europe companion animal parasiticide campaign. The cold weather also in the U.S. delayed the implementation of parasiticide products to protect animals against ticks and fleas and this had an impact in our companion animal segment. We also saw that our competitor was back to the market and for our closed revolution (ph) these had an impact on the dog segment although on the feline segment the impact was insignificant. So overall I think with the performance of the companion animal has been in our opinion positive and we expect also that in the second half of the year will remain positive evolution. The companion animal we have seen that the number of adoptions it's inline with expectations, we also have seen that the number of visitor to clinics it's growing and also the amount that pet owners are spending on animals is also increasing. So all these indicators are providing are good projections for the second half of the year.

On your question on manufacturing and our outlook going forward, I will just say a couple of things, there is good progression from Q1 to Q2 but I think that shows good continuous improvement, good cost containment, we continue to outlook opportunities to increase the load on our network as we make decisions on how we will transition product made for us by Pfizer today either to a third party manufacturer or to ourselves and then it's these capabilities that we’re demonstrating now that will apply to our long term goals beyond 2015 which we haven't numerated at this point.

Operator next question please.

Our next question comes from the line of Liav Abraham of Citi. Liav Abraham – Citi: Just a question on the Porcine Epidemic Diarrhea Virus that has recently emerged in the U.S. Can you comment on your exposure to swine within your U.S. livestock revenues and whether you anticipate the impact of this virus to have any, to be material at all on your U.S. livestock business in 2013? Thank you. Juan Ramón: Definitely these PEDV outrage is concerning situation for many of our producers. There are a couple of elements which are important to understand that from these, so first it's not effective the (inaudible) it's affecting only the piglets and second there is no known food safety issue that also can be a concern from consumer. So these are two elements that are important to consider when we discuss about PEDV. The PEDV is not a new disease, has been already in many markets and in China had an impact in 2012. We don’t project any significant impact in our revenues in 2013 and the impact has been already incorporated in our guidance but definitely we will continue working with our customers, with producers. We ensure that we minimize the impact of this disease in their operations that can have in some of them an impact in terms of profitability and in terms of really making sure that the operation is generating the revenues and profit that they are expecting and second we’re working with different stakeholders including academic institutions and one of these institutions is the University of Minnesota. We’re partnering with University of Minnesota really to identify ways to protect animals and ensure that this disease is not affecting our producers. But I want to really confirm that all these impact has been incorporated in our 2013 guidance and we do not expect a significant impact in our revenues and profits.

Operator next question please.

Yes, this question is from Mark Schoenebaum with ISI Group. Please go ahead. Your line is open.

I have two questions on the revenue side, first is based on the mid-point of your 2013 guidance you’re forecasting higher revenues in the second half versus the first half. You mentioned a recovery of cattle sales and I just want to know what are the other key operational reasons for the pick up or if it may just be due to seasonality. Second question I had is you continue to see as you mentioned weakness in Europe, when did you see that abating and what strategy including potential M&A do you have in place to grow the European business. Juan Ramón: According to our guidance for 2013 definitely the second half will go faster than the first half and the main reason for these growth is that in 2012 we had a significant impact because of the drought, the third quarter and also the fourth quarter was impacted by the drought and the drought affected not only cattle but also affected swine and poultry in 2012. So we have seen already that poultry and swine are responding very well to these market conditions and we expect cattle to recover in the second half of the year and we have positive signs the price of the corn and also the our interaction with customers are indicating that cattle will be performing better in the second half than in the first half. All these elements are really included in our guidance and are projecting stronger growth in revenues in the second half. In Europe definitely the economic conditions in Southern Europe are affecting Western Europe but in our reporting segment we’re including Europe/Africa/Middle East at least and while in Western Europe we’ve seen the negative impact of the economic crisis and also the cold conditions in the second quarter that affected companion animal and also cattle in terms of parasiticide campaigns, we have a market in this region that are growing very nicely so countries like Russia or Middle-East or countries in Africa, South Africa especially are growing very fast. So we’re confident that the combination of markets in Europe also will provide positive growth in the future. Maybe a comment that is related to what are the projections that the analysis (ph) are making for Europe for the next five years, so they are projecting that Europe/Africa/Middle East will be growing around 4% to 5%. So again so we expect that Europe/Africa/Middle East will be positive region for Zoetis.

Let me just add just a couple of points on your comment about seasonalization. So just going back to what Juan Ramón said Q3 in 2012 was the first quarter where we felt the significant impact of the drought and Q4 to a degree we rebounded from that based not on any easing of the drought but on the decision that livestock produces made to call their herds, there is in addition to that a degree of natural seasonality in the business where Q4 tends to be a stronger quarter and to some degree Q2 as well. So hopefully that helps as well.

Operator next question please.

Yes, this question is from Tony Butler with Barclays. Please go ahead. Your line is open.

If I may stay with seasonality because parasiticide in the U.S. and Europe have been delayed in Q2, would you expect them or are you seeing signs that those are actually helping Q3 again in the U.S. and Europe and if you expect that to be robust in Q3 relative to last year, does that actually cause a mix shift especially in the U.S. and hurt profits yet help profits in Europe. Thanks very much. Juan Ramón: We have seen that weather conditions in terms of warm conditions both in the U.S. and Europe are robust (ph) to normal situation and (inaudible) protecting now animals with antiparasiticide in a normal way. So this means that definitely we will see that Q3 will be a normal quarter in terms of the use of parasiticide products. And maybe you can answer in terms of the second question of Tony.

I will just add a little bit in the sense that say in Europe to the extent that you have an absolutely shorter season because cold weather did last longer, you may not make that up over the course of the year and then the mix impact it's not significant enough to really drive anything at all level, yes, relatively speaking there has been a little bit of a mix impact because we’re not getting the sales in parasiticides we’re getting them somewhere else but not enough at the combined level to really change the flow of the numbers.

Operator next question please.

Our next question is from David Krempa with Morningstar. Please go ahead. Your line is open. David Krempa – Morningstar: Can you talk a little bit more about what was causing the decline in gross margin, I know you called out one factor causing the 50 basis point decline but what was causing the other decline especially after you raised prices in the first quarter?

Sure. I think the decline that you’re referring is to versus the prior year, so if I just start progression Q1 versus Q2 you see a nice improvement in gross margin over 50 basis points and now it's on track with our expectations for the full year and we believe gets us to our guidance for the full year which is between 35% and 36% and then as I called out in my comments we have a third party manufacturing business that almost exclusively relates to our having to supply product for divested products to those companies that bought those products these were mandated divestures as part of the our Wyeth, Pfizer acquisition of Wyeth and our acquisition of Fort Dodge which was a part of that and the seasonalization of those orders versus the prior year causes a year-over-year comparison that’s unfavorable and then finally the carve-out financials in the prior year have some anomalies in them in part the progression of just better understanding how to allocate center cost and Pfizer to animal health and some onetime impact from changes in mark-up and system programs that were reflected more in the second quarter than in the other quarters which make the number that we show you in Q2, 2012 and our carve-outs some of the anomalies versus the progression in 2012 and cost of goods sold for the full year. So hopefully that helps. I think the main point from my perspective is looking at Q1 to Q2 we’re still on track for our targeted 35% to 36% for the full year.

Operator next question please.

Our next question comes from Jami Rubin with Goldman Sachs. Please go ahead. Your line is open.

Juan Ramón: Based on industry projections and I have said this also they are projecting that the animal health will be growing between 5% to 7% as you mentioned. We’re confident that the fundamentals of these growth are valid, the production (ph) growth and also the emerging markets increasing significantly the consumption of animal proteins will drive these growth that will be a positive in livestock but also more adoption of pets in emerging markets that will increase companion animal. So we’re confident that this growth it's realistic and we’re also confident that we can be growing inline or slightly ahead of this growth depending on the years. On 2013 as we mentioned even if the first quarter has been affected by the drought conditions we have seen positive sign that make us confident that the second half of the year will be much positive for the industry and we’re affirming our guidance for 2013.

Operator we have time for one more question please.

And our last question is a follow-up from the line of Kevin Ellich with Piper Jaffray. Please go ahead. Your line is open.

I just have two quick follow-ups here, I’m curious about the cattle growth in the U.S. and then down in Latin America just wondering if you have any explanation what’s going on in those two markets and one Ramón I just was wondering on the e-commerce business what’s your expectations and maybe if you can provide a little bit more color that is going to be something like VetStreet in the industry? Juan Ramón: Let me start with the e-commerce and then I’ll go to the question on cattle. So definitely the e-commerce it's not like VetStreet, it's different tool so what we’re doing it's really we’re providing customers they go through there really to place orders and directly through the system and rather than sending the orders on paper now they can place their order through this e-commerce and this is really accurate in much easier way to really order from Zoetis. The other advantage is that the systems its open 24/7 so they can place orders anytime they need. Definitely this is something that we see as a complimentary with all the interactions that we have with our customers so we will remain having face to face interactions but in terms of these administrative work of orders we can do it in a way that it's easier and more efficient for them and also for us. In terms of cattle in the U.S. and in both regions the drought has affected because even in the drought was related to the U.S. the drought in the U.S. drove the price of grains and drove the price of corn which is a key element for feeding the animals and also achieving the quality of the meat that the consumers are demanding. Definitely in the U.S. we had some additional opportunities in the second quarter and that’s why you may see some difference in terms of growth in these two regions but overall I think the market for both U.S. and CLAR. In our opinion it's showing positive signs and we will see also growth in the second half in CLAR and also in the U.S. Also the U.S. has been very having positive evolution in terms of exports and this has also have a positive impact in the revenues of the U.S.

That concludes our call. Thank you for your participation and interest and have a good day. Juan Ramón: Thank you Dina. And to those who are joined us on today’s call we appreciate your questions and time spent with us today. So, thank you very much.

Thank you. This does conclude today's teleconference. A replay of today's call will be available in two hours by dialing 800-688-7945 for U.S. listeners and 402-220-1370 for international. Please disconnect your lines at this time and have a wonderful day.