ZTS earnings call transcript, November 5, 2026

Your meeting will begin shortly. If you need assistance at any time, please press star zero. And a member of our team will be happy to help you.

Please stand by. Your meeting is about to begin. Welcome to the third quarter, 2026. Financial results, conference call, and a webcast for Zoetis. Hosting the call today is Matthew Ausermeyer, Senior Vice President, Corporate Finance for Zoetis. Presentation materials at... Additional financial tables are currently posted on the Investor Relations section of Zoetis.com. The presentation slides can be managed by you, the viewer, and will not be forward 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. Instructions will be given at that time. It is now my pleasure to turn the call over to Matthew Ossermeyer. You may begin.

Thank you, operator.

Thank you, Matthew.

Good morning, everyone, and thank you for joining us. Today, we reported our third quarter results with revenue and adjusted net income both declining in line with our expectations. Our diversified portfolio... ...provided some resilience, and we focused on defending leadership positions with investments in key franchises. At the same time, continued advancing the portfolio and innovation pipeline. While challenging dynamics are... ...continuing, we are seeing progress in the actions we are taking and have narrowed our full-year revenue guidance to the high end of our range. As I walk you through our performance, I want to put the industry and company results in perspective and outline how we are... positioning Zoetis for the near and long term. But first, I'm pleased to welcome Jay to his first earnings call with Zoetis. He brings a strong track record and a valuable combination of financial and operating experience, and we're excited to have him on the team. Let me start with what we see across the industry. As you all know, animal health remains a long-term secular growth industry, driven by a growing global population looking to eat more protein and adapt. And care for more pets. Like most industries, however, animal health is not immune to cyclical factors, which affect pet care and livestock differently. In developed pet care markets, veterinary service costs have risen 50%.

Since 2022, well ahead of general inflation. Alongside softer consumer confidence, that cost pressure is making pet owners more value conscious and deliberate when making trade offs to care for their pets. The mix of pets is also changing. High housing costs are affecting homeownership and pet adoption, with fewer dogs joining households, as cat ownership continues to grow. Because dogs are more medicalized than cats, this shift also affects underlying demand for veterinary services. These pressures are reflected in the continued weakness in U.S. clinic visits, which are down 3% year-to-date across categories. These dynamics, combined with intense competition in key franchises, continue to weigh on our companion. At the same time, the bond between people and their pets remains strong. In the U.S., the Human-Animal Bond Research Institute's latest survey found that 98% of pet owners experience health benefits from their pets, and 91% said knowing about those benefits makes them more likely to maintain their pet's health. That enduring bond is an important foundation for our industry, but it exists along outside real barriers. 37% of people planning to get a pet cited the cost of ownership as a concern. As the industry leader, we're focused on meeting customers where they are. That means working with veterinary practice to support their profitability and success while developing programs to help pet owners manage the cost of care. In contrast, livestock is benefiting from growing demand for quality protein sources. We're also seeing growing demand on

animal health to improve productivity, support food security, and adopt a one health approach. That demand has contributed to historic industry growth and for the West underscores the strength of a broad and diverse portfolio. And while we expect livestock to remain a strong contributor over the short, medium, and long term, disease, weather, and local production cycles will continue to influence year-to-year results and diversity matters not only across species. but across geographies. Growth conditions vary significantly from market to market, reflecting differences in economic and geopolitical conditions, species mix, and regulatory environment. In many developed markets, PEDCARE represents a large and more medicalized share of the animal health market, while in many emerging markets, livestock does. As a result, the same economic shifts can affect markets in very different ways. Tariffs and trade flows continue to evolve. And our commercial strategies reflect the conditions in each market. That local focus matters, because emerging markets are expected to remain the fastest growing part of animal health, with room to bring more animals into regular care, gain share, and broaden access to innovation. Which brings me to what we're doing to defend and grow our leadership. Building on the actions we've outlined over the past two quarters, today, I'll focus on three priorities. Leveraging the diversity of our portfolio.

Expanding access to established franchises and advancing innovation. I'll take you through each with examples of how they're showing up across our key franchises. First, we're leveraging the advantage that comes from the diversity and differentiation of our portfolio. Competition is increasingly playing out product by product, but our range of options within the therapeutic categories and across channels gives us more ways to meet customer needs and compete effectively. Those choices are especially important in our key dermatology franchise, where share pressure is most acute. We are continuing to sharpen commercial execution, directing resources where they can influence customer decisions. And reinforcing the value of our differentiated portfolio with vets and pet owners. For example, we're using that breath to drive conversion to apical chew with chew in the room promotion and in clinic sampling, highlighting a more convenient. Alternative that can support treatment compliance. At the same time, we expect U.S. approval of long acting Cytopoint in the fourth quarter, adding a more convenient option for chronic itch, a segment that accounts for more than 60 percent. of global dermatology doses. We're using that added diversity to build awareness for the next option in Durham with a teaser campaign ahead of approval. Similarly, since the beginning of the year, we've been mounting gene...

...era competition for Convenia and Serenia. We acted swiftly, and this quarter, we saw the pace of share gains moderate for the first time since entry. And with recent FDA approval in the U.S. and its coming... ...launched in Canada, Convenia RTU for dogs extends the portfolio with a single injection that can provide up to 14 days of treatment. Second, we're expanding access to our established franchises and investing... ...in the evidence and medical support that help vets navigate a more selective market. When visits are down and owners are weighing the cost of care, the clinical conversation matters. Veterinarians need to identify patients. ...who can benefit and have relevant evidence to support treatment decisions. This is a central role of medical affairs, and one reason we launched the Medical Hub, which houses our scientific insights, publications... ...and educational materials in one place for veterinary teens. That approach is relevant in parasiticides, where softer end-market demand is creating pressure, even with double-digit declines in U.S. flea, tick, and heartworm clinic visits. The Semperica franchise delivered modest growth this quarter, as expanded access to Semperica TRIO drove growth internationally. TRIO's triple combination protection gives vets a differentiated option. It was supported by recent peer-reviewed research on heartworm resistance. One example of scientific evidence supporting the franchise is a recent peer-reviewed Speed of Kill study, available through the Medical Hub, and our continued...

...investments in Phase IV studies provides vets with relevant evidence in a more selective market. We also now expect approval of Symparga Duo by year-end, ahead of our original timeline. Broadening the portfolio and extending access... ...to customers with unmet needs. This same strategy applies to OA pain, where building the category will require sustained efforts to improve disease awareness and help veterinarians identify more... ...who could benefit from treatment. We're clear-eyed about the work ahead and measured in our expectations. But at the same time, just four years ago, alternatives to NSAIDs were limited. Today, our... ...our portfolio offers dogs and cats monthly or longer-acting three-month pain relief. Recent approvals and launches of Lanivia and Portella extend those options, and we believe broader access will build the category over time. These are strong franchises... ...in markets we help build. Our focus is to support customers through current pressures while continuing to invest in their growth. Third, we continue to advance innovation while remaining disciplined in how we allocate capital. In this environment, that means taking costs out where needed to operate more efficiently while protecting investments in innovation and advancing our robust pipeline. Lifecycle innovation is central to the first. The examples I've discussed in DERM, Paris, and OA Payne strengthen established franchises and help create resilience in a pressured market.

We're applying the same approach to livestock through new formulations and expanded indications across the port. These extensions help keep our portfolio, including FDA emergency use authorization of Dectamax for New World Screwworms. These extensions help keep our portfolio relevant to involving customer needs and support franchise contributions. Over time. Last year at our innovation webcast, we committed to achieving a significant major market approval every year for the next several years. To date, we have met our 2026 milestones and in some areas. Moved ahead of schedule. For example, Convenia RGU has now received approvals in two major markets, both earlier than planned. Beyond lifecycle innovation, we're working to create new categories in areas such as renal disease, oncology, cardiology, and obesity, where diagnosis is essential to identifying patients who may benefit from treatment. That makes diagnostics a strategic enabler of this pipeline. Investments are building the tools and capabilities to support that work. This quarter, Companion Animal Diagnostics delivered double-digit revenue growth, reflecting increased utilization and contributions from the strategic acquisitions of VitalRAS and... ...BPG. Our market leadership was built on innovation. Sustaining it means extending the franchises we have today while building the capabilities that will enable the future of animal health. Before I turn it over to Jay, I want to be clear...

...that while the companion animal market remains soft in the quarter, Zoetis' targeted commercial execution has helped mitigate the macro and competitive pressures. And we will continue to adapt our approach as the market evolves. We remain focused on disciplined resource allocation... ...paired with investments to grow markets and share. At Zoetis, that means directing resources to defend our key franchises today while advancing innovation for the future to drive strong growth over time. We have the portfolio science. ...and customer relationships to do just that. And with that, I am pleased to hand it over to Jay.

27. While it's too early to provide specific guidance, we will plan prudently for the upcoming year. We will not be assuming improvements in the macro environment or pet owners spending trends, and we expect the competitive dynamics we've mentioned to remain a factor throughout most of the year. At the same time, we're encouraged by the commercial strategies we're executing. And most importantly, we're excited about the innovations planned for 2027 and 2028. While we expect limited revenue contribution from these launches in 2027, their impact should build later in the year and into 2028. We look forward to sharing more about this on our Q4 call. Our focus remains on executing with discipline and positioning the business for improved performance over time. With that, I'll turn it over to the operator for questions. Operator. Thank you. If you would like to ask a question at this time.

Please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. In the interest of time, we ask that you leave. Submit yourself to one question and one follow-up. When posing your question, please pick up your handset to allow optimal sound quality.

Our next question.

Thank you so much.

So we followed parasiticide for a while from topicals, the oral cysoxazeline. There's generally been a consistent. Pattern that a new product will come in, it will get some new generational starts. And then, you know, the market kind of matures and normalized. We saw this, you know, when you launched Simparica, the original, you did take share, but NextGuard kind of. Settled in and kind of continued to grow. Is that what we think we could see in the 2027, 2028 market with Simparica, with some of the new entrants and new categories? What would make it different and what kind of indicators would tell you that maybe growth would normalize in that category in 2027, 2028? And again, I don't want to take away. You did grow 5% in Simparica Trio overall. But, you know, just curious on that. And I'll have a follow up. Sure, Dave, I'll take that first question before your follow up. You know, as I said, we were pleased with the performance of Simparica in the quarter. The franchise, you know, global. We did about 1%. We did about 4% growth in TRIO specifically. As I was just talking about, you know, we're very pleased that in the U.S. we are the market leader and we maintained our share at 22.5, which is almost two times our next biggest competitor. I also think it's important as you think about parasiticides to split the U.S. from international. We're seeing significantly higher growth in international overall. And I think you're seeing this because, you know, triple combination category.

You know, it's still in its infancy there. We're really expanding and entering new markets. So we see Trio is still early in its penetration. And we believe there's really a long runway for growth there. And we're continuing to invest in innovation in this space. As we also mentioned, we are expecting approval of Semperica Duo by year end, which is ahead of its original timeline. And I think this will continue to broaden our portfolio. So I guess the way we see the market, we think there's still significant opportunity to continue to expand this market. From single combinations, from topicals and collars into triple combination, as well as to gain share. We have a very comprehensive portfolio that we think is differentiated and we'll continue to invest there. Maybe move to your second question. Sure. So Cytopoint, as you noted, has held in the well. There isn't anything in the market like it right now. Befrenna does have a label of four to six. Four to eight weeks, you have to see, looks pretty competitive, you know, as it launches in 2027. Can you walk us through both first, maybe from a defensive strategy perspective early on, and then maybe from an off. Offensive strategy as you get your own long acting product. And, you know, you know, can you confirm the long acting is still on time? I think, you know, you said Q4, you do expect. Approval, you know, how fast is that to roll out? And thank you so much for taking the questions.

Sure. Thanks. You know, we continue to believe that Cytopoint and the long acting space in Durham is really exciting. As we mentioned, it did fare better in the quarter. I think that's really because there's, you know, really the customers who are on it are quite pleased with the efficacy of the product. Overall, as you know, we did have a new entrant in that category in the U.S. To date, they've had. limited share given their supply challenges. What we are really excited about as we see in this category is to continue to expand it. We are expecting the approval of Cytopoint long acting this year. We think Cytopoint will help us expand the category. Honestly, it provides a more convenient option that lasts longer, which is, you know, really helpful for busy, you know, pet owners who, you know, coming in every month might be a challenge. I mean, this is part of Zoetis' strategy to continue to innovate in each of our key... ...therapeutic areas to both, you know, make sure that we can continue to grow our share as well as expand the market overall. And we're really, you know, we're pleased to have that product and we look forward to launching it in the first half of next year. So we are on track with Cytopoint Long Acting and we think... It's going to be a great addition to continue to build this brand. Thank you. We will move next with John Block with Stiefel. Please go ahead.

Your line is open. Great.

Thanks, guys.

Good morning.

Jay, I'm arriving at an implied 14th. Q26 organic revenue growth rate of around negative 3%, you know, often easy comp. So maybe just your thoughts on that, if accurate, you know, any color. And then maybe more importantly, what does this mean for the business looking forward? If you could give us some color there and then I'll ask to follow up. Sure. So I think as we think about the fourth quarter, it's really it really is important to take it in the context of the third and fourth quarter and also the full year. On a full year, on the first half, we're down about a point. The third quarter was down a bit more than that. And as we look at the third and fourth quarter together, you know, we're talking about a full year growth rate. into a decline of negative one to negative 2%. We historically see some seasonality with higher sales in the third quarter and then the fourth quarter. And in this particular case, with the promotional activity. That we pursued in the third quarter, we're anticipating a third to fourth quarter decline in the high single digit range, very much in line with our expectations, although I would say the market and our performance. That's been a little bit better than our anticipation. But related to that, we always anticipated a deceleration in the fourth quarter versus the third. And so as we think about what this means for the overall health of the business.

It really is important to consider it in the context of the third quarter as well.

OK, that's helpful. Thank you. And then I guess just to pivot, you know, livestock continues to be the bright spot, bright spot. Pardon me for you guys. You might exit 2026 or pardon me, 2026 might have a, you know, a comp of high single digits. So maybe you could just give us some thoughts on sustainability of livestock. Kristen, you mentioned the protein tailwinds and that doesn't look like it's going away anytime soon, but. Just looking forward for this business off a high single digit comp that might add some screw worm tailwinds in there. How do we think about that for 27 and beyond? Thank you. Yeah, we were quite pleased with the performance of livestock in the court. It grew 7% overall. And really underlying that, as you mentioned, is demand for quality protein. And that's really across the globe, I would say. We saw U.S. delivering 5% to the quarter and international at 9% in the quarter. And, you know, if you think about that, you know, international livestock is a higher percentage of our businesses we've talked about. And that growth was really broad overall across species. And we are confident that livestock will remain a strong contributor. Obviously, as we. See, there's definitely a little more cyclicality historically in livestock as influenced by disease, by weather, by outbreaks, local production cycles overall. But, you know, there were a few years, obviously, as you recall, where the white has had an L.O.E.

And we also had African swine fever outbreak. But historically, livestock is, you know, a solid, you know, contributor overall as an industry grower and specifically for Zoetis. We're quite focused in our portfolio, as we've mentioned, around vaccines and. Genetics and preventative, which we think has positioned us as well as we see, you know, strong continued demand for protein. Thank you. We will move next with Brandon Vasquez with William Blair. Please go. Go ahead.

Hey, good morning.

Thanks for taking the questions.

Kristen, I wanted to follow up on your commentary about you guys have been pretty successful, it seems like, in defending share and some of the growths in that promotional activity. These may be for lack of a better phrase to use there. The question being, do you think that these like growth to net promotional activities are short term in nature? Is this something you're doing to combat kind of temporary entrance from from competitors? Or do you think on a go forward basis? I need to keep this new growth to net. And because part of the question is basically like, what are the implications to your margins and your gross margins on a go forward basis within the companion animal business? Yeah, I mean, it's a great question. I think our focus right now is with a lot of new entrants in both derm and parasiticides. You know, historically, as you know, in our space, when new entrants came, they expanded the market. We aren't seeing that right now. And so we've had to be a little more focused on some of these growth to net investments. Ultimately, we think when shares settle out. And historically, you've seen that somewhere between 12 and 18 months. And what we're really watching for to know how to tweak, and we're constantly watching every month, but certainly every quarter, is how are we seeing those shares stabilize? When we see two quarters where those shares pretty much stayed, we'll have a sense that those shares have stabilized, and we can then really focus more on gaining share and growing the market overall. So I don't think these are here forever, but I think as Jay mentioned in his remarks,

I think, you know, some of these new products have only recently entered in certain markets, and this is a market-specific investment. And so we think we need to lap those new entrants for both Durham and Paris to really have a sense of how to continue to adjust. Our growth to net investments. But, you know, I think our strategy, as I mentioned earlier, is making sure at the very least we defend our share and we're focused on both growing share and growing these markets ultimately. The reality is there are still way more untreated animals. in both of these categories and there are treated animals. So there's significant opportunities to do that, but I think as you combine both the competitive situation right now and macro, the market itself isn't growing as much, but we do continue to believe that that will happen. Ultimately, as we get through this cycle. Okay. And on Lanavia, I just want to hit on that for a second, because that feels like clearly one of the areas you guys are still kind of innovators and a fast leader there. Early days of Lanavia, I don't. I don't know how many pilot accounts you might be having, but any metrics, any anecdotal feedback you want to share with us just in terms of is this the product you think through 27 might be able to start to reaccelerate the OA pain management section? Thanks. Yeah, we're quite excited on the performance of both Lanivia and Portela, which is a long-acting for cats. We have launched across a number of markets in the EU and Canada. And, you know, what we're hearing right now, again, I would like to be clear, this is obviously early days.

But the veterinarian satisfaction is high at 97% for Lanivia and about 95% for Portela. Pet owner satisfaction is high at 98%. And what we're seeing is what we expected, which is, you know, that Lanivia and Portela are providing a really good opportunity to grow the market. Having a product that is more convenient, that is, you know, once every three months has really helped expand the market. So obviously we've seen some cannibalization, as you saw, but as you looked overall at OA pain, international, we saw growth and that's really been driven by Lanivia and Portella and sort of the positive both veterinarian and pet owner uptake of those products. We continue to expect approval of Lanivia in the U.S. in 2027, so we'll be excited to bring that product to the U.S. as well. Thank you. Our next question comes from Erin Wright with Morgan Stanley. Please go ahead. Great. Thanks for taking my question. So

Our next question comes from Matt Dillatorre with Goldman Sachs. Please go ahead.

Our next question comes from Nazan Tai with PNP Paribas. Please go ahead.

at need. So it's a product really focused on fleets, heartworm, and intestinal worms. So we're excited to get approval there and then add this to our overall Sympereca family. Thank you. We'll come up next with Andrea Allison. So with UBS, please go ahead.

Yeah, thank you so much for squeezing me in. I, my question was really, I appreciate all the color that, you know, you provided on, on, on sort of the competitive, definitive. Competition by channel, I guess, any color on the efforts by channel? How does it vary between retail versus independence? And how do we think about the competitive intensity there? And then I guess separately, I'll squeeze this in as with, you know, two big distributors coming together imminently. How are you approaching distributor relationships versus more direct engagement with practices?

Thank you so much.

Sure. I'll take those questions as a comprehensive because I think what you're really talking about overall is channel. And I think, you know, as we think you have to pay attention to all those, you know, obviously, you know, we have had a strength in the corporate side historically, we'll continue to invest there. We think there's still a lot more that our teams are focused there on making sure if there's for one of two, we want to be the largest there. So there's very targeted promotions meeting each of those individual corporate strategies there. It's also focusing on independence. We have a loyalty program there that we're quite focused on. That's obviously part of our targeted promotions as we talk to is how do we gain share in some of those independents. So we'll be focused there. We talked a lot about investing in sort of retail where you get an opportunity for auto ship. There's really great movements as well in the. You know box stores side as well. So you know these are all important and as we think about distribution they've always been an important channel for us. Some of our customers refer to place one order across all those. So we're going to continue to and make sure that we are there. We're available wherever both the vet and the pet owner wants to access our products and so we'll look at channels holistically and make sure we have a targeted strategy that meet each of those different channels needs. Thank you.

We will move next with Stephen Deckard with KeyBank Capital Markets. Please go ahead.

Hey, thanks for the questions.

I guess just on the gross and net investments on the vet clinic side, where are you in the process? This is sort of the product bundling with clinics. Have you mainly worked through all those contracts? And how often can you revisit those contracts for further changes? And then on a key term internationally, on their organic growth being down 20%, a little worse maybe than we expected. But I guess New Melvi and Zanrelia have been in that market in Europe for a while. So I guess just maybe what changed this quarter with the competitive dynamic. Sure. So your first question on growth to net and product bundling. We have always had a broad portfolio. We have the broadest portfolio. We've always been able to. Leverage that portfolio as we think about overall promotions. We're going to continue to do that. You know, as we think about some of those clinics, you know, we look at our overall share there. We try to make sure that they're buying across our portfolio. I think that will remain, Steve, an important strategy for us. We're obviously seeing some competitors try, you know, to copy that where they can, but they don't have as broad a portfolio. But importantly, as we've talked about before, it's really the innovation that we bring that pulls this forward. And as we think about the approvals we had. This year and all the launches we're going to have next year. I think that sets up that portfolio play that we're talking about. And, you know, we look at each of those programs on a quarter by quarter basis. The contracts, as you think about some of the corporates, you know, each contract is slightly different.

Normally, there are two to three year contracts where you can obviously revisit those. But, you know, we're very pleased with how we're positioned there. And again, I think our innovation is what really differentiates us overall. And your question on DERM and international, you were referencing Europe, where we have had some of that competition for a while. But international is quite broad, as you know. And I think the competitive dynamics are quite different in different markets. As you think about even some of our top five markets, if you pull in, say, Brazil or Australia, and some of the markets, you know, these are products that are sold almost like over the counter in retail stores, where the strategies are quite different. And I think some of our competitors are positioned a little differently than us, as well as some of those pricing dynamics in some of those other markets. So yes, the Europe might look a little bit more in some of the markets like the U.S., but as you get outside of Europe, those market dynamics are quite unique in certain large markets that are top five markets for us, such as, say, Brazil or Australia. Thank you. And there are no further questions in queue. I will now turn the call back over to CEO Kristen Peck for any additional or closing remarks.

Well, thanks, everyone, for joining us today. As always, we really appreciated your questions. And your continued interest in Zoetis. And we look forward to keeping you updated at future conferences and seeing you again on the Q4 call next year.

Thanks, everybody. Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.