Zoetis Q2 Earnings Call Highlights

Zoetis reported mixed second-quarter results: Revenue was $2.5 billion, flat reported and down 1% organically, while adjusted EPS rose 4% to $1.87 due partly to share repurchases. Weak U.S. companion-animal demand offset growth in livestock, diagnostics and international markets. Pet-care pressures led to a lowered outlook. Declining veterinary visits, selective pet-owner spending and increased competition hurt companion-animal and dermatology sales; Zoetis now expects full-year organic operational revenue to decline 3% to 1% and adjusted net income to decline 9% to 5%. Diagnostics and livestock provided key offsets, with revenue rising 12% and 11%, respectively. The company said July trends had not shown stabilization and cited additional foreign-exchange headwinds of roughly $60 million to $65 million to revenue.

Zoetis reported second-quarter revenue of $2.5 billion, flat on a reported basis and down 1% organically, as pressure in U.S. companion-animal categories offset growth in livestock, diagnostics and international markets. Adjusted net income was $781 million, down 2% organically, while adjusted diluted earnings per share rose 4% to $1.87, benefiting from a lower share count following share repurchases.

Chief Executive Officer Kristin Peck said the quarter fell short of the company’s expectations amid declining veterinary clinic visits, more selective spending by pet owners and greater promotional activity from competitors. Zoetis lowered its full-year outlook, now expecting organic operational revenue to decline 3% to 1% and adjusted net income to decline 9% to 5%.

Peck said veterinary clinic visits continued a multiyear decline, while price increases in pet care have outpaced broader consumer inflation. Pet owners have become more selective in their spending, with clinic revenue shifting toward urgent and emergency care and premium preventative and chronic-care products facing pressure, she said.

Global companion-animal revenue was $1.7 billion, down 6% in the quarter. U.S. companion-animal revenue declined 11% to $1 billion, while international companion-animal revenue increased 5% to $664 million.

Key dermatology revenue fell 16% to $395 million globally. In the U.S., dermatology revenue declined 18% to $251 million, as canine pruritic clinic visits fell by more than 2%, according to Peck.

Chief Financial Officer Wetteny Joseph said the company’s U.S. dermatology franchise retained about 86% in-clinic share during the quarter, though share declined 5 percentage points sequentially and 10 points from a year earlier.

Zoetis has begun using targeted promotions, rebates and other “growth-to-net” investments to protect volume and share rather than lowering list prices, Peck said. Those actions can include clinic-specific promotions, cross-portfolio bundles and point-of-sale discounts for pet owners.

The Simparica franchise generated $442 million in revenue, flat globally. Simparica Trio revenue fell 1% to $350 million, while Simparica revenue rose 4% to $91 million. International franchise growth was offset by U.S. pressure from softer flea, tick and heartworm visits, as well as a more competitive and promotional marketplace. U.S. Simparica franchise revenue declined 6% to $308 million.

Joseph said Simparica Trio held approximately 21% in-clinic share in U.S.