ZOETIS INC. 2026 Q2 Earnings Call

Good morning, everyone, and welcome to the Zoetis second quarter 2026 earnings call. I am joined today by Kristin Peck, Chief Executive Officer, and Wetteny Joseph, Chief Financial Officer. This morning we issued a press release announcing our financial results. Before we begin, I would like to remind you that the release and corresponding earnings presentation, which we will reference during this call, are available on the investor relations section of our website, and that many of our statements today may be considered 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 statements in today's press release and in our company's Exchange Act reports filed with the SEC. Additionally, today's remarks will include certain non-GAAP financial measures.

Reconciliations of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures can be found in the earnings press release and our company's 8-K filing dated today, August 6, 2026. We will also reference reported and organic operational growth. Organic operational growth excludes the effect of foreign currency as well as acquisitions and divestitures, which individually impact Zoetis growth by 1% or less. Unless otherwise stated, all revenue growth performance metrics will be based on organic operational performance. With that, I will turn the call over to Kristin.

Thank you, Steve. Good morning, everyone, and thank you for joining us today. I will start with the operating environment because it's important context for both our performance and the actions we're taking. As we have discussed in prior quarters, the companion animal market is being shaped by several interconnected forces. Those dynamics continued in the second quarter and in some areas intensified. Veterinary clinic visits declined across markets, extending a multi-year trend that has occurred alongside price increases that have outpaced broader consumer inflation. As a result, pet owners have become more selective in how they spend, which is showing up in visitation patterns and purchasing decisions. In parallel, clinic revenue has increasingly shifted toward urgent and emergency care while premium preventative and chronic care remain under pressure.

These are broad pet care market dynamics and not unique to Zoetis, but they matter more for us because of where we lead. Competitive intensity has increased and many of the categories facing the greatest pressure are categories Zoetis pioneered or helped establish as standards of care. Historically, when more companies invest behind a therapeutic category, that activity helps expand the market by increasing disease awareness, deepening veterinary engagement, and educating pet owners. This is not what we are seeing today. Instead, in a slower growth market, the nature of competition has changed. New entrants are using higher levels of discounting, rebates, cross-portfolio bundling, and other incentives to compete for existing patients. Overall, these headwinds have created near-term pressure. At the same time, the level of competitive activity reinforces the enduring attractiveness of the categories Zoetis has helped shape over many years.

Our ability to maintain leadership positions, even amid simultaneous competitive launches, gives us confidence in the actions we are taking to strengthen our near-term position and create the right foundation for growth over time. With that, I will turn to our second quarter performance, which reflects these dynamics and fell short of our expectations. On an organic operational basis, revenue and adjusted net income declined 1% and 2% respectively. By segment, revenue grew 6% internationally, supported by broad-based growth in emerging markets, while the U.S. declined 7%. Our diversified portfolio continued to provide resilience, with livestock delivering another quarter of strong 11% revenue growth. That strength was more than offset by continued pressure across key parts of our companion animal portfolio, which declined 6% in the quarter.

Looking ahead, we have updated the outlook for the year to reflect our first half results and the headwinds we expect to continue in the near term. We are moving with urgency as we navigate the current environment. Throughout today's call, you will hear me discuss the actions we are taking to maintain our leadership and drive growth. We are focused on sharpening commercial execution, strengthening our competitive position, exercising greater cost discipline, and continuing to invest in the innovation that we believe will define the next chapter of growth for Zoetis. We are also evolving our leadership team to more closely align with our talent and organizational structure with the execution of these initiatives. In June, we promoted Abhay Nayak to EVP and President of our U.S. Commercial Operations. Abhay previously led our Global Diagnostics division and demonstrated that he's a high-impact leader who can drive strong revenue growth while also advancing innovation and building out key capabilities.

Now in his new role, Abhay is laser-focused on driving stronger performance and accountability in our U.S. commercial operations. As we announced today alongside our earnings report, Jay Zacara will also be joining Zoetis as our EVP, Chief Financial Officer and Chief Operating Officer. This is a newly created role that will give Jay broad oversight of all finance functions as well as global manufacturing and supply. This change is all about enabling faster decision-making, greater connectivity across the supply chain, and accelerated turnarounds from strategic planning to execution. We are confident that we found the right leader with the right background to step into this new role.

Jay possesses the unique combination of skills we are seeking. He comes to Zoetis with an impressive background in life sciences, having served as CFO of both GE HealthCare and Baxter. He also has a track record of designing and executing strategies that balance investments in innovations with operational rigor. I look forward to partnering closely with Jay, and I know he's eager to get started in a few weeks on August 17th. I want to take a moment to express my sincere gratitude to Wetteny. Wetteny has been a valued partner to me at every turn over the past five years. I know I speak for the board and everyone at Zoetis when I thank him for his strong leadership and many important contributions. We wish him all the best in his next chapter. With that, let's dive deeper into each of our key franchises.

I will start with our key dermatology franchise, where the broader companion animal pressures are most visible. The dynamics affecting this franchise remain largely consistent with what we described last quarter, but the pace and intensity of pressure increased in the second quarter and continued to weigh on top-line growth. In Q2, the category itself continued to soften. In the U.S., for example, canine pruritic clinic visits remained down more than 2% in the second quarter. Historically, growth in alternative channels, particularly for Apoquel, helped offset softer clinic traffic. In the current environment, growth in those channels also moderated, reflecting broader end market softness across the category. At the same time, competitive activity intensified globally, with new entrants using higher levels of launch-related promotional incentives to establish share. This resulted in continued share pressure, especially in a market that is not expanding.

Given the market size and intensity, our strategy is clear. Compete with discipline, reinforce the differentiated value of our portfolio, and direct incremental sales and marketing dollars where they can have the greatest impact, protecting share, influencing demand and driving conversions. This is how we manage the portfolio, focusing resources where the need is immediate while continuing to support our broader companion animal priorities with discipline. Targeted pricing and affordability actions are also being deployed where appropriate, helping us stay competitive in the near term while preserving the value of our franchise. Innovation remains central to the strategy. The anticipated U.S. approval of long-acting Cytopoint later this year would strengthen our dermatology portfolio with another differentiated option, helping veterinarians deliver effective care with greater convenience and value for pet owners.

In parasiticides, the Simparica franchise was flat in the quarter with double-digit international growth offset by continued pressure in the U.S. The dynamics vary by market, but the common thread is that affordability, channel behavior, and promotional activity are playing a larger role in purchase decisions for pet owners and veterinarians. Internationally, the franchise benefited from increased usage as well as the continued launch of Simparica Trio in Brazil, reinforcing the relevance of triple combination protection in markets where adoption is still building. In the U.S., franchise performance was pressured by continued clinic dynamics, including declines in flea, tick, and heartworm visits, as well as more competitive and promotional environments. Unlike in prior periods, growth in retail was not enough to offset.

We are taking targeted actions to stabilize performance, including more competitive pricing, enhanced pet owner promotions, and competitive capture where we see the greatest opportunity to protect and grow volume. Elsewhere, in our small animal parasite portfolio, we benefited from the breadth and diversity of our offerings, with Revolution growing on increased feline visits, highlighting the value of having multiple ways to drive essential preventative care in dogs and cats. Turning to canine OA pain, revenue declined in the quarter against a strong comparison. While we saw both year-over-year and sequential growth internationally with contributions from Lenivia, U.S. performance remained under pressure, with canine pain-related visits declining more than 2% in the quarter. For canine OA pain, medical affairs remains one of the most important levers for category development. This is a market where specialist engagement and scientific education are essential to strengthening veterinarian confidence and expanding use.