Zoetis Q2 FY25 earnings call ZTS

Zoetis delivered robust Q2 FY25 results with 8% organic operational revenue growth and 10% adjusted net income growth on an organic operational basis. This performance was broad-based across markets, species, franchises, and channels, driven by both price and volume. The strong first-half results, with 9% organic operational revenue growth, led the company to raise its full-year guidance for both revenue and adjusted net income, despite anticipated competitive headwinds in the second half.

The Companion Animal portfolio grew 8% operationally, with key franchises like Simparica and Key Dermatology showing significant strength. The Simparica franchise grew 17% operationally, with Simparica Trio up 20%, maintaining market leadership despite competition by leveraging first-mover advantage and alternative channels. The Key Dermatology franchise grew 11% operationally, demonstrating durability through its diverse offerings (Apoquel, Cytopoint) and continued market expansion efforts, particularly internationally.

Librela, the OA pain monoclonal antibody, experienced a 7% operational decline globally and 16% in the U.S., falling short of expectations. Headwinds include perceived safety concerns among vets and pet owners, exacerbated by social media in English-speaking markets. Zoetis is actively addressing this through intensified medical education, partnerships with key opinion leaders, and investing in third-party Phase IV studies expected to read out from Q4 FY25 into FY26 to provide further clinical validation and support adoption.

The Livestock business continued its strong performance, growing 6% organically and operationally in Q2, exceeding low single-digit market growth projections. This marks the fifth consecutive quarter of above 5% organic operational growth, driven by double-digit gains internationally, particularly in swine (benefiting from China tailwinds), vaccines in Latin America, and strong fish and poultry portfolios. The segment's momentum is expected to continue through the year, reinforced by rising U.S. protein consumption.

Zoetis highlighted its robust pipeline, expecting a major market approval every year for the next few years. This includes a conditional license for an Avian Influenza Vaccine for lactating dairy cattle in the U.S. and anticipated approval for a new long-acting OA Pain monoclonal antibody (3-month duration) for dogs and cats this year. The company is also developing long-acting Cytopoint and exploring new markets in renal, oncology, and cardiology, which represent significant unmet needs and multi-billion dollar opportunities.

The company acknowledged the dynamic tariff environment, noting that the impact of currently enacted and announced tariffs is slightly higher than previously estimated. However, Zoetis expressed confidence in its ability to absorb the incremental impact and manage costs due to its resilient business model, diversified supply chain, and significant U.S. manufacturing footprint (60% globally, 75% of U.S. sales manufactured in the U.S.). The company is actively advocating against the application of Section 232 tariffs to Animal Health.