Zoetis Inc. (ZTS) Earnings & Analysis

Latest quarter

Zoetis reported Q2 FY2026 revenue of $2.5 billion, down −0.24% from Q2 FY2025. Revenue missed the consensus: the company reported $2.5 billion as the consensus counts it, compared with the $2.5 billion consensus, or −0.95% against it. Adjusted EPS of $1.87 exceeded the $1.84 consensus by 1.63%.

The filing attributed the operational revenue decline primarily to an approximately 3% volume decrease from key franchises and an approximately 1% volume decrease related to the MFA divestiture. U.S. revenue declined 7%, as companion-animal revenue fell 6%; the filing cited softer end-market demand, competitive pressure and price sensitivity. Livestock revenue rose 11%, with U.S. cattle-product demand supported by supply availability and demand associated with the New World screwworm outbreak. International revenue increased 8%, including $35 million of favorable foreign exchange.

Diluted EPS was $1.65, versus $1.61 a year earlier. Gross margin was 72.7%, compared with 73.2%, while operating margin was 35.1%, compared with 36.9%. Free cash flow was $539.0 million, compared with $459.0 million.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

On the Q2 call, CFO Wetteny Vredenburg said the quarter came in below the company’s expectations. She said both softer macroeconomic conditions and competitive activity affected results, and that the company did not provide a precise split between those factors. Vredenburg cited lower U.S. therapeutic and wellness visits and said the factors converge when a market is not growing.

CEO Kristin Peck said Zoetis is not changing overall product list prices. Instead, she said the company is accelerating targeted, time-bound growth-to-net investments, including clinic promotions, cross-portfolio bundles, rebates and pet-owner point-of-sale offers, to protect volume and share. When analysts asked about the duration and visibility of these actions, Peck said their terms can vary by customer, contract and event, and that the company could not provide an overall measure of them. She said the company would pull back some investments as share stabilizes quarter over quarter.

Vredenburg said the guidance assumes the current macro and competitive pressures persist at its high end, while the low end assumes they accelerate. She said a further acceleration would lead to additional growth-to-net actions. Peck said a new U.S. dermatology competitor that entered during Q2 is assumed to keep pressure on volume and market share, while the company is pursuing commercial actions to defend share. She said Zoetis was not providing FY2027 guidance.

On spending and margins, Vredenburg said SG&A declined 4% year over year in Q2 and that cost-management actions, including manufacturing-cost actions, contributed to gross-margin results. Regarding livestock, she said the company expects mid- to high-single-digit growth during FY2026, although certain Q2 U.S. drivers, including product-supply timing and demand for injectable parasiticides, were transitory.

Guidance

Zoetis revised its FY2026 revenue outlook from the prior $9.7 billion to $10.0 billion range to $9.2 billion. The company also said it expects FY2026 sales to decline −1.00% to −3.00%, excluding currency effects and divestitures, compared with its previous expectation for organic operational revenue growth of 2.00% to 5.00%.