Executive Summary / Key Takeaways

• Zoetis Inc. (NYSE:ZTS) demonstrates resilience through its innovation-led, diversified portfolio across companion animals and livestock, despite recent macroeconomic headwinds and competitive pressures.
• The company's core technological differentiators, including its Simparica franchise and Key Dermatology products, continue to drive market expansion and maintain leadership, supported by a robust R&D pipeline targeting significant unmet needs in chronic kidney disease, oncology, and long-acting pain management.
• While Q3 2025 revenue growth moderated to 4% operationally and adjusted net income grew 9% operationally, largely due to a strong prior-year comparison and declining therapeutic vet clinic visits, Zoetis maintains a disciplined approach to cost management and strategic investments.
• The osteoarthritis (OA) pain franchise, particularly Librela, faced slower-than-expected adoption and social media challenges, but management reports early signs of stabilization and anticipates a return to growth in 2026, bolstered by new long-acting OA therapies expected in 2026.
• Zoetis has revised its full-year 2025 revenue guidance to $9.4 billion to $9.475 billion (5.5% to 6.5% organic operational growth) and adjusted net income to $2.8 billion to $2.840 billion (5.5% to 7% organic operational growth), reflecting a more measured view of the macro environment, yet maintains its adjusted diluted EPS guidance of $6.30 to $6.40.

A Global Leader Forging Ahead in Animal Health

Zoetis Inc., a global leader in the animal health industry, emerged as an independent entity from Pfizer (PFE) in 2013, building on a foundation of over 70 years of innovation. The company's core business revolves around the discovery, development, manufacture, and commercialization of a comprehensive suite of animal health medicines, vaccines, diagnostic products and services, biodevices, genetic tests, and precision animal health solutions. Operating across two primary geographic segments—the United States and International—Zoetis directly markets its products in approximately 45 countries and sells in over 100, serving a diverse customer base of veterinarians, livestock producers, and pet owners. This extensive global footprint and diversified portfolio across eight core species (dogs, cats, horses, cattle, swine, poultry, fish, and sheep) and seven major product categories are foundational to its resilience and strategic positioning.

The animal health industry itself is characterized by enduring secular trends, including the deepening human-animal bond, increasing pet ownership, and rising global demand for animal protein. These drivers underpin a market that is both essential and resilient, even amidst economic fluctuations. Zoetis's overarching strategy is to capitalize on these trends through continuous scientific innovation, commercial excellence, and an adaptive operating model. The company's history of strategic portfolio management, including the recent divestiture of its medicated feed additive (MFA) product portfolio in October 2024 to streamline operations and focus on higher-value areas, underscores its commitment to sustainable, innovation-led growth.

Technological Edge and Innovation Pipeline

Zoetis's competitive advantage is deeply rooted in its differentiated technology and robust innovation engine. The company consistently invests in R&D, aiming to establish new standards of care and expand market opportunities. This commitment is evident across its key franchises:

• Parasiticides: The Simparica franchise, particularly Simparica Trio, pioneered the global triple combination parasiticide market. This market, currently valued at $2 billion, is projected to more than double to $4.5 billion by 2028. Simparica Trio's first-mover advantage, coupled with its broad label (expanded in Q1 2025 to include flea tapeworm protection in the U.S. and approved in Brazil by Q3 2025), has solidified its leadership. Over 50% of puppies in the U.S. are now on triple combination treatments, a clear indicator of the market's trajectory and the product's sticky nature once adopted. This technological leadership allows Zoetis to expand the overall category, converting pets from single therapies or topicals, and maintaining market share despite new entrants like NexGard Plus, Credelio, and Quattro.
• Dermatology: The Key Dermatology franchise, featuring Apoquel and Cytopoint, has consistently delivered strong growth for over a decade. These products offer complementary treatment options for allergic itch, with Apoquel Chewable providing added flexibility and Cytopoint offering convenient, longer-lasting injectable relief. The market for dermatology is projected to grow to $2.5 billion by 2028, representing an 11% CAGR, driven by an estimated 20 million dogs worldwide who remain untreated or undertreated. Zoetis's continued investment in life cycle innovation, including a long-acting Cytopoint expected within 12-36 months, reinforces its ability to expand this market and maintain its preferred position.
• Osteoarthritis (OA) Pain: The OA pain franchise, including Librela for dogs and Solensia for cats, represents a significant advancement in chronic pain management. Librela achieved blockbuster status in the U.S. by Q4 2024, distributing nearly 25 million doses globally. The overall OA pain market opportunity is estimated between $2 billion and $3 billion, with 27 million dogs suffering from OA in the U.S. alone, yet only 9 million are currently treated. Zoetis is expanding this portfolio with Lenivia, a distinct long-acting OA pain molecule for dogs (3-month administration), approved in Canada with a positive CVMP opinion in Europe, and expected to launch in H1 2026. Similarly, Portela, a long-acting monoclonal antibody for feline OA pain, received European approval and is also expected to launch in H1 2026. These innovations aim to increase compliance and broaden patient access, reinforcing Zoetis's leadership in this underpenetrated market.
• Emerging Technologies: Beyond current offerings, Zoetis's pipeline includes potential blockbusters in new categories. Products for chronic kidney disease are targeting a $3 billion to $4 billion market, while oncology solutions address a $1.5 billion to $1.7 billion market. The company is also developing products for cardiology. These initiatives underscore Zoetis's strategic intent to leverage R&D to meet significant unmet medical needs and create entirely new categories of care, driving long-term revenue and margin expansion.

Zoetis's investment in manufacturing excellence, including a new Atlanta Advanced Biologics facility and expanded monoclonal antibody production capability, ensures the scalability and reliable supply of these innovative products. This commitment to both R&D and manufacturing strengthens its competitive moat, allowing it to bring differentiated solutions to market efficiently.

Financial Performance and Operational Resilience

Zoetis's financial performance in 2025 reflects a period of both continued growth and strategic adaptation to a dynamic environment. For the nine months ended September 30, 2025, the company reported total revenue of $7.080 billion, an increase from $6.939 billion in the prior year. Net income attributable to Zoetis Inc. for the same period was $2.070 billion, up from $1.905 billion in 2024.

In the third quarter of 2025, Zoetis posted $2.400 billion in revenue, a 1% increase on a reported basis and 4% organic operational growth. Adjusted net income for Q3 2025 reached $754 million, growing 5% on a reported basis and 9% on an organic operational basis. This performance, while solid, moderated against a strong prior-year comparable period and was influenced by macroeconomic factors, particularly declining therapeutic vet clinic visits in the U.S.

Profitability and Efficiency:
The company's focus on operational efficiency is evident in its margins. The cost of sales as a percentage of revenue decreased to 28.5% in Q3 2025 from 29.4% in Q3 2024. This improvement was primarily driven by price increases, the favorable impact of the MFA divestiture, and favorable foreign exchange, partially offset by unfavorable manufacturing costs. Adjusted gross margins of 71.6% in Q3 2025 grew 90 basis points on a reported basis. Adjusted operating expenses increased by a modest 1% operationally in Q3 2025, reflecting disciplined cost management. The effective tax rate for Q3 2025 was 18.7%, down from 20.8% in the prior year, mainly due to higher net discrete tax benefits.

Segment Performance:

• U.S. Segment: Revenue decreased by 2% on a reported basis in Q3 2025 to $1.322 billion, but grew 3% on an organic operational basis. U.S. Companion Animal revenue was flat, with growth in Simparica (up 2% to $263 million) and Key Dermatology (up 1% to $306 million) offset by declines in OA pain mAbs (down 21% to $58 million). U.S. Livestock, however, demonstrated strong 14% organic operational growth, driven by improved ceftiofur supply and accelerated vaccine sales post-MFA divestiture.
• International Segment: Revenue increased by 3% on a reported basis in Q3 2025 to $1.055 billion, and 6% on an organic operational basis. International Companion Animal grew 4% operationally, led by Simparica (up 22% to $93 million) and Key Dermatology (up 7% to $162 million). International Livestock posted robust 8% organic operational growth, with broad-based contributions from cattle, poultry, and fish.

Liquidity and Capital Allocation:
As of September 30, 2025, Zoetis maintained a strong liquidity position with $2.084 billion in cash and cash equivalents. The company actively manages its capital structure, having entered into a new $1.25 billion revolving credit facility in August 2025 and issuing $1.85 billion in senior notes to refinance existing debt. Zoetis remains committed to returning capital to shareholders, with $4.50 billion remaining under its $6 billion share repurchase program (authorized in August 2024) and having repurchased $1.158 billion in shares during the first nine months of 2025. Net cash provided by operating activities for the nine months ended September 30, 2025, was $2.011 billion.

Competitive Landscape and Strategic Positioning

Zoetis operates in a highly competitive animal health market, facing direct rivals such as Elanco Animal Health , Merck Animal Health , Bayer Animal Health , and IDEXX Laboratories . Zoetis's specialized focus on animal health, coupled with its innovation-led strategy, provides a distinct competitive edge.

Compared to Elanco Animal Health , Zoetis generally exhibits stronger cash flow generation and profitability trends, stemming from its efficient operational execution and broader revenue streams. Zoetis's innovation speed and product performance, particularly in vaccines and diagnostics, are often viewed as more reliable and adaptable, giving it a unique value proposition. While Elanco (ELAN) may compete aggressively on price in certain livestock segments, Zoetis's strong brand and customer loyalty in companion animals help maintain pricing power.

Against Merck Animal Health (MRK), Zoetis differentiates itself through its pure-play animal health focus, allowing for more targeted innovation and faster product development cycles. Zoetis's offerings are often seen as more tailored to veterinary needs, providing a qualitative advantage in ease of use and performance reliability. Financially, Zoetis typically shows superior trends in profitability and cash flow, likely due to its streamlined operations and lower overhead compared to a division within a larger pharmaceutical conglomerate.

In comparison to Bayer Animal Health , Zoetis stands out with its superior focus on companion animal health, where its products are often perceived as more advanced and user-friendly. Zoetis's comprehensive portfolio development strategy gives it an edge in market positioning, especially in diagnostics and pharmaceuticals. While Bayer (BAYRY) might leverage agricultural synergies for cost leadership in some livestock products, Zoetis's targeted investments and customer-centric approach generally lead to better growth prospects.

Against IDEXX Laboratories , a specialist in veterinary diagnostics, Zoetis competes directly. Zoetis's offerings are often seen as more holistic, integrating diagnostics with pharmaceuticals for a seamless customer experience, potentially providing greater efficiency. While IDEXX (IDXX) excels in specialized diagnostic speed and data analytics, Zoetis's broader revenue base and integrated solutions enhance its competitive edge in overall financial outcomes and strategic adaptability.

Zoetis's strategic response to competition includes continuously expanding its market-leading franchises, leveraging its omni-channel strategy (vet clinics, retail, home delivery) to meet evolving customer preferences, and investing in manufacturing and commercial capabilities. The company is also evolving its U.S. commercial structure to create a leaner, more agile field organization, aiming to deepen customer engagement and bolster competitive positioning.

Outlook, Guidance, and Risks

Zoetis has updated its full-year 2025 guidance, reflecting a "more measured view of the macro and operational environment in the back half of the year." The company now expects revenue in the range of $9.4 billion to $9.475 billion, representing organic operational growth of 5.5% to 6.5%. Adjusted net income is projected to be between $2.8 billion and $2.840 billion, with organic operational growth of 5.5% to 7%. Adjusted diluted EPS guidance is maintained at $6.30 to $6.40. This guidance assumes foreign exchange rates as of late October 2025 and does not factor in the impact of future tariffs or policy changes.

Management remains confident in the long-term growth potential of the business, emphasizing that the expected Q4 2025 performance is not indicative of 2026. They anticipate a return to growth for Librela in 2026, continued strong performance in dermatology and parasiticides due to significant unmet market opportunities, and sustained strength in the livestock segment. The R&D pipeline is expected to deliver at least one major new market approval each year for the next several years, including the anticipated launches of Lenivia and Portela in H1 2026.

However, several risks could impact this outlook. Macroeconomic headwinds, particularly declining therapeutic vet clinic visits, could continue to affect new patient starts. The competitive landscape remains dynamic, with new product launches and aggressive promotional activities potentially impacting market share, especially in dermatology. Social media misperceptions have already affected Librela sales in English-speaking markets, requiring focused educational strategies. Furthermore, the company faces an ongoing U.S. IRS tax audit with a proposed $450 million additional liability, and the broader environment of tariffs and trade protection measures could increase costs and disrupt supply chains. Zoetis's significant U.S. manufacturing footprint (60% globally, 75% of U.S. sales produced in the U.S.) offers some mitigation against tariffs, but the situation remains fluid.

Conclusion

Zoetis Inc. stands as a formidable force in the animal health industry, underpinned by a rich history of innovation and a deeply diversified business model. Despite recent moderation in growth influenced by macroeconomic shifts and intensified competition, the company's strategic focus on pioneering new categories of care through its robust R&D pipeline and leveraging its market-leading franchises remains a powerful investment thesis. The anticipated stabilization and return to growth for the OA pain franchise, coupled with the continued expansion of parasiticides and dermatology, demonstrate Zoetis's capacity to adapt and thrive.

While near-term challenges, including competitive pressures and external economic factors, necessitate a measured outlook for 2025, Zoetis's commitment to technological differentiation, operational discipline, and strategic capital allocation positions it for enduring value creation. The company's ability to consistently deliver innovative solutions that address significant unmet medical needs, alongside its strong global presence and customer-centric approach, reinforces its leadership in an essential and resilient industry. Investors should recognize Zoetis's long-term growth trajectory, driven by its unparalleled innovation engine and strategic agility, as it continues to shape the future of animal health.