Zoetis's Q3 2025: Contradictions Emerge on Librela Recovery, U.S. Market Dynamics, Dermatology, and 2026 Growth Outlook

Date of Call: November 04, 2025

Financials Results

• Revenue: $2,400,000,000, up 1% reported, up 4% organic operational
• Gross Margin: 71.6%, up 90 basis points on a reported basis; FX contributed ~+20 bps

Guidance:

• Full-year revenue guidance narrowed to $9,400M–$9,475M; organic operational revenue growth revised to 5.5%–6.5%.
• Adjusted net income guidance narrowed to $2,800M–$2,840M; organic operational adjusted net income growth 5.5%–7%.
• Maintaining reported diluted EPS $5.90–$6.00 and adjusted diluted EPS $6.30–$6.40; guidance uses FX rates as of late October.
• Continue cost discipline with balanced investment to sustain profitability; view Q4 exit as not necessarily predictive for 2026.

Business Commentary:

* Revenue and Earnings Growth: - Zoetis reported 4% revenue growth and 9% growth in adjusted net income on an organic operational basis for Q3 2025. - Growth was driven by market leading innovation, a diversified portfolio, and global reach, despite a strong year-over-year comparison and macro factors.

• Companion Animal and Parasiticides:
• Companion Animal revenue grew 2% operationally, with the Simparica franchise growing 7%, driven by Simparica Trio's 6% operational growth.

• Growth was supported by market demand, particularly in alternative channels, despite moderated overall market growth.

• Deramtology and OA Pain:

• The dermatology franchise grew 3% operationally, and OA pain declined 11%, impacted by social media and competitive dynamics.

• The company executed a strategy to stabilize and grow OA pain products by addressing misperceptions and expanding its product portfolio with new approvals.

• Livestock Growth:

• Livestock organic operational revenue grew 10%, contributing to the company's overall growth.
• This was attributed to strong execution, focus on vaccine growth, and the increasing demand for protein and fish in the global food supply.
  

  Sentiment Analysis:

  Overall Tone: Neutral

  • Management highlighted 4% revenue growth and 9% adjusted net income growth operationally, but narrowed full-year organic revenue to 5.5%–6.5% and adjusted net income to 5.5%–7%. CEO reiterated confidence in long-term growth and pipeline execution while CFO cited U.S. therapeutic visit pressure and tough comps as reasons for near-term moderation.

Q&A:

• Question from Erin Wright (Morgan Stanley): What meaningfully changed intra-quarter after you raised guidance last quarter? What were key surprises (competition, destock)? Is the guidance conservative and is this a read-through into 2026?
  Response: Growth moderated due to tougher year‑ago comps and sustained U.S. therapeutic clinic visit weakness; competitive launches were as expected, price contribution remains (~4%), livestock strength and early Librela stabilization mean management does not view the Q4 exit as a definitive read‑through for 2026.

• Question from Michael Reiskin (Bank of America): Can you dive deeper into what changed (macro, vet dynamics vs. prior years)? Any color on distributor/customer inventory and intra-quarter normalization?
  Response: Therapeutic visits have been down for three consecutive quarters, reducing new patient starts; alternative channels grew strongly (~21%); distributor inventories dipped intra‑quarter but recovered and remain below historical ranges.

• Question from Jon Block (Stifel): Why wouldn’t a weak 4Q exit be indicative of 2026 given implied low volumes and rising competition?
  Response: Management expects Librela is stabilizing, competitive launch promotions are typically short‑lived, and portfolio/innovation positions are strong—therefore they don’t assume Q4 trends will dictate 2026.

• Question from Brandon Vasquez (William Blair): What did you learn from Librela’s launch and how will that change launches for upcoming long‑acting OA drugs (Lanivia, Portela)?
  Response: Apply Librela learnings: prioritize specialists early, deepen vet education, invest in Phase 4 real‑world studies, and use differentiated profiles (e.g., Lanivia three‑month dosing) to expand market and improve compliance at launch.

• Question from Chris Schott (JPMorgan): Can you explain the step‑change in U.S. dermatology this quarter and outlook for therapeutic visits recovery?
  Response: U.S. derm softness was driven primarily by fewer therapeutic clinic visits; competitive share gains remain limited and within expectations, but timing of a visit‑driven recovery is uncertain.

• Question from Andrea Alfonso (BNP Paribas/UBS): How much of derm weakness was distributor destock vs. competition (ZYNRELIA/NUMELVY)? When are you seeing signs of Librela stabilization and what's driving it?
  Response: Distributor inventory was not a material driver (Apoquel distribution added ~$10M); competitive patient share gains are limited; management sees recent sequential stabilization in Librela driven by education, specialist engagement and early real‑world evidence.

• Question from Daniel Clark (Leerink Partners): How are the derm, Trio and OA pain franchises tracking versus prior guidance for double‑digit growth?
  Response: Through nine months the key franchises are tracking to roughly 9% year‑to‑date and about 2% in Q3; management now expects those franchises to finish the year in the high single‑digit range (versus prior double‑digit target).

• Question from Andrea Alfonso (UBS): On Simparica Trio in the U.S., did you retain or cede dosage share (esp. in puppies), have pricing spreads narrowed, and any color on new canine parasiticides in the roadmap?
  Response: Trio largely maintained clinic dosage share despite a tough comp; adoption of triple combinations continues to expand (prescribed oral meds share rose materially over recent years); management declined to give pricing‑spread specifics and will provide pipeline details on the Dec 2 innovation webcast.

Contradiction Point 1

Librela's Performance and Recovery Expectations

It involves differing expectations and timelines regarding the recovery of Librela, a key product that has faced challenges in adoption and growth.

What factors drove quarterly performance changes, and how do you assess competitive dynamics in dermatology? - Erin Wright(Morgan Stanley)

2025Q3: Signs of stabilization in Librela are encouraging for recovery in 2026. - Whitney Joseph(CFO)

Can you discuss the slowdown in Librela and expectations for its return to growth? - Erin Wright(Morgan Stanley)

2025Q2: We are confident that Librela could return to growth by the end of this year. - Kristin Peck(CEO)

Contradiction Point 2

U.S. Companion Animal Market Dynamics

It involves differing perspectives on the competitive dynamics and market conditions affecting the U.S. Companion Animal segment, which is a key market for Zoetis.

What changes have occurred in the U.S. and global companion animal outlook compared to previous years? Is competition playing a larger role? - Michael Reiskin(Bank of America)

2025Q3: Our portfolio's breadth and innovation strength remain. Vet clinic visits are declining, impacting growth. - Whitney Joseph(CFO)

How will you achieve high single-digit operational growth in 2026 amid evolving competition and innovation? - Erin Wright(Morgan Stanley)

2025Q2: We expect to maintain and grow our market leadership across all segments. While we've seen macroeconomic impacts, our portfolio's breadth and innovation strength remain. - Kristin Peck(CEO)

Contradiction Point 3

U.S. Dermatology Performance and Competitive Dynamics

It highlights differing perspectives on the impact of competition and market conditions on the U.S. dermatology segment, which could influence expectations and strategic decisions.

How did U.S. dermatology perform this quarter, and when is therapeutic visit recovery expected? - Chris Schott (JPMorgan)

2025Q3: U.S. dermatology growth slowed due to comps and macro impacts. Patient visits for therapeutics are down. Competitive impact is limited; stabilization in OA pain is encouraging. - Whitney Joseph(CFO)

What assumptions underlie the guidance about new market entrants, dermatological competition, and the Apoquel competitor this summer? - Michael Ryskin (Bank of America)

2024Q4: We're factoring in various scenarios for competition, especially in derm, expected in the second half of the year. Our confidence is based on the vast opportunity for treated and undertreated dogs. - Wetteny Joseph(CFO)

Contradiction Point 4

Impact of Librela Label Changes and Patient Selection

It involves differing views on the impact of Librela label changes and patient selection, which could affect product adoption and market positioning.

What factors caused your intra-quarter performance changes, and how do you assess dermatology competition? And how does this impact your 2026 guidance? - Erin Wright (Morgan Stanley)

2025Q3: Signs of stabilization in Librela are encouraging for recovery in 2026. - Whitney Joseph(CFO)

How are veterinarians reacting to the updated Librela label and letter? What assumptions are in the 2025 guidance for Librela, and are long-acting and other pipeline products factored in? - Erin Wright (Morgan Stanley)

2024Q4: The Dear Vet letter provided clarity on adverse events, aiding veterinarians. The US label is consistent with international labeling. Librela is moving from severe to moderate patients, and the product is well-received. - Kristin Peck(CEO)

Contradiction Point 5

2026 Growth Expectations and Competitive Stability

It highlights differing expectations for growth in 2026 and the impact of competitive dynamics, which could influence strategic planning and investor expectations.

How do you see the Q4 exit rate as not indicative of 2026, given current volume and competition? - Jon Block (Stifel)

2025Q3: We're stabilizing in key areas like Librela. 2026 will not be a read-through of 4Q. We expect a return to growth in 2026. - Whitney Joseph(CFO)

What are your assumptions about new market entrants and market conditions, particularly regarding dermatology competition and Apoquel’s summer competitor? - Michael Ryskin (Bank of America)

2024Q4: We're factoring in various scenarios for competition, especially in derm, expected in the second half of the year. Our confidence is based on the vast opportunity for treated and undertreated dogs. - Wetteny Joseph(CFO)