Zoetis Inc.

How Zoetis makes money

Zoetis develops and sells animal medicines, vaccines, diagnostic products and related services. Its customers include veterinarians, livestock producers and pet owners, reached directly and through distributors and retail channels. It reports U.S. and International operating segments. Its shares trade on the New York Stock Exchange as ZTS.

Quarterly performance

The U.S. pet-health business shrank 8% from a year earlier in Q3 2026. In Q2, the year-over-year decline was 11%. Competition in skin treatments, generic medicines and price sensitivity weighed on demand. Livestock revenue rose 7% from a year earlier in Q3, while reported international revenue increased 4%.

Adjusted profit fell 5% year over year, while adjusted earnings per share rose 3%. The average diluted share count declined to 411.6 million from 443.2 million following repurchases. Adjusted earnings exclude specified purchase-accounting, acquisition and divestiture costs and significant items, with their tax effects.

Q3 included $89 million of asset write-downs: $78 million on in-process research acquired with PetMedix in 2023 and $11 million associated with site exits. Restructuring costs and these write-downs help explain the larger decline in reported profit.

How the 2026 outlook changed

Research by Ticker Byline shows that the midpoint of November's adjusted earnings per share forecast remains about 9% below May's forecast. The latest increase reverses only a small part of August's reduction. Our analysis explains what supports the upgrade while the U.S. pet-health business shrinks.

The November plan assumes adjusted research spending of $705 million to $715 million, down $15 million at each end from August. Its expected tax rate on adjusted income is about 20%, versus 20.5%. The annual allowance for specified significant items and acquisition costs rose to about $210 million after tax from $150 million.

Zoetis expects annual sales, excluding currency movements and qualifying acquisitions and divestitures, to fall 1% to 2%. In May it expected growth of 2% to 5% on that basis.

Management expects Q4 sales to decline by a high single-digit percentage from Q3, reflecting seasonality and the timing of Q3 promotions.

Cash generation, debt and buybacks

Operating cash flow was $1.880 billion in the first nine months of 2026, compared with a recast $2.056 billion a year earlier. Cash left after capital spending was $1.546 billion, versus $1.594 billion.

Our comparison of the nine-month and half-year statements gives Q3 operating cash flow of $824 million, down from $936 million a year earlier. After capital spending, the quarter generated $717 million, compared with $798 million.

Of September's debt total, $750 million was classified as current for notes due in September 2027. The $1.25 billion revolving credit facility was undrawn.

In the first nine months, cash spent on repurchases, including excise taxes paid, was $1.690 billion. Cash dividends were $666 million. Q3 cash payouts were $719 million, almost equal to the $717 million generated after capital spending.

The December 2025 convertible-note offering also supported repurchases. Its proceeds funded $248 million of purchases alongside the offering and $1.535 billion of subsequent purchases completed by March 31, 2026. The company had $770 million remaining under its multi-year repurchase authorization at September 30.

Acquisitions and the next tests

Zoetis completed the acquisition of VitalRADS, a veterinary imaging-interpretation service, in July 2026. It also acquired the U.K. and Ireland diagnostic laboratory business Veterinary Pathology Group in 2025.

The purchase of Neogen's animal-genomics business remains pending. Management now expects closing in early 2027, compared with the second half of 2026 expected in May. Regulatory reviews in Australia and New Zealand are continuing.

For 2027, management is planning without an assumed improvement in the economic backdrop or pet-owner spending. It expects competition to remain a factor through most of the year and limited revenue from new launches in 2027, with contributions building later in the year and into 2028.