Company Overview - Zoetis is represented by CEO Kristin Peck and CFO Wetteny Joseph at the Morgan Stanley Healthcare Conference [2] - The company is engaged in a discussion format that includes a Q&A and fireside chat [2] Conference Context - The conference is hosted by Morgan Stanley, with Erin Wilson Wright serving as the Healthcare Services analyst [1] - Attendees are encouraged to reach out to Morgan Stanley sales representatives for further inquiries [1]

Summary of Zoetis Conference Call Company Overview - **Company**: Zoetis - **Industry**: Animal Health - **Market Position**: Leading animal health company with a focus on innovation and commercial excellence, growing at an 8% CAGR since its IPO in 2013 compared to the overall animal health market growth of 5% [2][3] Key Industry Drivers - **Global Population Growth**: Increased demand for protein and pet ownership due to a rising middle class [2] - **Human-Animal Bond**: Changing roles of pets in households, leading to increased spending on pet health [3] Financial Guidance and Growth Expectations - **2025 Revenue Growth Target**: Raised to 6.5% to 8% from previous estimates, with a strong first half of 2023 showing 9% organic growth [6][7] - **Market Opportunities**: Significant untapped markets in dermatology, parasiticides, and osteoarthritis pain management [12][13] Product Pipeline and Innovations - **Pipeline Focus**: New products in renal and chronic kidney disease, cardiology, and oncology expected to launch in the coming years [4][5] - **Librela**: Acknowledged challenges in sales growth; strategies include educating veterinarians and pet owners about the product's benefits [29][30] - **Long-Acting Pain Products**: Expected approval for long-acting osteoarthritis pain products for dogs and cats, aimed at improving compliance [35][36] Competitive Landscape - **Parasiticides**: Simparica Trio continues to perform well, capturing a significant market share with 45% of the parasiticides market being triple combinations [41][42] - **Dermatology**: Anticipated competition in the dermatology space, but Zoetis remains confident in its market position due to high customer satisfaction and product differentiation [50][51] Market Trends and Consumer Behavior - **Veterinary Visits**: Overall veterinary visits have declined, but Zoetis has maintained growth through alternative channels, with 40% of sales from products sold outside clinics [22][24] - **Direct-to-Consumer Strategy**: Currently focused on selling through veterinarians, but open to exploring direct-to-consumer approaches in the future [27] Financial Performance and Margin Outlook - **Margin Expansion**: Companion animal products are expected to drive higher margins, with a focus on leveraging operational efficiencies [64][65] - **Tariff Exposures**: Ongoing monitoring of tariff impacts, with no significant updates since the last quarter [68] Future Opportunities - **Chronic Kidney Disease (CKD)**: A major market opportunity estimated at $3 billion to $4 billion, with potential for significant growth as treatments become available [55][56] - **Oncology**: Expected to be a $1.7 billion market, with increasing diagnostics driving growth [57][58] - **Livestock Innovations**: Focus on genetics and vaccines to meet consumer demand for healthier protein sources [59][60] Conclusion Zoetis is well-positioned in the animal health industry with a robust pipeline and strong market presence. The company is navigating challenges in product launches and market competition while focusing on growth opportunities in both companion and livestock segments.

Core Viewpoint - The article does not provide specific insights or analysis related to any company or industry, focusing instead on the author's qualifications and disclosures [1][2][3]. Group 1 - The author holds multiple degrees in Electronics and Telecommunication Engineering, Computer Science, Business Management, and Computer Applications from various institutions [1]. - The author collaborates with another professional but emphasizes independent analysis and adherence to guidelines [1]. - There is a clear disclosure stating that the author has no financial positions in any mentioned companies and does not plan to initiate any within the next 72 hours [2].

Company Overview - Zoetis Inc. (ZTS) is a global market leader in pet and livestock health products, showcasing an excellent growth profile and outlook [1] - The company has a strong commitment to returning cash to shareholders, indicating solid dividend safety [1] Investment Strategy - The focus is on dividend growth investing with a long-term horizon, emphasizing the compounding power of dividend growth [1] - The investment strategy includes seeking undervalued large-cap stocks with sustainable dividend growth and capital appreciation potential, as well as tech and small- or mid-cap stocks for their growth potential [1] Performance Metrics - The author ranks in the Top 2.0% out of over 28,000 financial bloggers as tracked by Tip Ranks for their articles on Seeking Alpha, indicating a high level of credibility and performance in investment analysis [1]

Group 1 - The article emphasizes a contrarian investment strategy focused on high-quality companies that have temporarily lost favor in the market [1] - The investment approach is characterized by targeting companies with sharply declining or stagnant share prices while maintaining strong earnings performance [1] - The author has extensive experience in financial advising and equity research, having assisted over 1,000 clients and managed an independent stock market research service [1] Group 2 - The investment philosophy is influenced by renowned investors such as Warren Buffett, Charlie Munger, Peter Lynch, and Philip Fisher, highlighting a preference for long-term investments in high-quality companies at attractive prices [1]

Core Viewpoint - The healthcare sector is currently undervalued, presenting opportunities for investors to acquire quality stocks at discounted prices [1][2]. Group 1: Zoetis - Zoetis operates in the animal health industry, providing a wide range of drugs and healthcare products for companion animals and livestock, with a portfolio of approximately 300 product lines [3][4]. - The animal health market is projected to grow from $48 billion in 2023 to between $75 billion and $85 billion by 2033, with Zoetis historically outpacing industry growth [4]. - Zoetis has a P/E ratio of 25, its lowest ever, and is expected to grow earnings by 9% to 10% annually over the next three to five years, making it an attractive long-term investment [5]. Group 2: Johnson & Johnson - Johnson & Johnson is a major player in pharmaceuticals and medical devices, having spun off its consumer products segment to focus on faster-growing areas [6][7]. - The company has a strong dividend history, having paid and raised its dividend for 63 consecutive years, with a current yield of 3% [7][8]. - The stock trades at a P/E ratio of 18, with expected annualized earnings growth of just over 7% in the coming years [8]. Group 3: Zimmer Biomet - Zimmer Biomet specializes in products for joint replacement, dental implants, and surgical robotics, addressing the needs of an aging population [9][10]. - The company has a low dividend payout ratio, currently at 12% of estimated 2025 earnings, indicating potential for significant dividend growth [11]. - Zimmer Biomet trades at 11 times 2025 earnings estimates, with expected earnings growth of 5% to 6% annually over the next three to five years [12].

Company Performance - Over the past decade, an investment in Zoetis (ZTS) would have grown by 227%, averaging an annual return of 12.6% [2] - However, the S&P 500 outperformed Zoetis with an average annual gain of 12.7% during the same period [2] - In shorter time frames, Zoetis shares have underperformed, with annual average declines of 18.7%, 4.25%, and 0.43% over the past one, three, and five years respectively [3] Growth Potential - Zoetis has significant growth potential, having been spun off from Pfizer in 2013 and now leading in market share across various animal health segments [4] - The company has made strategic acquisitions to enhance its market position [4] Resilience and Dividends - The company is considered somewhat recession-proof, as animal health care is essential for both livestock and pets [6] - Zoetis offers a dividend yield of 1.3%, with total annual payouts increasing from $0.50 in 2018 to $1.93 per share recently [7] - The current forward-looking price-to-earnings (P/E) ratio of 24 is below the five-year average of 32, suggesting shares may be undervalued [7]

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Financial Performance - Zoetis reported a beat and raised quarter, exceeding estimates and raising guidance [1][2] - Innovative franchises, including pain, Labrella, dermatology, and parasitics, experienced 11% growth [3] Product Performance & Challenges - Labrella, an osteoarthritis pain product for dogs, is facing headwinds despite high customer satisfaction with over 75% of pet owners being extremely or very satisfied [3][4] - Zoetis is focusing on medical education and awareness to drive Labrella adoption [4] Tariff & Manufacturing Strategy - The impact of potential pharmaceutical tariffs on animal health is unclear, but Zoetis argues for exclusion [5][7] - Zoetis has invested $1 billion in American manufacturing over the last 5 years [8] - 75% of Zoetis' sales in the United States are manufactured in the United States [8] - 60% of Zoetis' global manufacturing is in the US, while only 50% of its sales are in the US, making it a net exporter [8] - Almost 100% of Zoetis' intellectual property is located in the United States [9] Overall Strategy - Zoetis emphasizes its diverse, durable, and broad-based portfolio, strong pipeline, and strong supply chain [3][6] - Zoetis has multiple mitigation strategies in place to address the dynamic tariff environment [6]

PART I — FINANCIAL INFORMATION [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents Zoetis Inc.'s unaudited condensed consolidated financial statements, including statements of income, comprehensive income, balance sheets, equity, and cash flows for the periods ended June 30, 2025 and 2024, along with detailed notes explaining accounting policies, revenue disaggregation, divestitures, restructuring, financial instruments, and other key financial information [Condensed Consolidated Statements of Income (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(Unaudited)) This table presents the unaudited condensed consolidated statements of income for specified quarterly and semi-annual periods Condensed Consolidated Statements of Income (Unaudited) | (MILLIONS OF DOLLARS) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $2,460 | $2,361 | $4,680 | $4,551 | | Cost of sales | 649 | 668 | 1,271 | 1,311 | | Selling, general and administrative expenses | 617 | 581 | 1,180 | 1,128 | | Research and development expenses | 172 | 171 | 329 | 333 | | Amortization of intangible assets | 33 | 35 | 65 | 72 | | Restructuring charges and certain acquisition and divestiture-related costs | 30 | 42 | 30 | 46 | | Interest expense, net of capitalized interest | 53 | 59 | 107 | 117 | | Other (income)/deductions—net | 4 | 25 | (14) | 17 | | Income before provision for taxes on income | 902 | 780 | 1,712 | 1,527 | | Provision for taxes on income | 184 | 156 | 363 | 304 | | Net income attributable to Zoetis Inc. | $718 | $624 | $1,349 | $1,223 | | Basic EPS | $1.61 | $1.37 | $3.02 | $2.68 | | Diluted EPS | $1.61 | $1.37 | $3.02 | $2.67 | | Dividends declared per common share | $0.500 | $0.432 | $1.000 | $0.864 | [Condensed Consolidated Statements of Comprehensive Income (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) This table details unaudited condensed comprehensive income, including net income and other comprehensive income components Condensed Consolidated Statements of Comprehensive Income (Unaudited) | (MILLIONS OF DOLLARS) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income before allocation to noncontrolling interests | $718 | $624 | $1,349 | $1,223 | | Unrealized losses on derivatives for cash flow hedges, net of tax | (4) | (1) | (17) | (1) | | Unrealized (losses)/gains on derivatives for net investment hedges, net of tax | (74) | 2 | (107) | 18 | | Foreign currency translation adjustments | 218 | (5) | 187 | (23) | | Total other comprehensive income/(loss), net of tax | 140 | (4) | 63 | (6) | | Comprehensive income attributable to Zoetis Inc. | $858 | $620 | $1,412 | $1,217 | [Condensed Consolidated Balance Sheets (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) This table provides unaudited condensed balance sheets, outlining assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets (Unaudited) | (MILLIONS OF DOLLARS) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | **Assets** | | | | Cash and cash equivalents | $1,435 | $1,987 | | Accounts receivable, less allowance for doubtful accounts | 1,540 | 1,316 | | Inventories | 2,439 | 2,306 | | Other current assets | 509 | 377 | | Total current assets | 5,923 | 5,986 | | Property, plant and equipment, less accumulated depreciation | 3,537 | 3,391 | | Operating lease right-of-use assets | 302 | 219 | | Goodwill | 2,758 | 2,724 | | Identifiable intangible assets, less accumulated amortization | 1,075 | 1,127 | | Noncurrent deferred tax assets | 617 | 540 | | Other noncurrent assets | 267 | 250 | | Total assets | $14,479 | $14,237 | | **Liabilities and Equity** | | | | Current portion of long-term debt | $1,350 | $1,350 |\n| Accounts payable | 508 | 433 | | Dividends payable | 222 | 224 | | Accrued expenses | 770 | 746 | | Accrued compensation and related items | 293 | 441 | | Income taxes payable | 93 | 93 | | Other current liabilities | 130 | 125 | | Total current liabilities | 3,366 | 3,412 | | Long-term debt, net of discount and issuance costs | 5,231 | 5,220 | | Noncurrent deferred tax liabilities | 156 | 167 | | Operating lease liabilities | 210 | 174 | | Other taxes payable | 265 | 272 | | Other noncurrent liabilities | 274 | 222 | | Total liabilities | 9,502 | 9,467 | | Total equity | 4,977 | 4,770 | | Total liabilities and equity | $14,479 | $14,237 | [Condensed Consolidated Statements of Equity (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity%20(Unaudited)) This table presents unaudited condensed equity statements, detailing changes in common stock, treasury stock, retained earnings, and comprehensive loss Condensed Consolidated Statements of Equity (Unaudited) - Six Months Ended June 30, 2025 | (MILLIONS OF DOLLARS AND SHARES) | Common Stock Shares | Common Stock Amount | Treasury Stock Shares | Treasury Stock Amount | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Equity | | :------------------------------- | :------------------ | :------------------ | :-------------------- | :-------------------- | :------------------------- | :---------------- | :----------------------------------- | :----------- | | Balance, December 31, 2024 | 501.9 | $5 | 53.4 | $(7,445) | $1,182 | $11,968 | $(940) | $4,770 | | Net income | — | — | — | — | — | 1,349 | — | 1,349 | | Other comprehensive income | — | — | — | — | — | — | 63 | 63 | | Share-based compensation awards | — | — | (0.3) | 7 | 21 | — | — | 28 | | Treasury stock acquired | — | — | 4.8 | (788) | — | — | — | (788) | | Dividends declared | — | — | — | — | — | (445) | — | (445) | | Balance, June 30, 2025 | 501.9 | $5 | 57.9 | $(8,226) | $1,203 | $12,872 | $(877) | $4,977 | Condensed Consolidated Statements of Equity (Unaudited) - Six Months Ended June 30, 2024 | (MILLIONS OF DOLLARS AND SHARES) | Common Stock Shares | Common Stock Amount | Treasury Stock Shares | Treasury Stock Amount | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Equity | | :------------------------------- | :------------------ | :------------------ | :------------------ | :-------------------- | :------------------------- | :---------------- | :----------------------------------- | :----------- | | Balance, December 31, 2023 | 501.