ZTS Q2 Deep Dive: Market Questions Librela Outlook Amid Double-Digit Growth in Core Franchises

Animal health company Zoetis (NYSE:ZTS) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 4.2% year on year to $2.46 billion. The company expects the full year’s revenue to be around $9.53 billion, close to analysts’ estimates. Its non-GAAP profit of $1.76 per share was 9.2% above analysts’ consensus estimates.

Is now the time to buy ZTS? Find out in our full research report (it’s free).

StockStory’s Take

Zoetis’ second quarter saw revenue and adjusted earnings surpass Wall Street expectations, but the market responded negatively, reflecting skepticism over the company’s performance trajectory. Management highlighted robust operational growth across its Companion Animal and Livestock segments, crediting strong execution in the Simparica and Key Dermatology franchises as major contributors. CEO Kristin Peck emphasized the enduring strength of Zoetis’ diversified portfolio despite competitive pressures and challenges with the osteoarthritis pain product Librela, noting, “Our consistent performance across economic and competitive cycles reinforces the strength of our business and animal health as one of the most compelling long-term growth sectors.”

Looking ahead, Zoetis’ guidance is underpinned by expectations of continued double-digit growth in its core Simparica and Key Dermatology franchises, alongside steady expansion in international markets. Management expects the company’s innovation pipeline to support above-market growth, but flagged ongoing headwinds from new competition and the slow adoption of Librela. CFO Wetteny Joseph noted that margin improvements should persist as manufacturing costs normalize, but cautioned that macroeconomic uncertainty and competitive launches could weigh on growth in the second half. Peck added, “We expect a major market approval every year for the next few years across our pipeline.”

Key Insights from Management’s Remarks

Management attributed the quarter’s results to strong volume and price gains in core franchises, offset by challenges in osteoarthritis pain products and evolving competitive dynamics.

• Simparica franchise resilience: The Simparica franchise, particularly Simparica Trio, continued to outperform even amid heightened competition. Management credited first-mover advantage and robust relationships with veterinarians and retail channels, with operational revenue growth of 17% globally. Positive trends in alternative channels, such as retail and home delivery, drove compliance and customer loyalty.
• Dermatology portfolio momentum: Key Dermatology products, including Apoquel and Cytopoint, saw double-digit growth, with management highlighting expanding patient adoption and high satisfaction. Apoquel Chew’s convenience and Cytopoint’s long-acting formulation helped differentiate Zoetis’ offerings, particularly in international markets where volume gains outpaced price increases. Management sees a large addressable population of under-treated dogs, supporting further expansion.
• Librela adoption slower than expected: The Librela osteoarthritis pain franchise faced slower uptake, especially in the U.S., due to perceived safety concerns and the need for more clinical validation. Management is investing in education and third-party studies to address veterinary reservations, and expects new clinical data to read out in the coming quarters.
• International growth strong: International markets drove robust growth in both Companion Animal and Livestock segments. Simparica and Key Dermatology led the expansion, while Livestock benefited from vaccine growth in Latin America, fish portfolio demand in Norway and Chile, and swine product momentum in China. Management noted that alternative channels and new product launches have further diversified revenue sources.
• Margins and cost management: Improved operating margins reflected a combination of higher pricing, lower manufacturing costs, and expense discipline. CFO Wetteny Joseph highlighted that increased advertising and promotional spend was balanced by ongoing cost containment, and that margin gains should continue as inventory costs normalize.

Drivers of Future Performance

Zoetis’ forward outlook is shaped by sustained momentum in core franchises, new product launches, and careful cost management, but faces uncertainties from competitive pressures and slower-than-expected adoption of certain innovations.

• Continued core franchise growth: Management expects Simparica and Key Dermatology to deliver ongoing double-digit growth, driven by increasing adoption of triple-combination parasiticides and expanded treatment of chronic dermatological conditions. The company sees significant untapped potential in both U.S. and international markets, particularly among under-treated pet populations.
• Pipeline approvals and innovation: Zoetis anticipates at least one major product approval annually over the next few years, with a focus on long-acting monoclonal antibodies for osteoarthritis pain and upcoming launches addressing renal and oncology needs in pets. Successful execution here is seen as essential for sustaining revenue growth above industry averages.
• Cost discipline and margin support: Margin expansion is expected through a mix of lower manufacturing costs, expense management, and operational leverage. However, management cautioned that competitive launches, macroeconomic uncertainty, and potential tariff impacts could pressure results in the second half.

Catalysts in Upcoming Quarters

In the quarters ahead, our analysts will be watching (1) whether Librela’s adoption in the U.S. and international markets accelerates as new clinical data is published, (2) the impact of new product launches and pipeline approvals on top-line growth, and (3) continued expansion in alternative channels and international markets, especially as competitive pressures intensify. Execution on cost management and the ability to sustain margin gains will also be closely followed.

Zoetis currently trades at $149.77, down from $151.99 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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