Zoetis Inc. (NYSE:ZTS) Q3 2023 Earnings Call Transcript

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Wetteny Joseph : No, I think you covered the macro dynamics well, Kristin. On the supply question with respect to Librela, we are very confident in our supply plans to meet the demand expectations for Librela that we have certainly for ’24 and beyond. Mentioning the Lincoln facility, certainly in addition to both our internal capacity and third party that we are using, we continue to invest internally. And I think if you look at Lincoln that will be a factor, particularly as you go beyond 2024, with respect to supply planning fully well and other maps as well. So again, very confident in our ability to meet those demand expectations, and we’ve already factored the ramp that we saw in Europe in our thinking around demand there as well.

Operator: Thank you. We’ll take our next question from Chris Schott with JPMorgan. Please go ahead

Chris Schott: This is Ekaterina on for Chris. Thank you so much for taking a question. So first, very quickly, just on veterinary visits and the pressure we’ve been seeing there recently, can you just remind us how sensitive Zoetis is to be dynamic and maybe your latest thinking around how visits are going to trend maybe into 4Q and potentially into 2024, if you want to comment on that. And then the second question is just on U.S. cattle. Can you just elaborate a little bit more on the dynamics you saw in the quarter? Because I think one of your competitors mentioned the timing of the cattle kind of was shifted earlier this year. Is this something that you saw as well? And does that potentially create a headwind for you as you think about the fourth quarter?

Kristin Peck : Thanks, Ekaterina. I’ll take your first question and Wetteny can build on me and then take the second. That business were flat year-to-date, which is what we’ve expected and what we talked about previously. In the quarter, they were down around 1.5% and as you discussed, we’re really not as reliant on vet visits. The better proxy for us is revenue because again, remember that a lot of our products don’t need to be purchased in the clinic. If you look at both auto ship, as you look at retail, you look at chronic medications, all of this continues to have us a higher correlation with overall revenue growth in the clinic. Historically, as we talked about before, vet clinic visits are flat to maybe 1% and if you look at where they stand today, they’re still ahead of where they were pre-pandemic.

So we don’t pay as much attention to that vet clinic visit. If you look at revenue in the clinic, our growth in companion animal was higher than even that number, and that’s because we’re driving so much innovation there overall. So if you look at vet clinics business, we’re not as tied to that number as we continue to say. So I don’t know if there’s anything I miss there Wetteny, what you want to build on, and then you want to take the second question?

Wetteny Joseph : Yes, sure. The only thing I would add on the vet clinic visits is you see our growth continues to outpace that of the clinic growth. And the vet visits were not as they’re important, right? But we’re not as sensitive to visit because therapeutics and chronic indications tend to power through that. And you can still see volume growth even as visits are down. And then the retail piece, which is continuing to grow. We’ve seen an additional 24% points as a percentage of our pet care revenues in the U.S. each year. So we’ve gone from 11% from about 5% just a few years ago. So we continue to see that in the quarter, it was up about 35%, if you look at our retail sales. So those are the factors I would add. With respect to the cattle dynamics and livestock in general, I would say clearly, we’ve had a very strong start to the year through the first 9 months.

Livestock is up about 6%. Clearly, we’re signaling that will come down in the fourth quarter. And that’s really more of a factor of variability across quarters, given the timing of supply that we’ve had in the prior year versus the current year. The timing of when we’ve taken price adjustments for Jackson, for example, which impacted Q2 versus Q3 as well as Q4 this year as we’re anticipating a step in that — at the end of the year. So that will put some more pressure on Q4. We factored all that into our guidance that we’ve just issued today, which we are still in line with our expectations that we started the year with, which is right around our midpoint, we just narrowed it. So all those are in. With respect to capital dynamics around, we haven’t seen anything that would say there’s a pronounced shift with respect to the cattle run here.

But again, we factored all these items into our thinking and what we’ve just iterated today from a guidance standpoint.

Operator: Thank you. We’ll take our next question from Steve Scala TD Colin. Please go ahead.

Unidentified Analyst : Hi. This is Chris on for Steve. Thanks a taking a question. We had 2. First, on the U.S. on the parasiticide market, can you provide an update on the estimated volume share of topical today? And then looking ahead to 2024, what is the risk of significant pricing pressure on Trio from the month of Credelio Quattro. Assuming a non-inferior product label type seems like the main level they could both to grow their market share. And then a clarifying question on U.S. Librela, can you confirm that U.S. sales were 0 in Q3? And then looking ahead to Q4, do you still expect sales to be immaterial for the full year?

Wetteny Joseph : Yes. Look, I’m not sure if I got the second question, but I’m going to give it a shot and then ask you to clarify. On the parasiticides market, we still estimate in terms of volume, nearly half is still in the collars and topicals, but from a value perspective dollars, we’re significantly leaning on the calls and prescription. As those are at higher price points. I think you’re asking a specific question about share for specific products within the topicals and collars and I don’t have that to hand. But if it was a different question, I’ll ask you to clarify after I give you an answer on Librela. So Librela, in the third quarter was minimal. As you know, in September, we had an early experience program. That was only about 400 clinics very limited with KOLs to get them using the product and being able to talk about it, et cetera, and helping with refining protocols and so on.

And so the number was like $3 million in the quarter, not meaningful at all. And given the timing of the full launch in October and with the holidays coming, it is not going to have a meaningful impact on the full year growth again on that point. But I’ll ask you to clarify if I didn’t get the question right on Paris.

Operator: It appears disconnected at this time.

Kristin Peck : Next question?

Operator: And there are no further questions at this time. I’ll turn it back to Kristin for closing remarks.

Kristin Peck : Great. Thank you, everybody. Great questions today. Once again, we want to reiterate that we remain confident in our ability to achieve our full year guidance based on the diverse and innovative portfolio that continues to drive our success. We are firmly committed to continuing to invest in that portfolio as we look at the opportunities ahead of us, through DTC and building our capabilities to support our growth, but we’ll also continue to manage our costs and ensure we’re creating value for our shareholders. We continue to grow faster than the market by focusing on our people and our colleagues and on operational excellence and agility. They deliver every day for our business and for our customers. So we look forward to updating you on the full year and our long-term value proposition and hopefully seeing many of you in San Francisco at the JPMorgan Healthcare Conference to kick off 2024. Thanks, everybody.

Operator: Thank you. This does conclude today’s program. Thank you for your participation. You may disconnect at any time.

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