Zoetis's Q2 2026 revenue was flat at $2.47B as US pet sales fell 11% (dermatology -16%) while livestock rose 12%; GAAP EPS rose only on buybacks, and full-year guidance was cut to an organic revenue decline.
Revenue
$2.5B
-0.2% YoY
Net income
$691M
-4.8% YoY
Diluted EPS
$1.65
+1.2% YoY
Operating margin
37.4%
How ZTS compares with Health Care peers
Figure
ZTS
Peer median
Rank
Revenue growth (YoY)
-0.2%
+7.3%
51st of 53
Operating margin
37.4%
15.1%
3rd of 53
EPS growth (YoY)
+1.2%
+15.1%
38th of 48
Rank 1 = fastest revenue growth, highest operating margin, fastest EPS growth. Peers are the other Health Care companies with a 2026 report on this site, each at its latest period we've analyzed; fiscal calendars differ, so periods are not always the same months.
Zoetis's second quarter of 2026 was the one where US pet-medicine demand gave way. Revenue was flat at $2,468 million (down 0.2%). Beneath that, US companion-animal sales fell 11% while livestock sales rose 12%. GAAP net income fell 4.8% to $691 million. Diluted EPS still edged up 1.2% to $1.65, but only because the share count was 6% smaller after a debt-funded buyback. Management also cut its full-year outlook hard: it now expects revenue to shrink 1–3% on an organic basis, where three months earlier it expected growth of 2–5%.
At a glance
US companion animal revenue: $1,044M, down 11%. This is Zoetis's single largest business line (42% of the quarter's revenue), and the filing says the fall came from fewer vet visits, pet owners pushing back on price, and new competitors.
Dermatology revenue: $398M, down 16%. The anti-itch franchise (Apoquel and Cytopoint) had been one of the company's two main growth engines. It is now the biggest single drag.
2026 adjusted EPS guidance: $6.15–$6.25, down from $6.85–$7.00. At the midpoint that is a 10.5% cut in three months, and it implies a weaker second half than first half.
What happened in the quarter
Zoetis reports two geographic segments, the US and International, and within each it splits sales between companion animals (dogs, cats, horses) and livestock (cattle, pigs, poultry, fish). In Q2 those four pieces moved in very different directions:
Revenue ($M)
Q2 2026
Q2 2025
Reported change
Organic operational change
US companion animal
1,044
1,176
-11%
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"Organic operational" growth strips out currency movements and acquisitions/divestitures, so it shows how the underlying business moved. For International, a weaker dollar added $35 million (3 points) to reported revenue this quarter.
US companion animal is the problem. The 10-Q says the decline came from "softer end-market demand and an increasingly competitive landscape." It gives four specific reasons: the dermatology franchise and Simparica Trio (a monthly chewable that protects dogs against fleas, ticks and heartworm) "faced heightened competitive pressure and persistent macroeconomic-driven price sensitivity"; cheaper generic copies hurt Cerenia (anti-nausea) and Convenia (a long-acting antibiotic); and Librela, the injectable osteoarthritis pain drug for dogs, sold less. The CEO added that lower clinic visits reduced demand. That matters because most Zoetis pet products are dispensed or prescribed at a vet visit.
Livestock held the quarter up. US livestock sales rose 23%. Cattle drove most of it, helped by "improved supply availability and elevated demand in response to the New World screwworm outbreak." Screwworm is a parasitic fly whose larvae feed on live animal tissue, and it has now been confirmed in the US. Zoetis's Dectomax-CA1 is the first parasite-control product with FDA conditional approval against it. Poultry vaccine sales also rose "tied to disease outbreak activity." Across the whole company, cattle revenue grew 21% to $390 million and poultry 11% to $115 million.
Outside the US, the pet business is still growing. International companion animal sales grew 5% organically. The drivers were parasiticides (Simparica Trio, Revolution, Stronghold), diagnostics, and the launch of Lenivia and Portela. Those are new long-acting antibody injections that relieve arthritis pain in dogs and cats for up to three months per shot, compared with monthly for Librela and Solensia. Dermatology fell here too.
By product category
Product category ($M)
Q2 2026
Q2 2025
Change
Parasiticides
698
660
+5.8%
Vaccines
521
510
+2.2%
Dermatology
398
473
-15.9%
Anti-infectives
244
222
+9.9%
Pain and sedation (includes Librela/Solensia)
217
223
-2.7%
Animal health diagnostics
123
110
+11.8%
The $75 million drop in dermatology alone is bigger than the whole $38 million gain in parasiticides. Pain and sedation, the category that includes the Librela/Solensia arthritis antibodies, also shrank despite the new International launches. For several years those two franchises were the main source of Zoetis's above-market growth. This quarter both went backwards.
Key figures
Metric
Q2 2026
Q2 2025
YoY Change
Revenue
$2,468M
$2,474M
-0.2%
Organic operational revenue growth
-1%
—
—
Operating margin (derived)¹
37.4%
39.1%
-1.7 pts
Cost of sales, % of revenue
27.3%
26.8%
+0.5 pts
Net income (GAAP)
$691M
$726M
-4.8%
Diluted EPS (GAAP)
$1.65
$1.63
+1.2%
Adjusted net income
$781M
$791M
-1.3%
Adjusted diluted EPS
$1.87
$1.78
+5.1%
Companion animal revenue
$1,708M
$1,790M
-4.6% (organic -6%)
Livestock revenue
$731M
$651M
+12.3% (organic +11%)
Diluted shares
417.7M
445.5M
-6.2%
¹ Zoetis does not print an operating-income line. This is revenue minus cost of sales, SG&A, R&D, amortization and restructuring charges, all from the income statement ($922M vs $967M). Operating margin is the share of revenue left after running the business, before interest and tax. Q2 2025 figures are as recast in this 10-Q for the "Fiscal Year Alignment" (see below), so they may differ slightly from what Zoetis originally reported a year ago.
Margin slipped for two reasons. Cost of sales rose to 27.3% of revenue because of "unfavorable product mix" (fewer high-margin pet drugs, more lower-margin livestock products) and unfavorable currency, partly offset by cheaper manufacturing. Restructuring charges also jumped to $77 million from $30 million. Zoetis did hold costs down elsewhere: SG&A fell 4% ($22 million) on lower compensation, charitable giving and depreciation. R&D still rose 4% to $173 million.
Takeaway: For the first time in years, Zoetis's growth problem is its core franchise, not a side business. US pet sales fell 11% as dermatology lost 16% and Simparica Trio and Librela weakened against new competitors and cost-conscious pet owners. Livestock's screwworm- and disease-driven surge is filling the gap for now, but that demand depends on outbreaks, while the pet business carries most of the margin. The guidance cut says management doesn't expect the pet side to recover this year.
What the headline numbers hide
All of the EPS growth came from the buyback. Net income fell 4.8%, yet GAAP EPS rose 1.2%, because the diluted share count dropped 6.2% (445.5M to 417.7M). At last year's share count, Q2 EPS would have been about $1.55, down 5%. The same holds for adjusted EPS: its reported +5% becomes about -1.5% at a constant share count. The buyback was partly debt-financed. In December 2025 Zoetis issued $2.0 billion of 0.25% convertible notes and used about $1.78 billion of the proceeds to buy back roughly 14 million shares, the last of them by March 31. That is why interest expense rose 15% to $61 million, a cost that keeps running after the one-time EPS lift.
Tax didn't help much. The effective tax rate was 20.2% vs 20.4% a year earlier, so almost none of the EPS move came from lower tax.
GAAP vs adjusted gap: $90 million after tax ($0.22 per share). The adjusted figures leave out $24 million of acquisition-related amortization (an ongoing non-cash cost), $2 million of deal costs, and $64 million of "certain significant items." Those items are mainly $75 million pre-tax of employee termination costs "under a comprehensive cost and productivity program" plus $6 million for an ERP (enterprise software) overhaul. Year to date these significant items total $108 million pre-tax, and full-year guidance for them rose to ~$150 million from ~$100 million. The cost program is expanding, not winding down, so the charges look likely to continue rather than stay one-offs.
Cash conversion was weaker than earnings. First-half operating cash flow was $1,056 million, 82% of net income ($1,292 million), and down from $1,120 million a year earlier. Zoetis cited "lower net income adjusted by non-cash items" and the timing of receipts and payments. After $227 million of capital spending, free cash flow was about $829 million. Buybacks ($1,190 million) and dividends ($447 million) added up to about twice that, so cash fell from $2,450 million to $1,476 million in six months. Only $1.3 billion is left on the $6 billion buyback authorization.
Receivables are up. Accounts receivable rose 11.5% since December to $1,571 million while H1 revenue grew 1%. Zoetis attributes this to "timing of net sales in the period" and the comparison is partly seasonal. Still, it is worth watching if pet-clinic customers are under pressure.
An accounting change flatters the first half, especially International. From January 2026 Zoetis stopped consolidating its non-US subsidiaries one month late. As part of that switch, it moved the timing of annual price increases in some countries, and some December 2025 orders were processed in Q1 2026 instead. The 10-Q says International's first-half growth "was positively impacted" by these changes. International's reported +12% in H1 (+8% organic) overstates its underlying growth rate.
The guidance cut is steep. Compared with the May 7 outlook:
FY2026 guidance
Aug 6, 2026
May 7, 2026
Revenue
$9,120–$9,320M
$9,680–$9,960M
Organic operational revenue growth
-3% to -1%
+2% to +5%
Adjusted net income
$2,570–$2,620M
$2,870–$2,950M
Adjusted diluted EPS
$6.15–$6.25
$6.85–$7.00
Reported diluted EPS
$5.55–$5.65
$6.35–$6.50
Certain significant items
~$150M
~$100M
First-half adjusted net income was already $1,427 million. The new range therefore implies only $1,143–$1,193 million in the second half, 16–20% less than the first half. Implied second-half revenue is $4.39–$4.59 billion against $4.73 billion in H1. Zoetis also trimmed its SG&A and R&D spending ranges by $20 million and $15 million, so part of the defense is cost cutting.
Other developments
New CFO/COO. James Saccaro, previously CFO of GE HealthCare and before that Baxter, became EVP, CFO and COO on August 17, 2026. He also takes over global manufacturing and supply. Outgoing CFO Wetteny Joseph stays as an adviser into early 2027. The company's 8-K says his departure did not involve any disagreement with the company.
Deals. Zoetis closed the purchase of VitalRADS, a veterinary teleradiology platform, in July. It expects to complete the acquisition of Neogen's animal genomics business in the second half of 2026.
Pipeline. Management points to "more than 12 potential blockbuster" candidates (at least $100 million a year each) in areas such as chronic kidney disease, oncology, cardiology, anxiety and obesity. None of them contribute revenue yet.
Outlook
Management's revised guidance calls for 2026 revenue of $9.12–$9.32 billion (organic -3% to -1%) and adjusted EPS of $6.15–$6.25, at July 21 exchange rates. The CEO said the company is "adapting our commercial strategy," which in practice means targeted spending, faster innovation, and acquisitions.
Our read: the second half should look worse than the first. The guidance says so directly, and the first half had two tailwinds that won't repeat: the order and price-increase timing shift from the Fiscal Year Alignment, and livestock demand driven by outbreaks. The key question for Q3 (Zoetis reports on November 5, 2026) is whether US companion-animal decline stays near -11% or starts to narrow. Dermatology and Simparica Trio are the two lines to watch, because competition there is structural, while lower vet visits could reverse on their own. Two other signals matter. Lenivia and Portela, the three-month arthritis injections, need to grow fast enough internationally to offset Librela's US softness. And EPS growth should be judged at a constant share count. The share-count cut will keep lifting per-share figures through the rest of 2026, so reported EPS will keep looking better than the business behind it.