Andrea Alfonso

Andrea Alfonso from UBS sought further clarification on the 3%-5% operational growth for 2026, asking if delayed processing could increase 2026 revenue, potentially negating the Q4 2025 benefit. She also asked if the U.S. segment's flat organic operational growth in Q4 2025 should be expected for 2026.

Answer

Wetteny Joseph, CFO, confirmed that the 3%-5% operational growth guidance for 2026 is based on the same reporting methodology and factors in the 2025 baseline. He emphasized that the Q4 2025 shift (30-40 basis points) is not material enough to significantly alter the 2026 growth range. While not guiding by segment, he noted that U.S. comps would be easier in the second half of 2026, and Zoetis's strong portfolio would drive execution.

Andrew Alfonso, Executive Director and Senior Equity Research Analyst at UBS, sought further clarification on Zoetis's 3-5% operational growth for 2026, asking if there's a specific figure for delayed processing increasing 2026 revenue, if it negates the Q4 2025 benefit, and if U.S. operational growth is expected to be flat within this range.

Answer

CFO Wetteny Joseph reiterated that the 3-5% guidance is based on the consistent reporting basis and factors in 2025 performance. He noted that the Q4 2025 accounting impact (30-40 basis points) is not significant enough to materially swing the 2026 growth range. Joseph stated that Zoetis does not guide by segment but expects to execute commercially to maximize growth, with U.S. comps easing in the second half.

Andrea Alfonso from UBS asked for more color on the U.S. Simparica Trio franchise's performance in the quarter, specifically regarding dosage share in vet clinics (especially for new puppies) and pricing spreads versus competitors. She also inquired about new canine parasiticides mentioned in the innovation roadmap, seeking details on their long-acting nature or new efficacy.

Answer

CFO Wetteny Joseph attributed Simparica Trio's moderated growth primarily to a tough prior-year comparison (27% growth in Q3 2024) and macro factors, while noting that share in vet clinics is largely maintained despite reduced flea-tick heartworm visits. He highlighted the continued expansion of the triple combination space, with oral medications' share growing from 30% to 47% in two years, positioning Trio as the market leader. Joseph stated that pricing dynamics during launch periods are anticipated to be short-lived. CEO Kristin Peck confirmed the pipeline is ahead of schedule and invited investors to the December 2nd innovation webcast for specific updates on canine parasiticides and other pipeline progress.

Andrea Alfonso requested insights into the Simparica Trio franchise in the U.S., including dosage share in vet clinics, new puppy adoption, and pricing spreads versus competitors. She also inquired about new canine parasiticides in the innovation roadmap, specifically regarding long-acting formulations, new efficacy, and breadth.

Answer

Wetteny Joseph, Chief Financial Officer, attributed Simparica Trio's performance primarily to a tough prior-year comparison (up 27% in Q3 2024) and macro factors. He stated that Zoetis is largely maintaining share in vet clinics, with limited competitive share gains. He noted the reduction in flea-tick heartworm visits but emphasized the expansion of the triple combination space and Trio's market leadership. Joseph declined to detail pricing spreads but expressed confidence in Zoetis's product differentiation. Kristin Peck, Chief Executive Officer, referred to the December 2nd innovation webcast for specific updates on the pipeline, including canine parasiticides.

Andrea Alfonso asked about the dynamics underpinning the gross margin mix in Q4, noting stable pricing growth but citing pressure from mix. She also inquired how the expected 2026 operating margin expansion of 30-80 basis points organically would be driven by gross margin improvements versus SG&A growth, considering pricing moderation and ongoing commercial investments.

Answer

EVP and CFO Andrew Emerson explained that Q4 gross margins saw modest pressure from strong instrument revenues but still expanded by 60 basis points comparably, with operating margins improving by 120 basis points, including investments. For 2026, he stated that the 30-80 basis points operating margin improvement is expected to be largely gross margin-led, driven by benefits from CAG Diagnostics recurring revenues, lab and operational productivity, and expansion of high-margin cloud-based software. He noted that SG&A growth reflects continued investments in R&D and commercial expansions.

Andrea Alfonso inquired about the dynamics underpinning the gross margin mix in Q4, noting stable pricing growth but citing pressure from mix. She asked how gross margin improvements would stack against the 2026 operating margin expansion guidance of 30-80 basis points organically, considering pricing moderation and mix impact. She also asked about the outlook for SG&A growth given ongoing commercial investments.

Answer

CFO Andrew Emerson stated that Q4 saw modest gross margin pressure from strong instrument revenues but still delivered 60 basis points comparable gross margin expansion and 120 basis points operating margin improvement. He noted that this included investments in commercial expansions and R&D. For 2026, he expects the 30-80 basis points operating margin improvement to be largely gross margin-led, as the company continues to invest back into the business for the longer term.

Andrea Alfonso noted the call-out on consumer macro pressure and U.S. vet visit declines for 2026, asking if anything structurally changed in Q3 2025 versus Q2 2025 regarding non-wellness visits and consumer reticence, especially given third-party data showing some improvement in non-wellness visits.

Answer

Bob VanHimbergen, CFO, stated that nothing structurally changed quarter-over-quarter, and Elanco maintains a grounded and disciplined approach to guidance, reflecting the macro environment. Jeff Simmons, President and CEO, elaborated that while vet visits are stabilizing, Elanco believes it is insulated due to its presence in strong, growing markets (e.g., endectocides up 40%, dermatology up 13%), differentiated innovation (Credelio Quattro, Zenrelia, upcoming IL31), a diversified portfolio where pain and vaccines are also growing, and an effective omnichannel strategy including the largest vet sales team, significant media, unique distribution, and leadership in pet retail.

Andrea Alfonso from UBS asked about Elanco's early considerations for 2026, specifically regarding the call-out on consumer macro pressure and U.S. vet visit declines, questioning if anything structurally changed in Q3 versus Q2 and if third-party data showing improvement in non-wellness visits aligns with Elanco's observations.

Answer

CFO Bob VanHimbergen stated that nothing structurally changed quarter-over-quarter, emphasizing a grounded and disciplined approach to guidance. President and CEO Jeff Simmons added that vet visits are stabilizing but might be 'over-indexed,' as Elanco is insulated by strong, growing markets (endectocides up 40%, dermatology up 13%), differentiated innovation, a diverse portfolio (pain and vaccines growing), and an effective omnichannel strategy, including being the number one pet retail company.