Zoetis Inc at William Blair Growth Stock Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Brandon Vazquez - William Blair - Analyst : Great. Yeah. Thank you for that overview, Wetteny. Let's start on the companion animal side, and we'll start. You mentioned many of the points that I wanted to hit on, but let's try to get a little more granular on them. One of them that you discussed was that you guys have outperformed the broad animal health market, which is already a pretty healthy robust market by about three points. What is it about Zoetis that allows you to consistently do this? I think the last time you disclosed that it was almost a decade that you've been outperforming the market.

Question: Brandon Vazquez - William Blair - Analyst : Sure. And now that you have a companion animal business, that's $6 billion. Law of large numbers catches up to everybody at some point. But you guys have reiterated last year at your Investor Day that you can grow mid to high single digits pretty durably. What is it? Is there anything that changes in the playbook as the business gets larger? Or is it simply a doubling down of what you guys are already good at?

Question: Brandon Vazquez - William Blair - Analyst : Okay. And just so that we hit livestock at some point, or I'll forget to bring it up, but livestock is about a third of your revenues today. Lower growth business, but one that you guys remain dedicated to. Just talk a little bit about what are the dynamics there. Why is it a little bit lower growth? And why do you remain committed to it despite it being a little lower growth and lower margins?

Question: Brandon Vazquez - William Blair - Analyst : Okay. And now going back to companion animal, I think in our breakout session, maybe we'll get a little more granular on upcoming competition. But generally speaking, in Zoetis' history, this is a competitive space. How have -- what levers do you guys have at Zoetis to defend market share as new competitive entrants come in the market? Talk to us a little bit about -- you've clearly had competition in main product lines. throughout your history, what do you do in order to defend there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2024 / 7:40PM, ZTS.N - Zoetis Inc at William Blair Growth Stock Conference

Question: Brandon Vazquez - William Blair - Analyst : Okay. And maybe the last high level, we should touch on the P&L a little bit. You guys have done a great -- you've had some -- at your Investor Day, you also talked about this over the years. You've grown your operating margins to high 30%. So I think, recalling it, 38%, roughly around there today. But one question we often get is if you -- what's the algorithm for EPS growth from here? Are you topped out at operating margin growth essentially at this point, given it's already very strong? So talk to us a little bit about the algorithm, what opportunity is there left in this P&L in the long term for margin expansion?

Question: Brandon Vazquez - William Blair - Analyst : Okay. Maybe a little bit more recent events, maybe somewhat high level still, but recent events. A lot of us look at vet visit volumes in the space. It's something that's been compressed ever since what have been seemingly difficult comps in the big COVID puppy booms in 2020 and 2021. I guess the first question is -- what do you guys think is happening here from your view? You obviously have good pulse in the companion animal market. Why are we going into our third year of decelerating vet visits here? And then the follow-up is how do you consistently continue to outperform that, right? Your stock kind of trades off into the quarter as everyone gets vet visit volumes. -- you do better, and then we do it again next quarter. What is it that you're doing that's allowing you to outperform?

Question: Brandon Vazquez - William Blair - Analyst : Okay. Do you have any sense of when wellness visits may turn back around and also support that?

Question: Brandon Vazquez - William Blair - Analyst : Okay. And let's maybe spend a couple of minutes on Q1 specifically, since Q1 was a good strong quarter for you guys ahead of expectations. I'm going to lead the question a little bit here, but what was most telling to us contrary to 2023 was the companion animal drove the biggest part of the beat rather than livestocks. You had that kind of flip that was encouraging. What are you seeing in companion animal that was so strong -- and which segments would you call out there? And what does that mean for the rest of the year in those specific segments?

Question: Brandon Vazquez - William Blair - Analyst : Okay. And on those -- so you have those three buckets and granted, yes, there was easy comps year-over-year, but still really good momentum and ahead of expectations. To be clear, it doesn't sound like there was any kind of bulk ordering or anything like that going on there. This seems like there's pretty solid momentum, which is what gave you confidence in part to raise guidance for the full year on the organic growth side.

Question: Brandon Vazquez - William Blair - Analyst : Okay. And maybe let's spend a minute on Librela because this is such a key part of the growth story in the next three to five years, probably, right? Your next $1 billion franchise. When we do kind of our surveys and we talk to any vets, this is a great product, and we find a lot of good customer reviews. But of course, there's been negative headlines. This isn't a secret, whether it's Wall Street Journal or other media outlets. Where you guys hearing from vets. I think at the end of the day, the vets seem to be the most important person recommending this, right? Are vets seeing any of this noise? And are they taking a step back at all? Or talk to us about what you're seeing from the vets, given the noise that we're hearing. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2024 / 7:40PM, ZTS.N - Zoetis Inc at William Blair Growth Stock Conference

Question: Brandon Vazquez - William Blair - Analyst : Okay. Great. And maybe one last one on Librela, is basically, as we think in the future, for this to be a $1 billion franchise, what needs to happen commercially? What levels of penetration do you think you guys need to see in order for this to reach its -- that potential?

Question: Brandon Vazquez - William Blair - Analyst : Great. With the last two minutes here, I think one question following last quarter. You did raise the organic guidance range. I think by about 1.75 points. I have gotten a lot of questions around how much of that is price? How much of that is volume? Maybe just walk us through so that we can all level set in that increased guidance, how much of it basically is coming from volume versus price. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2024 / 7:40PM, ZTS.N - Zoetis Inc at William Blair Growth Stock Conference

Question: Brandon Vazquez - William Blair - Analyst : Okay. And I guess the sum of that question up is it does sound like to be clear that there was some incremental volume from companion animal baked into the increased guidance? Or is that not fair to -- can we not conclude that from what you were saying?