Zoetis Announces Second Quarter 2024 Results

ZOETIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME ^(a)

(UNAUDITED)

(millions of dollars, except per share data)

Three Months Ended

Six Months Ended

June 30,

June 30,

2024

2023

% Change

2024

2023

% Change

Revenue

$

2,361

$

2,180

8

$

4,551

$

4,180

9

Costs and expenses:

Cost of sales

668

607

10

1,311

1,195

10

Selling, general and administrative expenses

581

556

4

1,128

1,061

6

Research and development expenses

171

146

17

333

288

16

Amortization of intangible assets

35

37

(5)

72

74

(3)

Restructuring charges and certain acquisition and divestiture-related costs

42

8

*

46

29

59

Interest expense, net of capitalized interest

59

58

2

117

121

(3)

Other (income)/deductions-net

25

(104

)

*

17

(157

)

*

Income before provision for taxes on income

780

872

(11)

1,527

1,569

(3)

Provision for taxes on income

156

202

(23)

304

348

(13)

Net income before allocation to noncontrolling interests

624

670

(7)

1,223

1,221

-

Less: Net loss attributable to noncontrolling interests

-

(1

)

*

-

(2

)

*

Net income attributable to Zoetis Inc.

$

624

$

671

(7)

$

1,223

$

1,223

-

Earnings per share-basic

$

1.37

$

1.45

(6)

$

2.68

$

2.64

2

Earnings per share-diluted

$

1.37

$

1.45

(6)

$

2.67

$

2.64

1

Weighted-average shares used to calculate earnings per share

Basic

455.5

461.9

456.7

462.7

Diluted

456.0

462.9

457.4

463.8

(a) The condensed consolidated statements of income present the three and six months ended June 30, 2024 and 2023. Subsidiaries operating outside the United States are included for the three and six months ended May 31, 2024 and 2023.

* Calculation not meaningful.

ZOETIS INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION

CERTAIN LINE ITEMS

(UNAUDITED)

(millions of dollars, except per share data)

Three Months Ended June 30, 2024

GAAP
Reported ^(a)

Purchase Accounting Adjustments

Acquisition
and
Divestiture-
Related
Costs ⁽¹⁾

Certain
Significant
Items ⁽²⁾

Non-GAAP
Adjusted ^(b)

Cost of sales

$

668

$

(1

)

$

-

$

-

$

667

Gross profit

1,693

1

-

-

1,694

Selling, general and administrative expenses

581

(3

)

-

-

578

Amortization of intangible assets

35

(31

)

-

-

4

Restructuring charges and certain acquisition and divestiture-related costs

42

-

(5

)

(37

)

-

Other (income)/deductions-net

25

-

-

(33

)

(8

)

Income before provision for taxes on income

780

35

5

70

890

Provision for taxes on income

156

8

1

14

179

Net income attributable to Zoetis

624

27

4

56

711

Earnings per common share attributable to Zoetis-diluted

1.37

0.06

0.01

0.12

1.56

Three Months Ended June 30, 2023

GAAP
Reported ^(a)

Purchase Accounting Adjustments

Acquisition
and
Divestiture-
Related
Costs ⁽¹⁾

Certain
Significant
Items ⁽²⁾

Non-GAAP
Adjusted ^(b)

Cost of sales

$

607

$

(5

)

$

-

$

-

$

602

Gross profit

1,573

5

-

-

1,578

Selling, general and administrative expenses

556

(7

)

-

-

549

Amortization of intangible assets

37

(31

)

-

-

6

Restructuring charges and certain acquisition and divestiture-related costs

8

-

(4

)

(4

)

-

Other (income)/deductions-net

(104

)

-

-

94

(10

)

Income before provision for taxes on income

872

43

4

(90

)

829

Provision for taxes on income

202

9

1

(34

)

178

Net income attributable to Zoetis

671

34

3

(56

)

652

Earnings per common share attributable to Zoetis-diluted

1.45

0.07

0.01

(0.12

)

1.41

(a) The condensed consolidated statements of income present the three months ended June 30, 2024 and 2023. Subsidiaries operating outside the United States are included for the three months ended May 31, 2024 and 2023.

(b) Non-GAAP adjusted net income and its components and non-GAAP adjusted diluted EPS are not, and should not be viewed as, substitutes for U.S. GAAP net income and its components and diluted EPS. Despite the importance of these measures to management in goal setting and performance measurement, non-GAAP adjusted net income and its components and non-GAAP adjusted diluted EPS are non-GAAP financial measures that have no standardized meaning prescribed by U.S. GAAP and, therefore, have limits in their usefulness to investors. Because of the non-standardized definitions, non-GAAP adjusted net income and its components and non-GAAP adjusted diluted EPS (unlike U.S. GAAP net income and its components and diluted EPS) may not be comparable to the calculation of similar measures of other companies. Non-GAAP adjusted net income and its components, and non-GAAP adjusted diluted EPS are presented solely to permit investors to more fully understand how management assesses performance.

See Notes to Reconciliation of GAAP Reported to Non-GAAP Adjusted Information for notes (1) and (2).

ZOETIS INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION

CERTAIN LINE ITEMS

(UNAUDITED)

(millions of dollars, except per share data)

Six Months Ended June 30, 2024

GAAP
Reported ^(a)

Purchase Accounting Adjustments

Acquisition
and
Divestiture-
Related
Costs ⁽¹⁾

Certain
Significant
Items ⁽²⁾

Non-GAAP
Adjusted ^(b)

Cost of sales

$

1,311

$

(2

)

$

-

$

-

$

1,309

Gross profit

3,240

2

-

-

3,242

Selling, general and administrative expenses

1,128

(6

)

-

-

1,122

Research and development expenses

333

(1

)

-

-

332

Amortization of intangible assets

72

(63

)

-

-

9

Restructuring charges and certain acquisition and divestiture-related costs

46

-

(5

)

(41

)

-

Other (income)/deductions-net

17

-

-

(35

)

(18

)

Income before provision for taxes on income

1,527

72

5

76

1,680

Provision for taxes on income

304

16

1

14

335

Net income attributable to Zoetis

1,223

56

4

62

1,345

Earnings per common share attributable to Zoetis-diluted

2.67

0.12

0.01

0.14

2.94

Six Months Ended June 30, 2023

GAAP
Reported ^(a)

Purchase Accounting Adjustments

Acquisition
and
Divestiture-
Related
Costs ⁽¹⁾

Certain
Significant
Items ⁽²⁾

Non-GAAP
Adjusted ^(b)

Cost of sales

$

1,195

$

(9

)

$

-

$

-

$

1,186

Gross profit

2,985

9

-

-

2,994

Selling, general and administrative expenses

1,061

(14

)

-

-

1,047

Amortization of intangible assets

74

(62

)

-

-

12

Restructuring charges and certain acquisition and divestiture-related costs

29

-

(5

)

(24

)

-

Other (income)/deductions-net

(157

)

-

-

92

(65

)

Income before provision for taxes on income

1,569

85

5

(68

)

1,591

Provision for taxes on income

348

17

1

(32

)

334

Net income attributable to Zoetis

1,223

68

4

(36

)

1,259

Earnings per common share attributable to Zoetis-diluted

2.64

0.14

0.01

(0.08

)

2.71

ZOETIS INC.

NOTES TO RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION

CERTAIN LINE ITEMS

(UNAUDITED)

(millions of dollars)

(1)

Acquisition and divestiture-related costs include the following:

Three Months Ended

Six Months Ended

June 30,

June 30,

2024

2023

2024

2023

Acquisition-related costs ^(a)

$

1

$

3

$

1

$

4

Divestiture-related costs ^(b)

4

-

4

-

Restructuring charges ^(c)

-

1

-

1

Total acquisition and divestiture-related costs-pre-tax

5

4

5

5

Income taxes ^(d)

1

1

1

1

Total acquisition and divestiture-related costs-net of tax

$

4

$

3

$

4

$

4

(a)

Acquisition-related costs represent external, incremental costs that directly relate to transacting and integrating businesses, included in Restructuring charges and certain acquisition and divestiture-related costs .

(b)

Divestiture-related costs represent external, incremental costs that directly relate to divesting and disintegrating businesses, included in Restructuring charges and certain acquisition and divestiture-related costs .

(c)

Restructuring charges represent employee termination costs directly related to acquisitions and divestitures, included in Restructuring charges and certain acquisition and divestiture-related costs .

(d)

Included in Provision for taxes on income . Income taxes include the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction's applicable tax rate.

(2)

Certain significant items include the following:

Three Months Ended

Six Months Ended

June 30,

June 30,

2024

2023

2024

2023

Other restructuring charges and cost-reduction/productivity initiatives ^(a)

$

37

$

4

$

41

$

24

Certain asset impairment charges ^(b)

11

10

11

10

Loss on assets held for sale ^(c)

22

-

22

-

Net gain on sale of business ^(d)

-

(101

)

-

(101

)

Other

-

(3

)

2

(1

)

Total certain significant items-pre-tax

70

(90

)

76

(68

)

Income taxes ^(e)

14

(34

)

14

(32

)

Total certain significant items-net of tax

$

56

$

(56

)

$

62

$

(36

)

(a)

For the three and six months ended June 30, 2024, primarily consisted of employee termination costs related to organizational structure refinements, included in Restructuring charges and certain acquisition and divestiture-related costs . For the six months ended June 30, 2024, charges were partially offset by a reversal of certain employee termination costs as a result of a change in strategy from our 2015 operational efficiency initiative.

For the three and six months ended June 30, 2023, primarily consisted of employee termination costs related to organizational structure refinements, included in Restructuring charges and certain acquisition and divestiture-related costs.

(b)

For the three and six months ended June 30, 2024, represents certain asset impairment charges related to our aquaculture business included in Other (income)/deductions-net .

For the three and six months ended June 30, 2023, represents certain asset impairment charges related to our precision animal health business, included in Other (income)/deductions-net .

(c)

Represents a loss on assets held for sale related to the planned sale of our medicated feed additive product portfolio, certain water soluble products and related assets, included in Other (income)/deductions-net .

(d)

Represents a net gain on the sale of a majority interest in our pet insurance business, included in Other (income)/deductions-net .

(e)

Included in Provision for taxes on income . Income taxes include the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction's applicable tax rate. For the three and six months ended June 30, 2023, also includes tax expense related to changes to prior years' tax positions with regard to the one-time mandatory deemed repatriation tax under the Tax Cuts and Jobs Act.

ZOETIS INC.

ADJUSTED SELECTED COSTS, EXPENSES AND INCOME ^(a)

(UNAUDITED)

(millions of dollars)

Three Months Ended

June 30,

% Change

2024

2023

Total

Foreign
Exchange

Operational ^(b)

Adjusted cost of sales

$

667

$

602

11

%

3

%

8

%

as a percent of revenue

28.3

%

27.6

%

NA

NA

NA

Adjusted SG&A expenses

578

549

5

%

(2

)%

7

%

Adjusted R&D expenses

171

146

17

%

-

%

17

%

Adjusted net income attributable to Zoetis

711

652

9

%

(9

)%

18

%

Six Months Ended

June 30,

% Change

2024

2023

Total

Foreign
Exchange

Operational ^(b)

Adjusted cost of sales

$

1,309

$

1,186

10

%

3

%

7

%

as a percent of revenue

28.8

%

28.4

%

NA

NA

NA

Adjusted SG&A expenses

1,122

1,047

7

%

(1

)%

8

%

Adjusted R&D expenses

332

288

15

%

-

%

15

%

Adjusted net income attributable to Zoetis

1,345

1,259

7

%

(10

)%

17

%

(a) Adjusted cost of sales, adjusted selling, general, and administrative (SG&A) expenses, adjusted research and development (R&D) expenses, and adjusted net income (non-GAAP financial measures) are defined as the corresponding reported U.S. GAAP income statement line items excluding purchase accounting adjustments, acquisition and divestiture-related costs and certain significant items. These adjusted income statement line item measures are not, and should not be viewed as, substitutes for the corresponding U.S. GAAP line items. The corresponding GAAP line items and reconciliations of reported to adjusted information are provided in Condensed Consolidated Statements of Income and Reconciliation of GAAP Reported to Non-GAAP Adjusted Information.

(b) Operational results (a non-GAAP financial measure) is defined as results excluding the impact of foreign exchange.

ZOETIS INC.

2024 GUIDANCE

Selected Line Items

(millions of dollars, except per share amounts)

Full Year 2024

Revenue

$9,100 to $9,250

Operational growth ^(a)

9% to 11%

Adjusted cost of sales as a percentage of revenue ^(b)

Approximately 29.3%

Adjusted SG&A expenses ^(b)

$2,225 to $2,290

Adjusted R&D expenses ^(b)

$660 to $670

Adjusted interest expense and other (income)/deductions-net ^(b)

Approximately $200

Effective tax rate on adjusted income ^(b)

20.0% to 20.5%

Adjusted diluted EPS ^(b)

$5.78 to $5.88

Adjusted net income ^(b)

$2,640 to $2,690

Operational growth ^(a)(c)

13.5% to 15.5%

Certain significant items and acquisition and divestiture-related costs ^(d)

$80 - $90

The guidance reflects foreign exchange rates as of late July 2024.

Reconciliations of 2024 reported guidance to 2024 adjusted guidance follows:

Reported

Certain significant
items and
acquisition and
divestiture-related
costs ^(d)

Purchase
accounting

Adjusted ^(c)

Cost of sales as a percentage of revenue

~ 29.4%

~ (0.1%)

~ 29.3%

SG&A expenses

$2,236 to $2,301

~ $(11)

$2,225 to $2,290

R&D expenses

$662 to $672

~ $(2)

$660 to $670

Interest expense and other (income)/deductions-net

~ $220

~ $(20)

~ $200

Effective tax rate

20.0% to 20.5%

20.0% to 20.5%

Diluted EPS

$5.35 to $5.45

~ $0.19

~ $0.24

$5.78 to $5.88

Net income attributable to Zoetis

$2,450 to $2,490

$80 - $90

~ $110

$2,640 to $2,690

(a) Operational results (a non-GAAP financial measure) excludes the impact of foreign exchange.

(b) Adjusted net income and its components and adjusted diluted EPS are defined as reported U.S. GAAP net income and its components and reported diluted EPS excluding purchase accounting adjustments, acquisition and divestiture-related costs and certain significant items. Adjusted cost of sales, adjusted SG&A expenses, adjusted R&D expenses, and adjusted interest expense and other (income)/deductions-net are income statement line items prepared on the same basis, and, therefore, components of the overall adjusted income measure. Despite the importance of these measures to management in goal setting and performance measurement, adjusted net income and its components and adjusted diluted EPS are non-GAAP financial measures that have no standardized meaning prescribed by U.S. GAAP and, therefore, have limits in their usefulness to investors. Because of the non-standardized definitions, adjusted net income and its components and adjusted diluted EPS (unlike U.S. GAAP net income and its components and diluted EPS) may not be comparable to the calculation of similar measures of other companies. Adjusted net income and its components and adjusted diluted EPS are presented solely to permit investors to more fully understand how management assesses performance. Adjusted net income and its components and adjusted diluted EPS are not, and should not be viewed as, substitutes for U.S. GAAP net income and its components and diluted EPS.

(c) We do not provide a reconciliation of forward-looking non-GAAP adjusted net income operational results to the most directly comparable U.S. GAAP reported financial measure because we are unable to calculate with reasonable certainty the foreign exchange impact of unusual gains and losses, acquisition and divestiture-related expenses, potential future asset impairments and other certain significant items, without unreasonable effort. The foreign exchange impacts of these items are uncertain, depend on various factors, and could have a material impact on U.S. GAAP reported results for the guidance period.

(d) Primarily includes certain nonrecurring costs related to acquisitions, divestitures and other charges.

ZOETIS INC.

CONSOLIDATED REVENUE BY SEGMENT ^(a) AND SPECIES

(UNAUDITED)

(millions of dollars)

Three Months Ended

June 30,

% Change

2024

2023

Total

Foreign Exchange

Operational ^(b)

Revenue:

Companion Animal

$

1,649

$

1,489

11

%

(1

)%

12

%

Livestock

694

671

3

%

(6

)%

9

%

Contract Manufacturing & Human Health

18

20

(10

)%

(1

)%

(9

)%

Total Revenue

$

2,361

$

2,180

8

%

(3

)%

11

%

U.S.:

Companion Animal

$

1,080

$

959

13

%

-

%

13

%

Livestock

228

206

11

%

-

%

11

%

Total U.S. Revenue

$

1,308

$

1,165

12

%

-

%

12

%

International:

Companion Animal

$

569

$

530

7

%

(5

)%

12

%

Livestock

466

465

-

%

(8

)%

8

%

Total International Revenue

$

1,035

$

995

4

%

(6

)%

10

%

Companion Animal:

Dogs and Cats

$

1,581

$

1,424

11

%

(2

)%

13

%

Horses

68

65

5

%

(1

)%

6

%

Total Companion Animal Revenue

$

1,649

$

1,489

11

%

(1

)%

12

%

Livestock:

Cattle

$

350

$

329

6

%

(6

)%

12

%

Poultry

132

131

1

%

(6

)%

7

%

Swine

130

133

(2

)%

(7

)%

5

%

Fish

62

52

19

%

(1

)%

20

%

Sheep and other

20

26

(23

)%

(2

)%

(21

)%

Total Livestock Revenue

$

694

$

671

3

%

(6

)%

9

%

(a) For a description of each segment, see Zoetis' most recent Annual Report on Form 10-K.

(b) Operational revenue results (a non-GAAP financial measure) is defined as revenue results excluding the impact of foreign exchange.

ZOETIS INC.

CONSOLIDATED REVENUE BY SEGMENT ^(a) AND SPECIES

(UNAUDITED)

(millions of dollars)

Six Months Ended

June 30,

% Change

2024

2023

Total

Foreign Exchange

Operational ^(b)

Revenue:

Companion Animal

$

3,099

$

2,714

14

%

(2

)%

16

%

Livestock

1,414

1,429

(1

)%

(5

)%

4

%

Contract Manufacturing & Human Health

38

37

3

%

-

%

3

%

Total Revenue

$

4,551

$

4,180

9

%

(3

)%

12

%

U.S.:

Companion Animal

$

1,978

$

1,680

18

%

-

%

18

%

Livestock

493

490

1

%

-

%

1

%

Total U.S. Revenue

$

2,471

$

2,170

14

%

-

%

14

%

International:

Companion Animal

$

1,121

$

1,034

8

%

(5

)%

13

%

Livestock

921

939

(2

)%

(7

)%

5

%

Total International Revenue

$

2,042

$

1,973

3

%

(6

)%

9

%

Companion Animal:

Dogs and Cats

$

2,965

$

2,577

15

%

(2

)%

17

%

Horses

134

137

(2

)%

(2

)%

-

%

Total Companion Animal Revenue

$

3,099

$

2,714

14

%

(2

)%

16

%

Livestock:

Cattle

$

741

$

728

2

%

(4

)%

6

%

Poultry

271

270

-

%

(7

)%

7

%

Swine

257

275

(7

)%

(6

)%

(1

)%

Fish

107

101

6

%

(1

)%

7

%

Sheep and other

38

55

(31

)%

(4

)%

(27

)%

Total Livestock Revenue

$

1,414

$

1,429

(1

)%

(5

)%

4

%

(a) For a description of each segment, see Zoetis' most recent Annual Report on Form 10-K.

(b) Operational revenue results (a non-GAAP financial measure) is defined as revenue results excluding the impact of foreign exchange.

ZOETIS INC.

CONSOLIDATED REVENUE BY KEY INTERNATIONAL MARKETS

(UNAUDITED)

(millions of dollars)

Three Months Ended

June 30,

% Change

2024

2023

Total

Foreign Exchange

Operational ^(a)

Total International

$

1,035

$

995

4

%

(6

)%

10

%

Australia

83

82

1

%

(1

)%

2

%

Brazil

99

91

9

%

(1

)%

10

%

Canada

75

70

7

%

(1

)%

8

%

Chile

31

39

(21

)%

(4

)%

(17

)%

China

68

84

(19

)%

(3

)%

(16

)%

France

34

34

-

%

(2

)%

2

%

Germany

58

53

9

%

(1

)%

10

%

Italy

36

35

3

%

1

%

2

%

Japan

39

47

(17

)%

(13

)%

(4

)%

Mexico

46

38

21

%

11

%

10

%

Spain

33

31

6

%

(2

)%

8

%

United Kingdom

73

63

16

%

3

%

13

%

Other developed markets

138

125

10

%

(2

)%

12

%

Other emerging markets

222

203

9

%

(25

)%

34

%

Six Months Ended

June 30,

% Change

2024

2023

Total

Foreign Exchange

Operational ^(a)

Total International

$

2,042

$

1,973

3

%

(6

)%

9

%

Australia

156

164

(5

)%

(3

)%

(2

)%

Brazil

200

175

14

%

3

%

11

%

Canada

136

120

13

%

(1

)%

14

%

Chile

62

78

(21

)%

(4

)%

(17

)%

China

144

186

(23

)%

(3

)%

(20

)%

France

75

68

10

%

(1

)%

11

%

Germany

109

98

11

%

-

%

11

%

Italy

64

61

5

%

1

%

4

%

Japan

76

86

(12

)%

(12

)%

-

%

Mexico

90

77

17

%

11

%

6

%

Spain

65

64

2

%

-

%

2

%

United Kingdom

150

131

15

%

4

%

11

%

Other developed markets

265

247

7

%

(1

)%

8

%

Other emerging markets

450

418

8

%

(25

)%

33

%

(a) Operational revenue results (a non-GAAP financial measure) is defined as revenue results excluding the impact of foreign exchange.

ZOETIS INC.

SEGMENT ^(a) EARNINGS

(UNAUDITED)

(millions of dollars)

Three Months Ended

June 30,

% Change

2024

2023

Total

Foreign Exchange

Operational ^(b)

U.S.:

Revenue

$

1,308

$

1,165

12

%

-

%

12

%

Cost of Sales

232

214

8

%

-

%

8

%

Gross Profit

1,076

951

13

%

-

%

13

%

Gross Margin

82.3

%

81.6

%

Operating Expenses

204

212

(4

)%

-

%

(4

)%

Other (income)/deductions-net

-

-

*

*

*

U.S. Earnings

$

872

$

739

18

%

-

%

18

%

International:

Revenue

$

1,035

$

995

4

%

(6

)%

10

%

Cost of Sales

342

315

9

%

-

%

9

%

Gross Profit

693

680

2

%

(9

)%

11

%

Gross Margin

67.0

%

68.3

%

Operating Expenses

175

166

5

%

(4

)%

9

%

Other (income)/deductions-net

-

(1

)

*

*

*

International Earnings

$

518

$

515

1

%

(10

)%

11

%

Total Reportable Segments

$

1,390

$

1,254

11

%

(4

)%

15

%

Other business activities ^(c)

(142

)

(116

)

22

%

Reconciling Items:

Corporate ^(d)

(299

)

(256

)

17

%

Purchase accounting adjustments ^(e)

(35

)

(43

)

(19

)%

Acquisition and divestiture-related costs ^(f)

(5

)

(4

)

25

%

Certain significant items ^(g)

(70

)

90

*

Other unallocated ^(h)

(59

)

(53

)

11

%

Total Earnings ⁽ⁱ⁾

$

780

$

872

(11

)%

(a) For a description of each segment, see Zoetis' most recent Annual Report on Form 10-K.

(b) Operational results (a non-GAAP financial measure) is defined as results excluding the impact of foreign exchange.

(c) Other business activities includes the research and development costs managed by our research and development organization, as well as our contract manufacturing business and human health business.

(d) Corporate includes, among other things, certain costs associated with information technology, administration expenses, interest income and expense, certain compensation costs and other costs not charged to our operating segments.

(e) Purchase accounting adjustments include certain charges related to the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment not charged to our operating segments.

(f) Acquisition and divestiture-related costs include costs associated with acquiring and integrating newly acquired businesses, such as transaction costs and integration costs, as well as costs associated with divesting and disintegrating a portion of our business.

(g) Certain significant items includes substantive, unusual items that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis. Such items primarily include certain asset impairment charges, restructuring charges and implementation costs associated with cost-reduction/productivity initiatives that are not associated with an acquisition, as well as a loss on assets held for sale and the impact of divestiture gains and losses.

(h) Includes overhead expenses associated with our global manufacturing and supply operations not directly attributable to an operating segment, as well as certain procurement costs.

(i) Defined as income before provision for taxes on income.

* Calculation not meaningful.

ZOETIS INC.

SEGMENT ^(a) EARNINGS

(UNAUDITED)

(millions of dollars)

Six Months Ended

June 30,

% Change

2024

2023

Total

Foreign Exchange

Operational ^(b)

U.S.:

Revenue

$

2,471

$

2,170

14

%

-

%

14

%

Cost of Sales

449

417

8

%

-

%

8

%

Gross Profit

2,022

1,753

15

%

-

%

15

%

Gross Margin

81.8

%

80.8

%

Operating Expenses

394

400

(2

)%

-

%

(2

)%

Other (income)/deductions-net

-

-

*

*

*

U.S. Earnings

$

1,628

$

1,353

20

%

-

%

20

%

International:

Revenue

$

2,042

$

1,973

3

%

(6

)%

9

%

Cost of Sales

655

606

8

%

-

%

8

%

Gross Profit

1,387

1,367

1

%

(9

)%

10

%

Gross Margin

67.9

%

69.3

%

Operating Expenses

334

317

5

%

(4

)%

9

%

Other (income)/deductions-net

-

-

*

*

*

International Earnings

$

1,053

$

1,050

-

%

(10

)%

10

%

Total Reportable Segments

$

2,681

$

2,403

12

%

(4

)%

16

%

Other business activities ^(c)

(274

)

(230

)

19

%

Reconciling Items:

Corporate ^(d)

(587

)

(464

)

27

%

Purchase accounting adjustments ^(e)

(72

)

(85

)

(15

)%

Acquisition and divestiture-related costs ^(f)

(5

)

(5

)

-

%

Certain significant items ^(g)

(76

)

68

*

Other unallocated ^(h)

(140

)

(118

)

19

%

Total Earnings ⁽ⁱ⁾

$

1,527

$

1,569

(3

)%

(a) For a description of each segment, see Zoetis' most recent Annual Report on Form 10-K.

(b) Operational results (a non-GAAP financial measure) is defined as results excluding the impact of foreign exchange.

(c) Other business activities includes the research and development costs managed by our research and development organization, as well as our contract manufacturing business and human health business.

(d) Corporate includes, among other things, certain costs associated with information technology, administration expenses, interest income and expense, certain compensation costs and other costs not charged to our operating segments.

(e) Purchase accounting adjustments include certain charges related to the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment not charged to our operating segments.

(f) Acquisition and divestiture-related costs include costs associated with acquiring and integrating newly acquired businesses, such as transaction costs and integration costs, as well as costs associated with divesting and disintegrating a portion of our business.

(g) Certain significant items includes substantive, unusual items that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis. Such items primarily include certain asset impairment charges, restructuring charges and implementation costs associated with cost-reduction/productivity initiatives that are not associated with an acquisition, as well as a loss on assets held for sale and the impact of divestiture gains and losses.

(h) Includes overhead expenses associated with our global manufacturing and supply operations not directly attributable to an operating segment, as well as certain procurement costs.

(i) Defined as income before provision for taxes on income.

* Calculation not meaningful.