Zoetis Announces Third Quarter 2024 Results

ZOETIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME ^(a)

(UNAUDITED)

(millions of dollars, except per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2024

2023

% Change

2024

2023

% Change

Revenue

$

2,388

$

2,151

11

$

6,939

$

6,331

10

Costs and expenses:

Cost of sales

701

638

10

2,012

1,833

10

Selling, general and administrative expenses

565

525

8

1,693

1,586

7

Research and development expenses

167

152

10

500

440

14

Amortization of intangible assets

35

38

(8)

107

112

(4)

Restructuring charges and certain acquisition and divestiture-related costs

5

16

(69)

51

45

13

Interest expense, net of capitalized interest

57

59

(3)

174

180

(3)

Other (income)/deductions-net

(16

)

6

*

1

(151

)

*

Income before provision for taxes on income

874

717

22

2,401

2,286

5

Provision for taxes on income

182

121

50

486

469

4

Net income before allocation to noncontrolling interests

692

596

16

1,915

1,817

5

Less: Net income/(loss) attributable to noncontrolling interests

10

-

*

10

(2

)

*

Net income attributable to Zoetis Inc.

$

682

$

596

14

$

1,905

$

1,819

5

Earnings per share-basic

$

1.51

$

1.29

17

$

4.18

$

3.94

6

Earnings per share-diluted

$

1.50

$

1.29

16

$

4.18

$

3.93

6

Weighted-average shares used to calculate earnings per share

Basic

452.9

460.3

455.4

461.9

Diluted

453.5

461.4

456.1

463.0

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

$

701

$

(1

)

$

-

$

(1

)

$

699

Gross profit

1,687

1

-

1

1,689

Selling, general and administrative expenses

565

(3

)

-

(2

)

560

Research and development expenses

167

(1

)

-

-

166

Amortization of intangible assets

35

(30

)

-

-

5

Restructuring charges and certain acquisition and divestiture-related costs

5

-

(7

)

2

-

Income before provision for taxes on income

874

35

7

1

917

Provision for taxes on income

182

8

2

(1

)

191

Net income attributable to Zoetis

682

27

5

2

716

Earnings per common share attributable to Zoetis-diluted

1.50

0.06

0.01

0.01

1.58

Three Months Ended September 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

$

638

$

(1

)

$

-

$

(2

)

$

635

Gross profit

1,513

1

-

2

1,516

Selling, general and administrative expenses

525

(4

)

-

-

521

Research and development expenses

152

(1

)

-

-

151

Amortization of intangible assets

38

(33

)

-

-

5

Restructuring charges and certain acquisition and divestiture-related costs

16

-

(3

)

(13

)

-

Other (income)/deductions-net

6

-

-

(8

)

(2

)

Income before provision for taxes on income

717

39

3

23

782

Provision for taxes on income

121

9

-

23

153

Net income attributable to Zoetis

596

30

3

-

629

Earnings per common share attributable to Zoetis-diluted

1.29

0.06

0.01

-

1.36

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

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)

Nine Months Ended September 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

$

2,012

$

(3

)

$

-

$

(1

)

$

2,008

Gross profit

4,927

3

-

1

4,931

Selling, general and administrative expenses

1,693

(9

)

-

(2

)

1,682

Research and development expenses

500

(2

)

-

-

498

Amortization of intangible assets

107

(93

)

-

-

14

Restructuring charges and certain acquisition and divestiture-related costs

51

-

(12

)

(39

)

-

Other (income)/deductions-net

1

-

-

(35

)

(34

)

Income before provision for taxes on income

2,401

107

12

77

2,597

Provision for taxes on income

486

24

3

13

526

Net income attributable to Zoetis

1,905

83

9

64

2,061

Earnings per common share attributable to Zoetis-diluted

4.18

0.18

0.02

0.14

4.52

Nine Months Ended September 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

$

1,833

$

(10

)

$

-

$

(2

)

$

1,821

Gross profit

4,498

10

-

2

4,510

Selling, general and administrative expenses

1,586

(18

)

-

-

1,568

Research and development expenses

440

(1

)

-

-

439

Amortization of intangible assets

112

(95

)

-

-

17

Restructuring charges and certain acquisition and divestiture-related costs

45

-

(8

)

(37

)

-

Other (income)/deductions-net

(151

)

-

-

84

(67

)

Income before provision for taxes on income

2,286

124

8

(45

)

2,373

Provision for taxes on income

469

26

1

(9

)

487

Net income attributable to Zoetis

1,819

98

7

(36

)

1,888

Earnings per common share attributable to Zoetis-diluted

3.93

0.21

0.02

(0.08

)

4.08

(a) The condensed consolidated statements of income present the nine months ended September 30, 2024 and 2023. Subsidiaries operating outside the United States are included for the nine months ended August 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.

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

Nine Months Ended

September 30,

September 30,

2024

2023

2024

2023

Acquisition-related costs ^(a)

$

-

$

3

$

1

$

7

Divestiture-related costs ^(b)

7

-

11

-

Restructuring charges ^(c)

-

-

-

1

Total acquisition and divestiture-related costs-pre-tax

7

3

12

8

Income taxes ^(d)

2

-

3

1

Total acquisition and divestiture-related costs-net of tax

$

5

$

3

$

9

$

7

(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

Nine Months Ended

September 30,

September 30,

2024

2023

2024

2023

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

$

(2

)

$

12

$

39

$

36

Certain asset impairment charges ^(b)

-

11

11

21

Loss on assets held for sale ^(c)

-

-

22

-

Net gain on sale of business ^(d)

-

-

-

(101

)

Other

3

-

5

(1

)

Total certain significant items-pre-tax

1

23

77

(45

)

Income taxes ^(e)

(1

)

23

13

(9

)

Total certain significant items-net of tax

$

2

$

-

$

64

$

(36

)

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

For the three and nine months ended September 30, 2023, primarily consisted of employee termination and exit costs related to organizational structure refinements and other cost-reduction and productivity initiatives, included in Restructuring charges and certain acquisition and divestiture-related costs.

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

For the three and nine months ended September 30, 2023, represents certain asset impairment charges related to our precision animal health and diagnostics businesses, 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) Primarily 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 nine months ended September 30, 2023, also includes a benefit from the tax loss on the divestiture of Performance Livestock Analytics, partially offset by a 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

September 30,

% Change

2024

2023

Total

Foreign
Exchange

Operational ^(b)

Adjusted cost of sales

$

699

$

635

10

%

(4

)%

14

%

as a percent of revenue

29.3

%

29.5

%

NA

NA

NA

Adjusted SG&A expenses

560

521

7

%

(2

)%

9

%

Adjusted R&D expenses

166

151

10

%

-

%

10

%

Adjusted net income attributable to Zoetis

716

629

14

%

(1

)%

15

%

Nine Months Ended

September 30,

% Change

2024

2023

Total

Foreign
Exchange

Operational ^(b)

Adjusted cost of sales

$

2,008

$

1,821

10

%

1

%

9

%

as a percent of revenue

28.9

%

28.8

%

NA

NA

NA

Adjusted SG&A expenses

1,682

1,568

7

%

(2

)%

9

%

Adjusted R&D expenses

498

439

13

%

(1

)%

14

%

Adjusted net income attributable to Zoetis

2,061

1,888

9

%

(7

)%

16

%

(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
as of November 4, 2024

Full Year 2024
as of August 6, 2024
(Prior Guidance)

Revenue

$9,200 to $9,300

$9,100 to $9,250

Operational growth ^(a)

10% to 11%

9% to 11%

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

Approximately 29.3%

Approximately 29.3%

Adjusted SG&A expenses ^(b)

$2,275 to $2,325

$2,225 to $2,290

Adjusted R&D expenses ^(b)

$665 to $675

$660 to $670

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

Approximately $190

Approximately $200

Effective tax rate on adjusted income ^(b)

20.0% to 20.5%

20.0% to 20.5%

Adjusted diluted EPS ^(b)

$5.86 to $5.92

$5.78 to $5.88

Adjusted net income ^(b)

$2,670 to $2,695

$2,640 to $2,690

Operational growth ^(a)(c)

13.5% to 14.5%

13.5% to 15.5%

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

$126 - $136

$80 - $90

The guidance as of November 4, 2024 reflects foreign exchange rates as of mid-October 2024. The prior guidance as of August 6, 2024 reflects foreign exchange rates as of late July 2024.

Reconciliations of 2024 reported guidance to 2024 adjusted guidance as of November 4, 2024 follows:

(millions of dollars, except per share amounts)

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

$2,290 to $2,340

~ $(3)

~ $(12)

$2,275 to $2,325

R&D expenses

$667 to $677

~ $(2)

$665 to $675

Interest expense and other (income)/deductions-net

~ $235

~ $(45)

~ $190

Effective tax rate

20.0% to 20.5%

20.0% to 20.5%

Diluted EPS

$5.33 to $5.39

~ $0.29

~ $0.24

$5.86 to $5.92

Net income attributable to Zoetis

$2,435 to $2,450

$126 - $136

~ $109

$2,670 to $2,695

(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

September 30,

% Change

2024

2023

Total

Foreign
Exchange

Operational ^(b)

Revenue:

Companion Animal

$

1,609

$

1,414

14

%

(1

)%

15

%

Livestock

758

716

6

%

(5

)%

11

%

Contract Manufacturing & Human Health

21

21

-

%

(2

)%

2

%

Total Revenue

$

2,388

$

2,151

11

%

(3

)%

14

%

U.S.:

Companion Animal

$

1,068

$

908

18

%

-

%

18

%

Livestock

278

266

5

%

-

%

5

%

Total U.S. Revenue

$

1,346

$

1,174

15

%

-

%

15

%

International:

Companion Animal

$

541

$

506

7

%

(4

)%

11

%

Livestock

480

450

7

%

(8

)%

15

%

Total International Revenue

$

1,021

$

956

7

%

(6

)%

13

%

Companion Animal:

Dogs and Cats

$

1,551

$

1,354

15

%

(1

)%

16

%

Horses

58

60

(3

)%

(2

)%

(1

)%

Total Companion Animal Revenue

$

1,609

$

1,414

14

%

(1

)%

15

%

Livestock:

Cattle

$

391

$

374

5

%

(4

)%

9

%

Poultry

139

127

9

%

(7

)%

16

%

Swine

131

129

2

%

(7

)%

9

%

Fish

70

57

23

%

(3

)%

26

%

Sheep and other

27

29

(7

)%

(1

)%

(6

)%

Total Livestock Revenue

$

758

$

716

6

%

(5

)%

11

%

(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)

Nine Months Ended

September 30,

% Change

2024

2023

Total

Foreign Exchange

Operational ^(b)

Revenue:

Companion Animal

$

4,708

$

4,128

14

%

(2

)%

16

%

Livestock

2,172

2,145

1

%

(5

)%

6

%

Contract Manufacturing & Human Health

59

58

2

%

-

%

2

%

Total Revenue

$

6,939

$

6,331

10

%

(2

)%

12

%

U.S.:

Companion Animal

$

3,046

$

2,588

18

%

-

%

18

%

Livestock

771

756

2

%

-

%

2

%

Total U.S. Revenue

$

3,817

$

3,344

14

%

-

%

14

%

International:

Companion Animal

$

1,662

$

1,540

8

%

(4

)%

12

%

Livestock

1,401

1,389

1

%

(7

)%

8

%

Total International Revenue

$

3,063

$

2,929

5

%

(5

)%

10

%

Companion Animal:

Dogs and Cats

$

4,516

$

3,931

15

%

(1

)%

16

%

Horses

192

197

(3

)%

(3

)%

-

%

Total Companion Animal Revenue

$

4,708

$

4,128

14

%

(2

)%

16

%

Livestock:

Cattle

$

1,132

$

1,102

3

%

(4

)%

7

%

Poultry

410

397

3

%

(7

)%

10

%

Swine

388

404

(4

)%

(6

)%

2

%

Fish

177

158

12

%

(2

)%

14

%

Sheep and other

65

84

(23

)%

(3

)%

(20

)%

Total Livestock Revenue

$

2,172

$

2,145

1

%

(5

)%

6

%

(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

September 30,

% Change

2024

2023

Total

Foreign
Exchange

Operational ^(a)

Total International

$

1,021

$

956

7

%

(6

)%

13

%

Australia

83

84

(1

)%

-

%

(1

)%

Brazil

101

101

-

%

(14

)%

14

%

Canada

66

63

5

%

(3

)%

8

%

Chile

31

31

-

%

(6

)%

6

%

China

61

69

(12

)%

-

%

(12

)%

France

36

34

6

%

2

%

4

%

Germany

57

50

14

%

1

%

13

%

Italy

31

26

19

%

(3

)%

22

%

Japan

33

34

(3

)%

(6

)%

3

%

Mexico

39

42

(7

)%

(8

)%

1

%

Spain

35

30

17

%

3

%

14

%

United Kingdom

80

78

3

%

1

%

2

%

Other developed markets

148

127

17

%

(1

)%

18

%

Other emerging markets

220

187

18

%

(19

)%

37

%

Nine Months Ended

September 30,

% Change

2024

2023

Total

Foreign
Exchange

Operational ^(a)

Total International

$

3,063

$

2,929

5

%

(5

)%

10

%

Australia

239

248

(4

)%

(2

)%

(2

)%

Brazil

301

276

9

%

(3

)%

12

%

Canada

202

183

10

%

(1

)%

11

%

Chile

93

109

(15

)%

(5

)%

(10

)%

China

205

255

(20

)%

(3

)%

(17

)%

France

111

102

9

%

-

%

9

%

Germany

166

148

12

%

-

%

12

%

Italy

95

87

9

%

-

%

9

%

Japan

109

120

(9

)%

(10

)%

1

%

Mexico

129

119

8

%

3

%

5

%

Spain

100

94

6

%

-

%

6

%

United Kingdom

230

209

10

%

2

%

8

%

Other developed markets

413

374

10

%

(2

)%

12

%

Other emerging markets

670

605

11

%

(23

)%

34

%

(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

September 30,

% Change

2024

2023

Total

Foreign Exchange

Operational ^(b)

U.S.:

Revenue

$

1,346

$

1,174

15

%

-

%

15

%

Cost of Sales

258

228

13

%

-

%

13

%

Gross Profit

1,088

946

15

%

-

%

15

%

Gross Margin

80.8

%

80.6

%

Operating Expenses

199

202

(1

)%

-

%

(1

)%

Other (income)/deductions-net

-

-

*

*

*

U.S. Earnings

$

889

$

744

19

%

-

%

19

%

International:

Revenue

$

1,021

$

956

7

%

(6

)%

13

%

Cost of Sales

321

306

5

%

(8

)%

13

%

Gross Profit

700

650

8

%

(5

)%

13

%

Gross Margin

68.6

%

68.0

%

Operating Expenses

157

156

1

%

(6

)%

7

%

Other (income)/deductions-net

1

1

-

%

13

%

(13

)%

International Earnings

$

542

$

493

10

%

(5

)%

15

%

Total Reportable Segments

$

1,431

$

1,237

16

%

(2

)%

18

%

Other business activities ^(c)

(137

)

(124

)

10

%

Reconciling Items:

Corporate ^(d)

(306

)

(258

)

19

%

Purchase accounting adjustments ^(e)

(35

)

(39

)

(10

)%

Acquisition and divestiture-related costs ^(f)

(7

)

(3

)

*

Certain significant items ^(g)

(1

)

(23

)

(96

)%

Other unallocated ^(h)

(71

)

(73

)

(3

)%

Total Earnings ⁽ⁱ⁾

$

874

$

717

22

%

(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)

Nine Months Ended

September 30,

% Change

2024

2023

Total

Foreign Exchange

Operational ^(b)

U.S.:

Revenue

$

3,817

$

3,344

14

%

-

%

14

%

Cost of Sales

707

645

10

%

-

%

10

%

Gross Profit

3,110

2,699

15

%

-

%

15

%

Gross Margin

81.5

%

80.7

%

Operating Expenses

593

602

(1

)%

-

%

(1

)%

Other (income)/deductions-net

-

-

*

*

*

U.S. Earnings

$

2,517

$

2,097

20

%

-

%

20

%

International:

Revenue

$

3,063

$

2,929

5

%

(5

)%

10

%

Cost of Sales

976

912

7

%

(3

)%

10

%

Gross Profit

2,087

2,017

3

%

(8

)%

11

%

Gross Margin

68.1

%

68.9

%

Operating Expenses

491

473

4

%

(4

)%

8

%

Other (income)/deductions-net

1

1

-

%

(39

)%

39

%

International Earnings

$

1,595

$

1,543

3

%

(9

)%

12

%

Total Reportable Segments

$

4,112

$

3,640

13

%

(3

)%

16

%

Other business activities ^(c)

(411

)

(354

)

16

%

Reconciling Items:

Corporate ^(d)

(893

)

(722

)

24

%

Purchase accounting adjustments ^(e)

(107

)

(124

)

(14

)%

Acquisition and divestiture-related costs ^(f)

(12

)

(8

)

50

%

Certain significant items ^(g)

(77

)

45

*

Other unallocated ^(h)

(211

)

(191

)

10

%

Total Earnings ⁽ⁱ⁾

$

2,401

$

2,286

5

%

(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.