Segment Information

6 Months Ended

Jun. 30, 2024

Segment Reporting [Abstract]

Segment Information

16. Segment Information

Operating Segments

We manage our operations through two geographic operating segments: the U.S. and International. Each operating segment has responsibility for its commercial activities. Within each of these operating segments, we offer a diversified product portfolio, including parasiticides, vaccines, dermatology, anti-infectives, pain and sedation, other pharmaceutical, animal health diagnostics and medicated feed additives, for both companion animal and livestock customers. Our chief operating decision maker uses the revenue and earnings of the two operating segments, among other factors, for performance evaluation and resource allocation.

Other Costs and Business Activities

Certain costs are not allocated to our operating segment results, such as costs associated with the following:

•    Other business activities, includes our Client Supply Services contract manufacturing results, our human health business, and expenses associated with our dedicated veterinary medicine research and development organization, research alliances, U.S. regulatory affairs and other operations focused on the development of our products. Other R&D-related costs associated with non-U.S. market and regulatory activities are generally included in the international commercial segment.

•    Corporate, includes enabling functions such as information technology, facilities, legal, finance, human resources, business development, certain diagnostic costs and communications, among others. These costs also include certain compensation costs, certain procurement costs and other miscellaneous operating expenses not charged to our operating segments, as well as interest income and expense.

•Certain transactions and events such as (i) Purchase accounting adjustments, where we incur expenses associated with the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment; (ii) Acquisition and divestiture-related costs, where we incur costs associated with acquiring and integrating newly acquired businesses, such as transaction costs and integration costs, as well as divestiture-related costs; and (iii) Certain significant items, which comprise 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 as restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition or divestiture, certain asset impairment charges, certain legal and commercial settlements and the impact of divestiture-related gains and losses.

•Other unallocated includes (i) certain overhead expenses associated with our global manufacturing operations not charged to our operating segments; (ii) certain costs associated with finance that specifically support our global manufacturing operations; (iii) certain supply chain and global logistics costs; and (iv) certain procurement costs.

Segment Assets

We manage our assets on a total company basis, not by operating segment. Therefore, our chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment.

Selected Statement of Income Information

	Earnings						Depreciation and Amortization(a)
	Three Months Ended						Three Months Ended
	June 30,						June 30,
(MILLIONS OF DOLLARS)	2024			2023			2024		2023
U.S.
Revenue	$	1,308		$	1,165
Cost of sales	232			214
Gross profit	1,076			951
Gross margin	82.3		%	81.6		%
Operating expenses	204			212
Other (income)/deductions-net	—			—
U.S. Earnings	872			739			$	21	$	20
International
Revenue(b)	1,035			995
Cost of sales	342			315
Gross profit	693			680
Gross margin	67.0		%	68.3		%
Operating expenses	175			166
Other (income)/deductions-net	—			(1)
International Earnings	518			515			25		22
Total operating segments	1,390			1,254			46		42
Other business activities	(142)			(116)			11		7
Reconciling Items:
Corporate	(299)			(256)			33		30
Purchase accounting adjustments	(35)			(43)			35		40
Acquisition and divestiture-related costs	(5)			(4)			—		—
Certain significant items(c)	(70)			90			—		—
Other unallocated	(59)			(53)			2		2
Total Earnings(d)	$	780		$	872		$	127	$	121

(a)    Certain production facilities are shared. Depreciation and amortization is allocated to the reportable operating segments based on estimates of where the benefits of the related assets are realized.

(b)    Revenue denominated in euros was $237 million and $217 million for the three months ended June 30, 2024 and 2023, respectively.

(c)    For the three months ended June 30, 2024, primarily consisted of employee termination costs related to organizational structure refinements and 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, as well as asset impairment charges related to our aquaculture business.

For the three months ended June 30, 2023, primarily consisted of a gain on the sale of a majority interest in our pet insurance business, partially offset by certain asset impairment charges related to our precision animal health business and employee termination costs related to organizational structure refinements.

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

	Earnings						Depreciation and Amortization(a)
	Six Months Ended						Six Months Ended
	June 30,						June 30,
(MILLIONS OF DOLLARS)	2024			2023			2024		2023
U.S.
Revenue	$	2,471		$	2,170
Cost of sales	449			417
Gross profit	2,022			1,753
Gross margin	81.8		%	80.8		%
Operating expenses	394			400
Other (income)/deductions-net	—			—
U.S. Earnings	1,628			1,353			$	45	$	39
International
Revenue(b)	2,042			1,973
Cost of sales	655			606
Gross profit	1,387			1,367
Gross margin	67.9		%	69.3		%
Operating expenses	334			317
Other (income)/deductions-net	—			—
International Earnings	1,053			1,050			48		43
Total operating segments	2,681			2,403			93		82
Other business activities	(274)			(230)			20		15
Reconciling Items:
Corporate	(587)			(464)			65		62
Purchase accounting adjustments	(72)			(85)			72		79
Acquisition and divestiture-related costs	(5)			(5)			—		—
Certain significant items(c)	(76)			68			—		—
Other unallocated	(140)			(118)			3		3
Total Earnings(d)	$	1,527		$	1,569		$	253	$	241

(a)    Certain production facilities are shared. Depreciation and amortization is allocated to the reportable operating segments based on estimates of where the benefits of the related assets are realized.

(b)    Revenue denominated in euros was $460 million and $421 million for the six months ended June 30, 2024 and 2023, respectively.

(c)    For the six months ended June 30, 2024, primarily consisted of employee termination costs related to organizational structure refinements, 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, as well as asset impairment charges related to our aquaculture business, 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 six months ended June 30, 2023, primarily consisted of a gain on the sale of a majority interest in our pet insurance business, partially offset by employee termination costs related to organizational structure refinements and certain asset impairment charges related to our precision animal health business.

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