Wetteny Joseph
Executive Vice President and Chief Financial Officer at Zoetis
Thank you, and good morning, everyone. As Kristin mentioned, we had an outstanding start to the year driven by the underlying strength of our companion animal portfolio, particularly our innovative products, as well as price growth across all species. In the first quarter, we generated revenue of $2.2 billion, growing 10% on a reported basis and 12% on an operational basis. Adjusted net income of $634 million grew 4% on a reported basis and 15% on an operational basis. Our 12% operational revenue growth was due to the underlying strength of our companion animal portfolio, aided by the impact of a weak comparative quarter in our U.S. companion animal business. However, the majority of this probability to growth was offset by headwinds related to economic conditions in China, the impact of a tough comparative quarter in livestock due to the timing of supply for certain products last year and inventory destocking related to our U.S. diagnostics sales model change.
Of the 12% operational revenue growth, 7% is from price with 5% growth in volume. While we saw price growth across our portfolio, price was favorably impacted by hyperinflationary markets, especially Argentina, which contributed 2% to our overall price growth. The volume growth was driven primarily by new products, including our monoclonal antibodies for OA pain, Librela and Solensia, as well as our key dermatology products and Simparica Trio. On a segment basis, the U.S. posted $1.2 billion in revenue, growing 16% on the quarter, while our International segment reported revenue of $1 billion with operational growth of 8% in the quarter. Our companion animal portfolio was the main driver of revenue growth in Q1, growing 20% operationally. This growth was partially offset by livestock, which declined 1% on an operational basis.
We saw double-digit operational companion animal growth in both our U.S. and our International segments again this quarter, driven by the strong performance of our innovative products with contributions from both volume and price. Simparica Trio was the primary driver of growth in the quarter, generating $243 million globally, representing operational growth of 61%. We saw strong demand for Trio as well as continued growth in patient share even with competition. Our OA pain meds were also a significant contributor to growth, posting $131 million in the quarter. Global growth came from the impact of new launch markets, both in the U.S. and internationally. In our early launch EU markets, recent vet surveys showed an increase in muscle on therapy and expansion into more moderate OA cases.
Our key dermatology products grew 25% operationally in the quarter with $360 million in global revenue. Growth within dermatology was driven primarily by our Apoquel franchise, where we are seeing solid conversion to Apoquel Chewable, including a modest impact from initial distributor stocking in the U.S. Cytopoint growth continues to be driven by vet and pet owner preference for injectable methods of treatment. Our global companion animal diagnostics portfolio declined 12% operationally with declines in the U.S. driven by our distribution model change. These declines were anticipated as our distribution partners sold off their remaining inventory due to our transition to a direct-only model for our U.S. diagnostics portfolio. U.S. declines were partially offset by growth internationally. Our livestock portfolio declined 1% operationally, as expected, driven by a tough comparative quarter in the prior year especially in the U.S. as well as impacts from the ongoing economic conditions in China.
This decline was partially offset by price growth in our other International markets. Now moving on to revenue growth by segment for the quarter. U.S. revenue was $1.2 billion in the quarter, growing 16% with companion animal growth of 25% and livestock posting a 7% decline. The companion animal performance in the quarter was driven by Simparica Trio, our key dermatology portfolio, and the impact of the launch of Librela in the U.S. as well as the impact of a weak comparative quarter. Our outstanding U.S. companion animal growth came in the quarter where we saw vet clinic visits decrease 1.5%. We continued to see growth in the therapeutic visits while wellness visits drove the decline. Sales outgrowth in the retail and home delivery continued to outpace vet clinic fulfillment, which is based on growing pet owner preference for these alternative channels.
This dynamic is expected to put continued pressure on total vet clinic visits without impacting our expectations for revenue. Despite the visit decline, revenue and spend per visit in the clinic grew 4.5% and 6%, respectively, which reflects continued pet owner willingness to pay. Turning to product performance. Simparica Trio posted sales of $205 million in the quarter, growing 61%. We continue to be the market leader in the triple-combination parasiticide space. Our leading footprint across channels has allowed us to continue to drive dosage growth through increased compliance even with declines in wellness visits at the clinic. In addition to a weak comparable period in the prior year, we are seeing favorable price realization due to more targeted discount programs to vets as well as channel dynamics. The dermatology product sales in the U.S. were $233 million for the quarter, growing 27%.
We saw growth in both price and volume and across both Apoquel and Cytopoint. Both also benefited from a weak comparable period in the prior year. Market demand for our dermatology products remained high. In the quarter, we saw growth in both our patient share as well as higher periodic visits in the clinic. Additionally, growth of retail autoship programs continued to bolster compliance. At the beginning of April, we made Apoquel Chewable available through our distribution partners. Our pain meds, Librela and Solensia, posted a combined $57 million in U.S. sales in Q1. Librela generated $40 million in the quarter with underlying vet demand continuing to build on the momentum from our full launch in Q4 of last year. Excluding the impact of the initial clinic stocking, which we have provided last quarter, we are seeing robust sequential quarter growth in Librela, in line with expectations.
We continued to see good growth in penetration as well as strong reorder rates, which are approaching 80%, all of which points to positive real-world satisfaction in the clinic and among pet owners. We remain confident not just in the safety and efficacy of Librela, but also in our expected performance. As Kristin alluded to, we have seen steady increasing trends in our trailing four-week sales average in the U.S., even into April, after the increased media attention. We continued to see steady progress in Solensia, which had U.S. sales of $17 million in the quarter, more than doubling our prior year Q1 sales. We have indicated the feline market needs significant development, but we are pleased with our progress thus far. Solensia is now the market-leading product for feline OA pain in the U.S., and we have seen a significant increase in the medicalized patient pool since launch.
Our U.S. companion animal diagnostics portfolio declined 21% in the quarter, driven primarily by distributor inventory work-downs following our channel strategy change. This destocking is in line with our expectations and has negligible impact on our underlying clinic demand. U.S. livestock declined 7% in the quarter while our underlying business performance in the quarter was as expected. Our results are reflective of a strong comparative period in Q1 of 2023, in which we grew 15% due to the return of supply on several products, primarily in cattle. Sales of swine products declined due to decreased sales of vaccines as well as JAKs. In poultry, we saw declines as a result of increased generic competition in our medicated feed additive products. Moving on to our International segment where revenue grew 3% on a reported basis and 8% excluding the impact of foreign exchange.
Companion animal grew 14% operationally and livestock grew 2% operationally. Increased sales of our international companion animal products were driven by oral pain meds, key dermatology products, vaccines and small animal parasiticides. This growth was partially offset by impacts in China. Our International OA pain meds grew 67% operationally to $74 million in combined revenue in the quarter. International Librela sales were $l59 million, growing 71% operationally. Growth is balanced across new launch markets and our first wave EU markets. We continue to see evolution in the European markets, where we have seen expansion in Librela's use in moderate OA cases, which according to the latest vet surveys now represents the majority of the Librela patients in Europe. We remain pleased with the success of our DTC advertising campaigns in increasing pet owner awareness of OA. Solensia sales were $15 million internationally in the quarter, growing 54% on an operational basis.
Our International key dermatology portfolio grew 23% operationally in the quarter, posting $127 million in sales. We saw double-digit operational growth across most of our major markets, driven by higher compliance and new patients. Growth was also favorably impacted by prepriced increased buy-ups in Japan and certain European markets. Our International small animal parasiticides portfolio grew 6% operationally driven by our Simparica franchise with Simparica Trio growing 58% operationally to $38 million in sales. Trio growth benefited from continued uptake in Europe driven by key account penetration and sales force effectiveness as well as contributions from Trio's launch in China. Simparica posted $56 million in revenue, growing 22% on an operational basis in the quarter. This growth was partially offset by a 29% operational decline in our Revolution franchise, which generates a high proportion of sales in China.
International livestock grew 2% operationally in the quarter driven by price increases as in high inflationary markets. Price growth was partially offset by volume declines across all of our species, partially driven by a tough comparative period in the prior year due to the return of supply of certain livestock products. The volume declines in livestock were driven by cattle due to a tough comparable period related to supply and worsening market conditions in Australia. Our International swine portfolio saw volume declines driven by China, where we saw lower hog prices as well as a reduction in herd sizes. In sheep, we saw declines from herd reductions due to expected weather conditions in Australia and New Zealand as well as supply constraints on a key product. As we mentioned last quarter, we continue to see economic challenges in China, where low consumer spending and higher urban unemployment have reduced spending. We are also seeing a slowdown in livestock with lower pork prices and smaller herd sizes.
The impact on our growth is expected to moderate late in the year, but we expect to continue to see headwinds throughout the year across both companion animal and livestock. Now moving on to the rest of the P&L for the quarter. Adjusted gross margins of 70.7% declined 10 basis points on a reported basis compared to the prior year. Foreign exchange had an unfavorable impact of 180 basis points on our reported adjusted gross margins. Excluding FX, we saw higher margins due to price increases, favorable mix and lower freight costs partially offset by higher manufacturing costs, especially in hyperinflationary markets. Adjusted operating expenses increased 11% operationally, driven primarily by SG&A growth of 10% operationally, mainly due to higher compensation-related expenses as well as increased advertising and promotion spend on our OA pain meds.
R&D grew 13% on an operational basis, driven by higher project spend related to both recent acquisitions as well as advancements of our pipeline candidates. The adjusted effective tax rate for the quarter was 19.7%, a decrease of 80 basis points, primarily due to a higher benefit in the U.S. related to foreign-derived intangible income and a more favorable jurisdictional mix of earnings. And finally, adjusted net income grew 15% operationally despite a $31 million headwind to growth from the nonrecurring benefit of our prior year royalty settlement. Adjusted diluted EPS grew 17% operationally for the quarter. Capital expenditures in the first quarter were $140 million. In the quarter, we repurchased $339 million of Zoetis shares. Before moving to guidance, I wanted to comment on our recent announcement to divest our medicated food additive portfolio and certain water-soluble products to Phibro Animal Health. This is a transaction that demonstrates Zoetis' disciplined capital allocation strategy to focus our investments on innovative solutions that advance animal health, productivity and sustainability.
This divestiture will allow us to remain focused on other livestock solutions, including vaccine, biologic and genetic programs that are more aligned with our strategic priorities. Now moving on to guidance for full year 2024. As we have mentioned, we had an outstanding first quarter that highlighted our ability to deliver through multiple sources of growth. Our performance in companion animal, especially in parasiticides and our key dermatology franchises, exceeded our expectations. Additionally, we continue to be pleased with the progress of the U.S. launch of Librela and are confident in our ability to meet expectations. We are, therefore, raising our 2024 operational guidance provided during February's earnings call. Note that guidance reflects foreign exchange rates as of late April. The updated foreign exchange rates negatively impacted our reported revenue guidance by approximately 2% and our reported adjusted net income guidance by approximately 4% when compared to our initial guidance issued in February.
For the year, we expect revenue between $9.05 billion and $9.20 billion, representing a range of 8.5% to 10.5% operational growth. Our increase in operational growth is reflective of Argentina's pricing impact as well as due to performance in our companion animal parasiticides and key dermatology products. We now expect our full year operational growth for Simparica Trio to be double digit while we expect growth in our key dermatology products to be in the high single-digit range. As we stated earlier, we remain pleased with our U.S. launch of Librela. Our expectations for Librela for the year remain unchanged. Moving down the P&L. we now expect adjusted net income to be in the range of $2.62 billion to $2.67 billion, representing operational growth of 13% to 15%. And finally, we expect adjusted diluted EPS to be in the range of $5.71 to $5.81 and reported diluted EPS to be in the range of $5.34 to $5.44. Just to summarize before we go to Q&A, we are very pleased with our start to the year.
While our reported results are reflective of various foreign exchange-related headwinds, operationally, we continued to deliver growth across our key therapeutic areas and across most of our major markets. This growth highlights the diversity and dependability that allows us to continually outpace the animal health market. Additionally, we continue to lead the way, creating new markets and launching new innovation that increases the standard of medical care for animals.
Now I'll hand things over to the operator to open the line for your questions. Operator?
