Wetteny Joseph
Executive Vice President and Chief Financial Officer at Zoetis
Thank you, Kristin. And good morning, everyone. Before I discuss our second quarter performance, I would like to take a moment to express how excited I am to join Zoetis, a company with an exceptional opportunity for meaningful long-term growth driven by the durability and resiliency of the existing portfolio, a robust product pipeline and a keen focus on future innovation. I look forward to leading an outstanding finance organization and maintaining the financial principles and investment strategies, which positions Zoetis as the world leader in animal health. I would also like to express my appreciation to the Zoetis colleagues and the investment community for such a warm and gracious welcome. I had the pleasure of speaking with several of our investors since becoming CFO, and I look forward to connecting with many more in the coming weeks.
Now shifting focus to earnings. This morning, I will provide commentary on our second quarter financial results, contributing factors to our performance and an update on our improved full year 2021 guidance. In the second quarter, we generated revenue of $1.9 billion, growing 26% on a reported basis and 22% operationally. Adjusted net income of $566 million was an increase of 33% on a reported basis and 28% operationally. Operational revenue grew 22% with 2% from price and 20% from volume. Volume growth includes 12% from other in-line products, 6% from new products and 2% from key dermatology products. We delivered another strong quarter and remain encouraged by the performance of our business, health of the overall industry and our outlook for the future. It is worth noting that Q2 2020 is a favorable comparative period due to the impact of COVID-19.
The pandemic caused widespread uncertainty last year, which led to clinic closures, supply chain disruptions and shifts in consumer demand from restaurant and food service to grocery stores. This materially impacted several aspects of our companion animal and livestock businesses. Now let's dive further into the details of the quarter. Companion animal products led the way in terms of species growth, growing 36% operationally with livestock growing 3% operationally in the quarter. Performance in companion animal was again driven by our parasiticide portfolio, led by sales of Simparica Trio and with significant contributions from the broader portfolio. We also continue to see growth in our key dermatology products, APOQUEL and CYTOPOINT as well as in vaccines and diagnostics. Simparica Trio has continued to perform exceptionally well, posting revenue of $139 million, representing growth of more than 200% versus the comparable 2020 period.
In addition to sales, we are exceeding our other performance measures as well, such as clinic penetration, share within penetrated clinics and reordering rates. The strength of our entire companion animal parasiticide portfolio was evident again this quarter, growing 50% operationally with meaningful growth in the ProHeart and Revolution/Stronghold franchises in addition to the Simparica franchise. Having the broadest and most innovative portfolio within a large and expanding therapeutic area leaves us bullish on future growth in parasiticides. Global sales of our key dermatology portfolio were $280 million in the quarter, growing 22% operationally. CYTOPOINT had a particularly strong quarter, growing 42% operationally and generating quarterly revenue of $100 million for the first time since launch.
Year-to-date sales for key dermatology products are $524 million and our view remains unchanged that sales will exceed $1 billion this year. Our diagnostics portfolio had operational growth of 38% in Q2, led by increases in consumable and instrument revenue as the business continues to recover from the impact of the pandemic. With our sustained investments in diagnostics, the new technology we are bringing to the market and the ability to leverage the breadth of our medicines and vaccines portfolio, we are well positioned to grow faster than the diagnostics market, which is expected to grow double digits and outpace the overall animal health market. Livestock growth in the quarter was primarily driven by our cattle and swine businesses. Cattle grew 3% and swine grew 6% operationally despite price reductions as part of our generic defense strategy and higher input costs weighing on producer profitability in the U.S. Data suggests the food service and restaurant industries continued to recover in the second quarter, which is a crucial dynamic for demand of our premium products.
Poultry was the only species to decline in the quarter, which fell 4% as producers in the U.S. expanded their use of lower-cost alternatives to our products. The decline in poultry partially offset the growth in cattle, swine and fish products. Now let's discuss the revenue growth by segment for the quarter. U.S. revenue grew 22% with sales of companion animal products growing 34% and lifestyle product sales declining 8%. U.S. quarterly revenue exceeded $1 billion for the first time in company history. For companion animal, pet ownership and pet spending trends remain robust. Vet clinic revenue increased double digits in the quarter and patient visits and spend per visit were up as well. While we expect some of the trends to moderate, our view is they will remain above pre-COVID-19 levels.
A meaningful portion of pet acquisitions, which occurred during the pandemic were by millennials and Gen Z. This infuses a solid foundation of younger pet ownership who are willing to spend disproportionately more on all aspects of pet care than prior generations and will be a key growth driver for companion animal medicines, vaccines and diagnostics moving forward. Our companion animal parasiticide portfolio was the largest contributor to companion animal growth in the U.S., growing 59% in the quarter. Key dermatology products, vaccines and diagnostics also contributed to growth. Simparica Trio had an incredibly strong quarter in the U.S. with sales of $120 million, generating the highest revenue by a single product in the U.S. for Q2. The Simparica franchise generated sales of $153 million, growing 96% and remain the number 2 brand in the U.S. flea, tick and heartworm market.
Key dermatology sales were $197 million for the quarter, growing 23% with significant growth for APOQUEL and CYTOPOINT. Diagnostic sales increased 22% in the quarter with growth in instruments, rapid tests, point-of-care consumables and reference lab revenue. U.S. livestock sales fell 8% in the quarter driven by declines in cattle and poultry with swine essentially flat for the quarter. Q2 cattle sales were negatively impacted by a promotional program in the first quarter of this year, which pulled forward a portion of second quarter sales. In addition, price reductions as part of our generic defense strategy and higher input costs weighing on beef and dairy end markets presented challenges to our cattle business this quarter. Poultry declined in the quarter as producers expanded use of lower cost alternatives to our premium products as a result of higher feed costs and labor wages and smaller flock sizes reducing disease pressure.
We also faced generic competition for Zoamix, our alternative to antibiotics in medicated feed additives. To summarize, our U.S. operations delivered another strong quarter led by our innovative and robust companion animal portfolio. The end market dynamics for companion animals remain extremely healthy with pet ownership and pet spending trends driving an environment conducive to sustainable future growth, which is expected to more than offset the near-term weaknesses to U.S. livestock business. Now turning to our International segment. Revenue in our International segment also grew 22% operationally in the quarter with companion animal revenue growing 41% and livestock revenue growing 10% operationally. The trends fueling strength in our international companion animal business are very similar to those in the U.S.
The increasing medicalization rates and standard of care by pet owners coupled with significant investments in advertising and promotion to support new product launches and key brands drove growth across our parasiticides, vaccines, diagnostics and key dermatology portfolios. Diagnostics grew 106% operationally in the quarter with consumables and instrument revenue each exceeding 100% operational growth. Librela, our monoclonal antibody for alleviation of OA pain in dogs launched in the EU in the second quarter. Feedback from the early experience trials in Q1 was encouraging and second quarter sales exceeded our expectations, further supporting our optimism on the long-term blockbuster potential of the product as well as monoclonal antibodies as a platform for future growth.
Our feline monoclonal antibody for alleviation of OA pain, SOLENSIA, began early experience programs in the second quarter with an EU launch following in Q3. As previously mentioned, OA pain in cats is a significant unmet need in animal health, and we're excited to provide pet owners with a novel product in a space that has previously lacked innovation. Meanwhile, our international livestock business had its second consecutive quarter with growth across all species, led by strong operational growth in cattle and swine. Cattle growth in the quarter was driven by marketing campaigns, key account penetration and favorable export market conditions in Brazil and several other emerging markets. Revenue growth in swine is largely attributed to China, which grew 38% operationally.
The themes of growth in swine remained consistent with previous quarters as large key accounts increased their use of our vaccines and other products as they continue to expand production as the market shifts from smaller farms to larger scale modern operations. Our fish portfolio continues to perform very well, growing 25% operationally. Growth was driven by strong performance of Alpha Flux in Chile, vaccine volume in Norway and the 2020 acquisition of Fish Vet Group. From a market perspective lens, all major markets grew double digits in the second quarter with the exception of Japan, which declined slightly in Q2. China and Brazil had strong quarters, growing 30% and 40%, respectively, on an operational basis. Growth in companion animal across emerging markets remains a key driver of our international business.
And in addition to the growth in China and Brazil, our other emerging markets' companion animal business grew 68% operationally. Overall, our International segment delivered strong results, demonstrating the importance of our diversity across species and geography. The livestock business continues to perform well and increasing pet acquisitions and pet care spending are extremely encouraging trends for long-term growth in companion animal. Now moving on to the rest of the P&L. Adjusted gross margins of 70% is essentially flat on a reported basis compared to the prior year as favorable product mix and price were offset by higher manufacturing costs in freight. Adjusted operating expenses increased 23% operationally, resulting from increased compensation-related costs, advertising and promotion expense and freight.
The adjusted effective tax rate for the quarter was 20%, a decrease of 230 basis points, driven by the favorable impact of jurisdictional mix of earnings, lower GILTI tax and an increase in favorable discrete items compared to the prior year's comparable quarter. Adjusted net income and adjusted diluted EPS were 28% operationally for the quarter, primarily driven by revenue growth. We remain in a very strong liquidity position and continued our share buyback program, repurchasing approximately $165 million worth of shares in the quarter. The strength of our balance sheet and substantial free cash flow generation allows us to make significant investments for future growth while still returning excess cash to shareholders. Before I review our updated guidance, I would like to reiterate a point that has been discussed on prior earnings calls, which is that we expect growth to moderate in the second half of the year as a result of varying comparative periods where pent-up demand created by COVID-19 in the first half of 2020 work its way through the system in the second half of the year in addition to the expected increased generic competition for DRAXXIN.
Adjusting for the variability in the comparative period due to the pandemic, our phasing of top line growth would be more normalized and consistent quarter-to-quarter throughout this year. Now moving on to our updated guidance for 2021, which we are raising and narrowing as a result of our second quarter performance, strength of our product portfolio and favorable market dynamics, which we expect to continue [Technical Issues]. Please note that our guidance reflects foreign exchange rates as of mid-July. For revenue, we are raising and narrowing our guidance range with projected revenue now between $7.625 billion and $7.7 billion and operational revenue growth between 12.5% and 13.5% for the full year versus the 10.5% to 12% in our May guidance. Adjusted SG&A expense for the year are expected to be between $1.87 billion and $1.91 billion versus $1.82 billion and $1.87 billion in our prior guidance.
The increased spend represents additional advertising and promotion investments, a significant portion of which will occur in the third quarter as well as compensation-related costs due to company performance. Adjusted net income is now expected to be in the range of $2.135 billion and $2.175 billion, representing operational growth of 13% to 15% compared to our prior guidance of 12% to 14%. Adjusted diluted EPS is now expected to be in the range of $4.47 to $4.55 and reported diluted EPS to be in the range of $4.09 to $4.19. Now to summarize before we move on to Q&A. Our strong performance in the first half of 2021 continues to underscore the value of our diversity, innovation and durable business model. We again raised and narrowed our full year 2021 guidance and expect to grow faster than the market. We continue to focus on long-term sustainable growth by investing in our pipeline, including infrastructure to support current and future product launches and remain very positive in our outlook for sustainable growth beyond this year.
Now I'll hand things over to the operator to open the line for your questions. Operator?
