Chief Financial Officer at Zoetis
Thank you, Kristin and good morning, everyone. As Kristin mentioned, we had a solid quarter with growth across a number of our core franchises, driven by our companion animal performance, especially in international. Today, I will focus my comments on our third quarter financial results, the key drivers contributing to our performance and provide an update on our full year 2022 guidance.
In the third quarter, we generated revenue of $2 billion, growing 1% on a reported basis and 5% on an operational basis. Adjusted net income of $566 million declined 5% on a reported basis and grew 2% on an operational basis. Of the 5% operational revenue growth, 4% is from volume and 1% from price. Volume growth consisted of 4% from new products which includes Simparica Trio and our monoclonal antibodies for osteoarthritis pain in dogs and cats, Librela an Solensia and 1% from key dermatology products, while other in-line products declined 1%. The decline was largely the result of supply challenges.
Companion animal products continue to be the primary driver of growth, growing 10% operationally, with livestock declining 3% on an operational basis in the quarter. Simparica Trio was the largest contributor to growth in the quarter. Trio posted global revenue of $172 million, representing operational growth of 43% versus the comparable period in 2021. We expect to continue to grow the addressable market for flee, tick and heartworm globally and see significant room for growth with brands like Simparica Trio, Simparica, ProHeart and Revolution Plus.
Meanwhile, our key dermatology products, Apoquel and Cytopoint, had solid global growth, especially internationally, with $343 million of revenue, representing 11% operational growth against a robust prior year in which these products grew 26% operationally. Year-to-date revenue is $966 million, representing 18% operational growth. Sales of our monoclonal antibodies for osteoarthritis pain in dogs and cats in International continue to exceed expectations, posting $37 million of sales in the quarter.
Switching to Diagnostics; our global Companion Animal diagnostics portfolio recorded $78 million in revenue in Q3, declining 9% operationally. Despite declining revenues, we saw solid new instrument placements in the quarter. The decline in our US diagnostics portfolio was partially offset by growth internationally in the quarter. In the US, our diagnostics results were also impacted by the vet clinic workforce challenges and we continue to experience a slowdown in sales as we transition to our new go-to-market model and build out a sizable and new dedicated field force for diagnostics.
While disruptive in the short term, this investment is putting the necessary elements in place to position and grow our diagnostics portfolio over the long run. We expect the effectiveness of our new diagnosis field force to improve gradually into 2023. Diagnostics remains core to our business and a key long-term growth driver for Zoetis. Meanwhile, sales of lifestyle products declined by 3% operationally in the quarter. Our portfolio continues to be challenged by generics and cheaper alternatives to Draxxin in cattle as well as Zoamix in poultry and supply challenges for certain products. Our fish portfolio grew 19% operationally in the quarter and along with the strength of our sheep products in Australia, partially offset the broader decline.
Now moving on to revenue growth by segment for the quarter. US revenue was $1.1 billion in the quarter, growing 2%, with companion animal sales growing 6% and livestock sales declining by 7%. Focusing first on companion animal. The effects of our ongoing supply challenges were more pronounced in the third quarter, tempering growth in our parasiticides. In US companion animal, we are also seeing vet clinic workforce challenges limiting appointment availability as visits declined 4% in the quarter. Despite lower visits, practice revenue is growing approximately 5% and as spending per visit remained strong again this quarter, increasing more than 9%. The decline in clinic visits is stabilizing at pre-COVID levels, as the impact of higher pet ownership growth rates due to COVID normalize and vet practices deal with workforce challenges. However, underlying demand for veterinary care remains robust throughout the country, even as people return to work.
While vet clinic workforce challenges do exist, we believe vet clinic revenue will continue to grow at levels above what we were seeing prior to COVID as the standard of veterinary care continues to increase through innovation, better pet ownership demographics, higher compliance and more pets. Even with the robust comparative year, we continue to see volume growth in our companion animal products, driven by our innovative products, such as Trio and our key dermatology products, Apoquel and Cytopoint.
Growth of Simparica Trio was again strong in the quarter with sales of $157 million in the US, growing 43%. Despite the impact of supply constraints and the vet clinic workforce challenges, we continue to take share within individual clinics. These dynamics will provide additional runway for future expansion of both the broader market and revenue growth for Trio. Key dermatology products sales in the U.S. were $231 million for the quarter, growing 6% with Apoquel and Cytopoint each contributing to growth. Year-to-date, our U.S. derm portfolio has grown 12%. Growth is tempered by prior year cover related spice in derm visits that drive visit growth of 25% in Q3, 2021 and help accelerate market expansion. This growth was also impacted by the ongoing pet clinic workforce challenges. We expect continued expansion of the market for the foreseeable future.
U.S. livestock declined 7% in the quarter as expected, with sales of cattle products impacted by generic competition for Jackson. Meanwhile, our U.S. poultry portfolio continues to be negatively impacted by the expanded use of lower cost alternatives and generic competition for Zoamix. US swine product sales declined 3% in the quarter, driven primarily by increased competition for vaccines.
Moving on to our International segment, where revenue declined 2% on a reported basis and grew 8% operationally in the quarter. International Companion animal revenue grew 17% operationally and livestock revenue was flat operationally. Increased sales of comparing animal products resulted from growth of monoclonal antibodies for alleviation of osteoarthritis pain, our key dermatology products and Simparica Trio. We remain excited with the long-term prospects of these innovative brands and expect future direct-to-consumer advertising to help drive additional growth. Sales of companion animal vaccines also contributed to growth in the quarter.
We continue to be pleased with the performance of our monoclonal antibodies for OA pain with Librela generating $31 million and Solensia delivering $6 million in third quarter sales. Librela remains on track to exceed $100 million in revenue this year, a new blockbuster for Zoetis. As we have mentioned in prior quarters, Librela is the number one pain product in the EU with the underlying performance metrics being very favorable for future growth. Reordering rates remain high. Compliance continues to exceed our initial expectations and we continue to see significant opportunity to expand the pain market with a meaningful percentage of dogs on Librela being new to the market. We saw volume growth in our international companion animal portfolio in the third quarter and we also saw growth across our injectable products, including monoclonal antibodies and vaccines. Meanwhile, international livestock was flat operationally in the quarter. Our fish portfolio grew 19% operationally and experienced increased demand for vaccines in key salmon markets, including Norway and Chile. Sales of sheep products grew as a result of favorable market conditions and new product launches in Australia.
Growth was offset by swine sales which declined due to supply constraints across international and lower sales across Europe due to reduced exports to China and higher input costs for producers. Sales in Brazil also declined as we are seeing supply challenges on cattle products. Additionally, inflationary impacts on consumer spending are driving consumption away from beef to lower-cost animal proteins such as pork and chicken and reducing reducer profitability. Lastly, the Jurox acquisition which is based in Australia, was completed on September 30 and is not reflected in our Q3 results.
Now moving on to the rest of the P&L for the quarter. Adjusted gross margins of 69.8% decreased 90 basis points on a comparable basis to the prior year, resulting primarily from unfavorable foreign exchange impacts. Operationally, gross margin slightly declined, driven by higher manufacturing, freight and other costs which were largely offset by favorable mix and price.
Adjusted operating expenses increased 3% operationally, with SG&A growth of 3% operationally, driven by T&E costs beginning to return to pre-COVID levels as well as freight and logistics. R&D expenses increased 4% operationally due to higher compensation costs and higher operating costs. The adjusted effective tax rate for the quarter was 20.9%, an increase of 420 basis points due to unfavorable changes to the jurisdictional mix of earnings, including decreased favorability related to foreign-derived intangible income in the prior year period. And finally, adjusted net income grew 2% operationally and adjusted diluted EPS grew 4% operationally for the quarter.
Capital expenditures in the third quarter were $154 million. In the quarter, we repurchased approximately $375 million of Zoetis shares and returned over $0.5 billion to shareholders through a combination of share repurchases and dividends. Year-to-date, we have repurchased almost $1.2 billion of Zoetis shares.
Now, moving on to our updated guidance for the full year 2022. For operational revenue growth, we are lowering our growth to 7% to 8%, previously 9.5% to 10.5%. We are also lowering our operational growth expectations for adjusted net income to a range of 9% to 11%, previously 11% to 13%. This change in guidance is reflective of our Q3 results, continued impact from supply challenges and the ongoing veterinary workforce challenges.
Foreign exchange rates on our updated guidance are as of late October and reflect the continued strengthening of the US dollar. Beginning with revenue for the full year 2022 due to lowering of our guidance and the impact of foreign exchange, we are now projecting revenue of between $8.0 billion and $8.075 billion. We lowered our operating expense guidance for the full year, reflecting lower expenses in both Q3 and Q4 which reflects our ability to manage costs. Additionally, it is worth noting that our expected Q4 expense decline is also impacted by an easier comp due to heavy spending in the fourth quarter last year. Additionally, our guidance for adjusted interest expense and OID was changed to reflect favorable changes to interest income. We now expect adjusted net income to be in the range of $2.27 billion to $2.31 billion. And finally, we expect adjusted diluted EPS to be in the range of $4.83 to $4.90 and reported diluted EPS to be in the range of $4.51 to $4.59.
While lower, our full year 2022 guidance once again reflects our value proposition of growing revenue in line with or faster than the market and growing adjusted net income faster than revenue over the long term. Our success will continue to come from our diversified portfolio of enduring brands driven by multiple sources of in-line growth, productive innovation and our infrastructure to develop and expand market globally. We expect to continue to execute across multiple dimensions of our business and capitalize on key growth opportunities for the foreseeable future.
Now, I'll hand things over to the operator to open the line for your questions. Operator?