Full Press Release Details
Investor Contact: Kathryn Grissom (317) 273-9284
Media Contact: Colleen Parr Dekker (317) 989-7011
Elanco Animal Health Reports
Fourth Quarter and Full Year 2022 Results
GREENFIELD, IN (February 21, 2023) - Elanco Animal Health
Incorporated (NYSE: ELAN) today reported its financial results for the fourth quarter and full year 2022, and provided initial guidance
both for the first half and full year 2023.
"Elanco's 2022 results demonstrate our ongoing
dedication to our Innovation, Portfolio, and Productivity (IPP) strategy, with significant advancement in our innovation pipeline
and productivity gains across the company," said Jeff Simmons, Elanco president and chief executive officer. "Although
we continued to experience environmental and competitive pressure on our topline performance, we delivered operating cost discipline
contributing to an Adjusted EBITDA margin expansion of 90 basis points for the year. Most importantly, we delivered the expected
submissions for two pet health potential blockbusters and added eight product approvals in major markets including differentiated
feline innovations. We have also made great strides in meeting the FDA's requirements to commercialize Bovaer and now anticipate a first
half 2024 approval and launch, adding a sixth potential blockbuster to our suite of late-stage innovation and increasing confidence
for our next era of growth.
"As we look to 2023, we recognize environmental and competitive
pressures will persist; but are encouraged by strengthening Elanco tailwinds from price, innovation and improving supply. In the coming
months, our global teams are focused on successfully executing our systems integration and enhancing our commercial excellence to capture
the full value of the historic launch window in front of us, while maximizing our existing diverse portfolio."
Financial Highlights
| Fourth Quarter Results (dollars in millions, except per share amounts) | 2022 | 2021 | Change (%) | CER (1) Change (%) | ||||||||||||
| Pet Health | $ | 423 | $ | 494 | (14 | )% | (10 | )% | ||||||||
| Farm Animal | $ | 552 | $ | 604 | (9 | )% | (3 | )% | ||||||||
| Cattle | $ | 222 | $ | 245 | (9 | )% | (5 | )% | ||||||||
| Poultry | $ | 187 | $ | 208 | (10 | )% | (4 | )% | ||||||||
| Swine | $ | 100 | $ | 118 | (15 | )% | (10 | )% | ||||||||
| Aqua | $ | 43 | $ | 33 | 30 | % | 42 | % | ||||||||
| Contract Manufacturing | $ | 13 | $ | 15 | (13 | )% | (5 | )% | ||||||||
| Total Revenue | $ | 988 | $ | 1,113 | (11 | )% | (6 | )% | ||||||||
| Reported Net Loss | $ | (54 | ) | $ | (104 | ) | 48 | % | ||||||||
| Adjusted EBITDA | $ | 174 | $ | 214 | (19 | )% | ||||||||||
| Reported EPS | $ | (0.11 | ) | $ | (0.21 | ) | 48 | % | ||||||||
| Adjusted EPS | $ | 0.19 | $ | 0.21 | (10 | )% |
| Full Year Results (dollars in millions, except per share amounts) | 2022 | 2021 | Change (%) | CER (1) Change (%) | ||||||||||||
| Pet Health | $ | 2,145 | $ | 2,351 | (9 | )% | (5 | )% | ||||||||
| Farm Animal | $ | 2,219 | $ | 2,332 | (5 | )% | 0 | % | ||||||||
| Cattle | $ | 944 | $ | 980 | (4 | )% | 0 | % | ||||||||
| Poultry | $ | 716 | $ | 744 | (4 | )% | 2 | % | ||||||||
| Swine | $ | 384 | $ | 464 | (17 | )% | (13 | )% | ||||||||
| Aqua | $ | 175 | $ | 144 | 22 | % | 32 | % | ||||||||
| Contract Manufacturing | $ | 54 | $ | 82 | (34 | )% | (29 | )% | ||||||||
| Total Revenue | $ | 4,418 | $ | 4,765 | (7 | )% | (3 | )% | ||||||||
| Reported Net Loss | $ | (74 | ) | $ | (482 | ) | 85 | % | ||||||||
| Adjusted EBITDA | $ | 1,023 | $ | 1,060 | (3 | )% | ||||||||||
| Reported EPS | $ | (0.15 | ) | $ | (0.99 | ) | 85 | % | ||||||||
| Adjusted EPS | $ | 1.11 | $ | 1.07 | 4 | % |
(1) CER = Constant Exchange Rate, representing the growth
rate excluding the impact of foreign exchange rates.
Certain reclassifications of prior year farm animal species revenue
have been made to conform to the current year's presentation.
Certain prior period amounts reflect revisions primarily relating to
tax valuation allowance adjustments. See below for further discussion.
Numbers may not add due to rounding.
Fourth Quarter Results:
In the fourth quarter of 2022, revenue was $988 million, a decrease
of 11% on a reported basis, or a decrease of 6% excluding the unfavorable impact from foreign exchange rates, compared with the fourth
Pet Health revenue was $423 million, a decrease of 14% on a
reported basis or a decrease of 10% excluding the unfavorable impact from foreign exchange rates, with a 2% increase from price in the
quarter. The Advantage Family of products and Seresto contributed revenue of $81 million and $36 million,
respectively. Volume declines were driven by continued competitive pressure on certain parasiticide products, global economic conditions
impacting consumer purchasing behavior in European and U.S. retail channels, lower inventory levels at several U.S. retailers, and supply
constraints for certain vaccines, partially offset by growth in our global pain portfolio and innovation products.
Farm Animal revenue was $552 million, a decrease of 9% on a
reported basis or a decrease of 3% excluding the unfavorable impact from foreign exchange rates, with a 4% increase from price. For the
fourth quarter, excluding the unfavorable impact of foreign exchange rates, increased demand for aqua products and strength in international
cattle was more than offset by declines in U.S. cattle as a result of supply constraints for cattle vaccines and a reduction in purchases
by distributors, declines in swine outside the U.S., and declines in poultry primarily driven by the timing of customer product rotations
Contract Manufacturing revenue was $13 million, a decrease of
13% or 5% when excluding the unfavorable impact from foreign exchange rates, driven primarily by the sale of a manufacturing site to TriRx
Reported and adjusted gross profit was $540 million, or 54.7% of revenue
in the fourth quarter of 2022. Gross profit as a percent of revenue improved 70 bps, primarily driven by improved price and continued
productivity efforts across our manufacturing footprint, partially offset by inflation and unfavorable product mix.
Total operating expense was $383 million for the fourth quarter of
2022. Marketing, selling and administrative expenses decreased 7% to $303 million, and research and development expenses decreased 13%
to $80 million. The decrease in total operating expenses was driven by cost savings realized as a result of 2021 restructuring activities,
a decrease in advertising and promotional expenses, and the impact of foreign exchange rates, partially offset by higher travel and meeting
Asset impairment, restructuring, and other special charges were $32
million in the fourth quarter of 2022, compared to $110 million in the fourth quarter of 2021. Charges recorded in the fourth quarter
of 2022 primarily related to costs associated with the implementation of new systems, programs, and processes due to the integration of
Bayer Animal Health. The go-live of the ERP system consolidation is still expected early in the second quarter of 2023.
Reported net interest expense was $62 million in the fourth quarter
of 2022, a 13% increase as compared to the fourth quarter of 2021. On an adjusted basis, net interest
expense was $61 million, an 11% increase as compared to the fourth quarter of 2021. The negative impact of rate increases on variable
rate debt and the addition of incremental term facilities were partially offset by the partial repayment of the company's senior notes
The reported effective tax rate increased to 39.4% in the fourth quarter
of 2022 compared to 12.8% in the fourth quarter of 2021, primarily driven by the revised impact of the required capitalization of certain
R&D expenses, a favorable tax ruling in Brazil, a reduction in UK taxes offset by a U.S. tax liability associated with the divestiture
of the Speke site, and the jurisdictional location of Elanco profits. The adjusted effective tax rate was negative 22.0% in the fourth
quarter of 2022 as compared to 19.2% in the fourth quarter of 2021.
Net loss for the fourth quarter of 2022 was $54 million and $(0.11)
per diluted share on a reported basis, compared with a net loss of $104 million and $(0.21) per diluted share for the same period in 2021.
On an adjusted basis, net income for the fourth quarter of 2022 was $95 million, as compared to $101 million for the fourth quarter of
2021, or $0.19 per diluted share, as compared to $0.21 per diluted share for the same period in 2021.
Adjusted EBITDA was $174 million in the fourth quarter of 2022, a decrease
of 19% compared to the fourth quarter of 2021. Adjusted EBITDA as a percent of revenue was 17.6% compared with 19.2% for the fourth quarter
of 2021, a decrease of 160 basis points.
Working Capital and Balance Sheet
Cash flow from operations is expected to be approximately $10 to $20
million in the fourth quarter of 2022 compared to $223 million in the fourth quarter of 2021. The decrease in cash from operations in
the fourth quarter of 2022 reflects an increase in net working capital driven by an increase in inventories. The increase in inventories
was primarily driven by volume declines and the anticipated impact of sales shifting from the second quarter of 2023 into the first quarter
of 2023 as a result of sales order processing blackout periods on legacy Bayer products associated with the ERP system cutover early in
the second quarter of 2023.
As of December 31, 2022, Elanco's net leverage ratio
was 5.4x adjusted EBITDA, flat compared to December 31, 2021 with the net debt reduction of $208 million
offsetting the decline in adjusted EBITDA.
For further detail of non-GAAP measures, see the Reconciliation of
GAAP Reported to Selected Non-GAAP Adjusted Information tables later in this press release.
Select Business Highlights Since the Last
| Received federal U.S. EPA approvals for Advantage for cats and K9 Advantix for dogs. The re-launch of the original formulation of these OTC parasiticide products in the coming months will expand Elanco's retail presence offering into the value segment, targeting the cost-conscious pet owner. | ||
| Announced that veteran animal health leader, Tim Bettington, will be joining the company as the executive vice president Corporate Strategy and Market Development. |
Elanco is providing financial guidance for the full year 2023, summarized
in the following table:
| 2023 Full Year (dollars in millions, except per share amounts) | Guidance | ||||||||
| Revenue | $ | 4,280 | to | $ | 4,400 | ||||
| Reported Net Loss | $ | (157 | ) | to | $ | (109 | ) | ||
| Adjusted EBITDA | $ | 920 | to | $ | 1,000 | ||||
| Reported Loss per Share | $ | (0.32 | ) | to | $ | (0.22 | ) | ||
| Adjusted Earnings per Share | $ | 0.74 | to | $ | 0.83 |
The company anticipates revenue between $4,280 million and $4,400 million,
with a headwind of approximately $10 million to $15 million from the unfavorable impact of foreign exchange rates compared to prior year.
Excluding the unfavorable impact of foreign exchange rates, the company expects revenue to be flat to declining 3%. In 2023, the company
expects continued pressure from competitive innovation in the U.S. pet health veterinary market and economic weakness in Europe and U.S.
to impact pet retail markets to be partially offset by accelerating growth from innovation products, increased price, and improving dynamics
"Our 2023 guidance reflects the
continuation of macroenvironmental headwinds we faced in the second half of 2022, but accelerating innovation sales and price growth
are expected to provide partial offsets" said Todd Young, Elanco's Chief Financial Officer. "The organization is