Full Press Release Details
Investor Contact Kathryn Grissom (317) 273-9284 or kathryn.grissom elancoah.com
Media Contact Colleen Parr Dekker (317) 989-7011 or colleen.dekker elancoah.com
Elanco Animal Health Reports Third Quarter 2024 Results
Third Quarter 2024 Financial Results
Revenue of $1,030 million, organic constant currency growth of 1%
Reported Net Income of $364 million, Adjusted Net Income of $66 million
Adjusted EBITDA of $163 million, or 15.8% of Revenue
Reported EPS of $0.73, Adjusted EPS of $0.13
Net leverage ratio of 4.3x Adjusted EBITDA
Pre-tax gain of $640 million from July 2024 divestiture of the aqua business
Tightening full year 2024 financial guidance to reflect current assumptions
Revenue of $4,420 to $4,450 million, with organic constant currency growth of 3%
Reported Net Income of $286 to $317 million Reported EPS of $0.58 to $0.64
Adjusted EBITDA of $900 to $930 million Adjusted EPS of $0.89 to $0.95
Received U.S. FDA approval for Zenrelia and Credelio Quattro , bringing innovation to the largest pet health markets
In 2025, innovation ramp expected to accelerate organic constant currency revenue growth to mid-single digits, with adjusted EBITDA growth, excluding the aqua divestiture, expected in the low single digits, with underlying mid-single growth offset by expected headwinds from U.K. CMO
GREENFIELD, Ind (November 7, 2024) - Elanco Animal Health Incorporated (NYSE ELAN) today reported financial results for the third quarter of 2024, provided guidance for the fourth quarter of 2024, and tightened guidance for the full year 2024.
Elanco's expanding portfolio supported our fifth consecutive quarter of underlying organic constant currency revenue growth in the third quarter, and we continue to expect 3% organic constant currency growth for the full year. It's exciting to see our Innovation, Portfolio and Productivity strategy come to life with new products driving growth, led by Experior , Adtab and Zenrelia, and we expect this growth to accelerate to mid-single digits in 2025," said Jeff Simmons, President and CEO of Elanco. "Our late-stage pipeline has largely moved into commercialization mode with the U.S. FDA approval and launch of Zenrelia, which is off to a great start in the U.S. and Brazil. Additionally, we received U.S. FDA approval for Credelio Quattro, positioning Elanco to bring positively differentiated products to the two largest pet health markets that will contribute to an expected return to growth for U.S. pet health in 2025. Finally, we continue to drive improved cash flow and deleveraging, finishing the third quarter with net leverage at 4.3x, down 1.3x compared to June 30th aided by the proceeds from the aqua divestiture and debt paydown from operations, with continued deleveraging expected in 2025.
Select Business Highlights Since the Last Earnings Call
Received U.S. FDA approval for Zenrelia, a JAK inhibitor targeting control of pruritus and atopic dermatitis in dogs, with product launch in both the U.S. and Brazil in late September 2024. Additionally, the company has received approval for Zenrelia in Canada and Japan.
Received U.S. FDA approval for Credelio Quattro, the first and only parasiticide for dogs to protect against fleas, ticks, heartworms, roundworms, hookworms and three different species of tapeworm, with product launch expected in the first quarter of 2025.
Feeding of Bovaer , a first-in-class methane reducing feed ingredient for dairy cattle, began and multiple consumer packaged goods companies signed agreements to buy inset carbon credits.
Experior, an innovative feed ingredient for the reduction of ammonia gas emissions in cattle, received multiple combination clearance approvals from the U.S. FDA in October with Rumensin , Tylan and MGA , allowing for broader expansion into heifers, which represent nearly 40% of the U.S. fed cattle population.
Announced $130 million expansion of biologics manufacturing facility in Elwood, Kansas to enable further growth of the company's monoclonal antibody platform.
| Third Quarter Results (dollars in millions, except per share amounts) | 2024 | 2023 | Change (%) | Organic CC Growth 1 (%) | ||
| Pet Health | $486 | $495 | (2) | % | (2) | % |
| Farm Animal | $530 | $561 | (6) | % | 3 | % |
| Cattle | $253 | $242 | 5 | % | 6 | % |
| Poultry | $188 | $184 | 2 | % | 3 | % |
| Swine | $88 | $93 | (5) | % | (5) | % |
| Aqua | $1 | $42 | (98) | % | ||
| Contract Manufacturing | $14 | $12 | 17 | % | 18 | % |
| Total Revenue | $1,030 | $1,068 | (4) | % | 1 | % |
| Reported Net Income (Loss) | $364 | $(1,096) | 133 | % | ||
| Adjusted EBITDA | $163 | $214 | (24) | % | ||
| Reported EPS | $0.73 | $(2.22) | 133 | % | ||
| Adjusted EPS | $0.13 | $0.18 | (28) | % |
1Organic CC Growth Representing revenue growth excluding revenue from the aqua business, which we divested July 9, 2024, and the impact of foreign exchange rates.
Numbers may not add due to rounding.
In the third quarter of 2024, revenue was $1,030 million, a decrease of 4% on a reported basis, or an increase of 1% when excluding the unfavorable impacts from the aqua divestiture and foreign exchange rates compared to the third quarter of 2023.
Pet Health revenue was $486 million, a decrease of 2% on a reported and constant currency basis, including a 2% increase from price, compared to the third quarter of 2023. The year over year volume decline in the third quarter was primarily driven by competitive pressure on certain products in the U.S. veterinary channel, competitive pressure in Australia and supply volatility for vaccines in the U.S., partially offset by increased sales of new products and improved demand for retail parasiticide products in the U.S. and Europe, primarily Seresto .
The Advantage Family of products, contributed $114 million in the third quarter of 2024, an increase of 6% excluding the impact from foreign exchange rates. Seresto revenue was $50 million, an increase of 22% excluding the impact from foreign exchange rates.
Farm Animal revenue was $530 million, a decrease of 6% on a reported basis, or an increase of 3% when excluding the unfavorable impacts from the aqua divestiture and foreign exchange rates, driven by a 3% increase from price, compared to the third quarter of 2023. Third quarter volumes were flat primarily driven by strength in U.S. cattle, led by Experior and Rumensin, and poultry sales in the U.S. and Europe, offset by lower demand for sheep products in Australia and planned volume declines from the strategic decision to change go-to-market models in certain countries, as well as the European recall of Kexxtone .
Gross profit was $538 million, or 52.2% of revenue in the third quarter of 2024 with a 220-basis point decline in gross profit as a percent of revenue compared to the third quarter of 2023. The decline was primarily driven by higher inflation, unfavorable manufacturing performance, and product mix associated with the divested aqua business, partially offset by increased pricing. The year-over-year change in gross margin from reduced throughput at certain manufacturing sites was largely neutral.
Total operating expenses were $410 million for the third quarter of 2024. Marketing, selling and administrative expenses increased 3% to $323 million, primarily driven by higher employee related expenses and increased expenses supporting the U.S. pet health business, partially offset by savings related to the company's first quarter 2024 restructuring. Research and development expenses increased 1% to $87 million.
Asset impairment, restructuring and other special charges were $17 million in the third quarter of 2024 compared to $16 million in the third quarter of 2023. Charges recorded in the third quarter of 2024 primarily related to the impairment of a U.K. contract manufacturing organization (CMO) contract asset as a result of its court-supervised insolvency and exit costs related to the strategic change in operating models in certain countries.
During the third quarter of 2024, the company recorded a pre-tax gain on the divestiture of the aqua business of $640 million, resulting in an impact of $0.94 per share, net of tax on a reported basis.
Reported net interest expense was $58 million in the third quarter of 2024, a decrease of $14 million compared to the third quarter of 2023. Adjusted net interest expense was $46 million in the third quarter of 2024, a decrease of $26 million compared to the third quarter of 2023. The decrease was driven by lower debt enabled by the aqua divestiture.
The reported effective tax rate was 34.8% in the third quarter of 2024, primarily driven by the tax expense associated with the aqua divestiture, compared to 0.2% in the third quarter of 2023. The adjusted effective tax rate increased to 18.7% in the third quarter of 2024 compared to 16.0% in the third quarter of 2023.
Net income for the third quarter of 2024 was $364 million and $0.73 per diluted share on a reported basis, primarily driven by the gain on the divestiture of the aqua business, compared with a net loss of $1,096 million and $2.22 per diluted share for the same period in 2023, which included a $1,042 million goodwill impairment charge. On an adjusted basis, net income for the third quarter of 2024 was $66 million, or $0.13 per diluted share, a 28% decrease compared with the same period in 2023. Adjusted EBITDA was $163 million in the third quarter of 2024, a 24% decrease compared to the third quarter of 2023. Adjusted EBITDA as a percent of revenue was 15.8% compared with 20.0% for the third quarter of 2023.
Working Capital and Balance Sheet
Cash provided by operations was $162 million in the third quarter of 2024 compared to $198 million in the third quarter of 2023. The $36 million decrease in cash from operations year over year reflects lower adjusted EBITDA and decreased cash from interest rate swap settlements, partially offset by improved working capital.
As of September 30, 2024, Elanco's net leverage ratio was 4.3x adjusted EBITDA, a reduction of 1.3x compared to June 30, 2024. The company expects to end the year with a net leverage ratio in the mid-4x range.
Elanco is tightening financial guidance for the full year 2024, summarized in the following table.
| 2024 Full Year (dollars in millions, except per share amounts) | August Guidance | November Guidance | ||||||
| Revenue | $4,410 | to | $4,460 | $4,420 | to | $4,450 | ||
| Reported Net Income | $314 | to | $352 | $286 | to | $317 | ||
| Adjusted EBITDA | $900 | to | $940 | $900 | to | $930 | ||
| Reported Earnings per Share | $0.63 | to | $0.71 | $0.58 | to | $0.64 | ||
| Adjusted Earnings per Share | $0.88 | to | $0.96 | $0.89 | to | $0.95 |
The tightened 2024 revenue guidance continues to reflect 3% organic constant currency growth inclusive of higher innovation sales contribution, now expected between $420 million to $450 million for the full year, offset by lowered expectations for U.S. Pet Health parasiticides. The impact of foreign exchange rates on revenue is now expected to be a headwind of approximately $25 million. The company is updating its adjusted EBITDA guidance range to reflect expected gross margin headwinds from product mix and manufacturing performance. Offsetting the items impacting adjusted EBITDA, improved expectations for interest expense and tax are reflected in the updated adjusted EPS guidance, with no change to the midpoint of the range.
To support framing of future expectations, the company estimates that in the first half of 2024 revenue of $80 million and adjusted EBITDA of approximately $40 million was directly attributable to the aqua business.
Additionally, the company is providing guidance for the fourth quarter of 2024, as summarized in the following table
| 2024 Fourth Quarter (dollars in millions, except per share amounts) | Guidance | |||||||
| Revenue | $1,000 | to | $1,030 | |||||
| Reported Net Loss | $(59) | to | $(32) | |||||
| Adjusted EBITDA | $167 | to | $197 | |||||
| Reported Loss per Share | $(0.12) | to | $(0.06) | |||||
| Adjusted Earnings per Share | $0.13 | to | $0.18 |
For the fourth quarter of 2024, the company anticipates revenue between $1.00 billion and $1.03 billion, with a headwind of approximately $5 million from the unfavorable impact of foreign exchange rates compared to the prior year. The company expects organic constant currency revenue growth of 1% to 4%.
We are encouraged by the acceleration of constant currency sales growth from 1% in 2023 to the expected 3% organic constant currency growth in 2024. We see this accelerating further to mid-single digits in 2025 with increased sales from new products and a stabilizing base driving expected growth in both pet health and farm animal," said Todd Young, CFO of Elanco. "We expect the underlying business to drive mid-single digit organic adjusted EBITDA growth in 2025 off of $875 million, reflecting our 2024 guidance midpoint of $915 million less our estimate of approximately $40 million of aqua adjusted EBITDA from 2024, inclusive of strategic investments in our key blockbuster potential launches. Ultimately, we expect adjusted EBITDA growth in the low single digits driven by an anticipated $25 million to $35 million year over year headwind from the court-supervised insolvency of a key U.K-based contract manufacturing partner. We continue to expect innovation sales of $600 million to $700 million and our net leverage to be in the high 3x to low 4x range by the end of 2025."
The 2024 financial guidance and 2025 outlook reflects foreign currency exchange rates as of late October. Further details on guidance, including GAAP reported to non-GAAP adjusted reconciliations, are included in the financial tables of this press release and will be discussed on the company's conference call this morning. The company expects to provide detailed 2025 financial guidance during its fourth quarter 2024 earnings call at the end of February 2025.
WEBCAST CONFERENCE CALL DETAILS
Elanco will host a webcast and conference call at 8 00 a.m. Eastern time today, during which company executives will review third quarter financial and operational results, discuss fourth quarter and full year 2024 financial guidance, and respond to questions from analysts. Investors, analysts, members of the media and the public may access the live webcast and accompanying slides by visiting the Elanco website at https investor.elanco.com and selecting Events and Presentations. A replay of the webcast will be archived and made available a few hours after the event on the company's website, at https investor.elanco.com events-and-presentations default.aspx#module-event-upcoming.
Elanco Animal Health Incorporated (NYSE ELAN) is a global leader in animal health dedicated to innovating and delivering products and services to prevent and treat disease in farm animals and pets, creating value for farmers, pet owners, veterinarians, stakeholders and society as a whole. With nearly 70 years of animal health heritage, we are committed to helping our customers improve the health of animals in their care, while also making a meaningful impact on our local and global communities. At Elanco, we are driven by our vision of Food and Companionship Enriching Life and our Elanco Healthy Purpose - all to advance the health of animals, people, the planet and our enterprise. Learn more at www.elanco.com.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements concerning product launches and revenue from such products, our 2024 full year and fourth quarter guidance and long-term expectations, our expectations regarding debt levels, and expectations regarding our industry and our operations, performance and financial condition, and including, in particular,
statements relating to our business, growth strategies, distribution strategies, product development efforts and future expenses.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important risk factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions, including but not limited to the following
operating in a highly competitive industry
the success of our research and development (R D) and licensing efforts
the impact of disruptive innovations and advances in veterinary medical practices, animal health technologies and alternatives to animal-derived protein
competition from generic products that may be viewed as more cost-effective
changes in regulatory restrictions on the use of antibiotics in farm animals
an outbreak of infectious disease carried by farm animals
risks related to the evaluation of animals
consolidation of our customers and distributors
the impact of increased or decreased sales into our distribution channels resulting in fluctuations in our revenues
our dependence on the success of our top products
our ability to complete acquisitions and divestitures and to successfully integrate the businesses we acquire
our ability to implement our business strategies or achieve targeted cost efficiencies and gross margin improvements
manufacturing problems and capacity imbalances, including at our contract manufacturers
fluctuations in inventory levels in our distribution channels
risks related to the use of artificial intelligence (AI) in our business
our dependence on sophisticated information technology systems and infrastructure, including the use of third-party, cloud-based technologies, and the impact of outages or breaches of the information technology systems and infrastructure we rely on
the impact of weather conditions, including those related to climate change, and the availability of natural resources
demand, supply and operational challenges associated with the effects of a human disease outbreak, epidemic, pandemic or other widespread public health concern
the loss of key personnel or highly skilled employees
adverse effects of labor disputes, strikes and or work stoppages
the effect of our substantial indebtedness on our business, including restrictions in our debt agreements that limit our operating flexibility and changes in our credit ratings that lead to higher borrowing expenses and may restrict access to credit
changes in interest rates that may adversely affect our earnings and cash flows
risks related to the write-down of goodwill or identifiable intangible assets
the lack of availability or significant increases in the cost of raw materials
risks related to our presence in foreign markets
risks related to currency rate fluctuations
risks related to underfunded pension plan liabilities
our current plan not to pay dividends and restrictions on our ability to pay dividends
the potential impact that actions by activist shareholders could have on the pursuit of our business strategies
risks related to tax expense or exposure
actions by regulatory bodies, including as a result of their interpretation of studies on product safety
the possible slowing or cessation of acceptance and or adoption of our farm animal sustainability initiatives
the impact of increased regulation or decreased governmental financial support related to the raising, processing or consumption of farm animals
risks related to the modification of foreign trade policy
the impact of litigation, regulatory investigations, and other legal matters, including the risk to our reputation and the risk that our insurance policies may be insufficient to protect us from the impact of such matters
challenges to our intellectual property rights or our alleged violation of rights of others
misuse, off-label or counterfeiting use of our products
unanticipated safety, quality or efficacy concerns and the impact of identified concerns associated with our products
insufficient insurance coverage against hazards and claims
compliance with privacy laws and security of information and
risks related to environmental, health and safety laws and regulations.
For additional information about the factors that could cause actual results to differ materially from forward-looking statements, please see the company's latest Form 10-K and Form 10-Qs filed with the Securities and Exchange Commission. Although we have attempted to identify important risk factors, there may be other risk factors not presently known to us or that we presently believe are not material that could cause actual results and developments to differ materially from those made in or suggested by the forward-looking statements contained in this press release. If any of these risks materialize, or if any of the above assumptions underlying forward-looking statements prove incorrect, actual results and developments may differ materially from those made in or suggested by the forward-looking statements contained in this press release. We caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this press release. Any forward-looking statement made by us in this press release speaks only as of the date thereof. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should be viewed as historical data.
Use of Non-GAAP Financial Measures