Full Press Release Details
Investor Contact: Tiffany Kanaga (302) 897-0668 or tiffany.kanaga@elancoah.com
Media Contact: Colleen Parr Dekker (317) 989-7011 or colleen.dekker@elancoah.com
Elanco Animal Health Reports First Quarter 2021
Exceeded first quarter 2021 guidance; Updating
full year 2021 guidance, raising and tightening adjusted ranges
GREENFIELD, Ind. (May 7,
2021) - Elanco Animal Health Incorporated (NYSE: ELAN) today reported strong financial results for the first quarter of 2021,
provided guidance for the second quarter of 2021, and updated guidance for the full year 2021. The results reflect the inclusion of the
Bayer Animal Health business Elanco acquired on August 1, 2020.
"Elanco started the year with better than expected results, building
on the strong momentum our business has shown since closing the Bayer Animal Health acquisition in August 2020," said Jeff Simmons,
president and chief executive officer at Elanco. "Over the past two years, we have made several hard strategic decisions. Today we
are seeing the payoff from those choices, and from the disciplined execution that I believe truly sets Elanco on a path to be a global
animal health leader. In the first quarter, we achieved broad-based outperformance across categories and geographies, with expense leverage
and synergy execution driving strong flow-through. Our innovation pipeline is on track to yield eight launches in 2021, and our productivity
agenda is intact with rapid action to integrate Bayer. We are confident our strengthened and expanded innovation, portfolio, and productivity
strategy, or IPP, will continue to drive long-term value creation for shareholders and society."
In the first quarter, Elanco's results compared to the company's February 24,
2021 guidance as follows:
| First Quarter 2021 Results (dollars in millions, except per share amounts) | February Guidance | Actual | Comparison to Midpoint | |||||||||
| Revenue | $1,150 - $1,170 | $ | 1,242 | $ | 82 | |||||||
| Reported EPS | $(0.22) - $(0.17) | $ | (0.12 | ) | $ | 0.08 | ||||||
| Adjusted EPS | $0.20 - $0.25 | $ | 0.37 | $ | 0.15 |
In the first quarter, Elanco's revenue was $1,242 million, benefiting
from increased scale and diversification with the addition of Bayer Animal Health. Products from the legacy Bayer Animal Health business
contributed $559 million, including $143 million from the Advantage family of products and $152 million from Seresto.
The global Pet Health business drove approximately half of the upside
versus the midpoint of first quarter guidance, with execution in a competitive but favorable industry backdrop, and particular strength
from the global Advantage family and U.S. vaccine trends. In the quarter, global Seresto revenue declined 9 percent against a difficult
comparison of 49 percent growth in the first quarter of 2020, which benefited from retailer-driven stock-in at the onset of the pandemic.
For context through sequential two-year growth trends, Seresto revenue in the first quarter of 2021 grew 35 percent vs. the first quarter
of 2019, compared to the full year 2020 up 30 percent over the full year 2018. April revenue for Seresto in the U.S. is ahead of
our original expectations from the start of 2021, and the global brand is on track toward full year expectations.
U.S. Farm Animal also exceeded the company's expectations driven by
strong cattle sales. Outside the U.S., Farm Animal was led by China swine sales' strong recovery from African Swine Fever. International
poultry and aqua remained negatively impacted by unfavorable macroeconomic conditions and reduced consumption; however, the industry outlook
for each is gradually improving.
Operating expenses were below the company's expectations, with an approximately
$30 million shift in investments into the second quarter of 2021, representing approximately $0.05 in adjusted EPS. The shift reflects
more opportunistic and effective phasing for direct-to-consumer and digital advertising with the cooler early parasiticide season, and
the timing of R&D project spend. Additionally, Elanco anticipates increased investments in Seresto in the second quarter of 2021.
The company completed the transition to its standalone ERP system during the first quarter, and has exited all material transition services
agreements with Lilly, on time as planned. Elanco currently estimates stand-up costs taken together to be in a range from $315 to $335
million, net of completed and potential real estate dispositions and employee benefit changes, of which a portion will be capitalized
and the remainder will be expensed. The $15 to $25 million increase compared to the company's previous forecast is driven by continued
hypercare needed to manage through the transition to legacy Elanco's new ERP system, business process changes, and the start-up of shared
service centers in Poland and Malaysia.
Innovation Launches and Approvals
Innovation will drive Elanco's long-term growth algorithm, with an
expected two to three percentage point contribution to overall average annual revenue growth. The company continues to expect the eight
products launching in 2021 to contribute $80 million to $100 million in revenue during the year. Highlights year to date include:
Operational Efficiencies
Elanco continues progress toward the company's Investor Day commitment
to deliver on $300 million in cost efficiencies by the end of 2023, including $160 to $175 million of cumulative synergies to be achieved
in 2021, as previously communicated. In January 2021, Elanco announced restructuring initiatives focused on streamlining processes
and delivering increased efficiency in functional areas while, importantly, improving the productivity of investments in innovation. These
actions build on the September 2020 restructuring that focused mainly on optimizing the combined Elanco and Bayer Animal Health commercial
operations. The cost to achieve synergies in 2021 is now forecasted to be $30 to $35 million less than previously anticipated, resulting
in an outlook of $125 to $130 million in cash costs for the year compared to $160 million as guided at the December Investor Day.
Working Capital and Balance Sheet
In the first quarter, days sales outstanding was 69 days, up slightly
from 66 days in the fourth quarter of 2020 with a sequential increase in revenue of $102 million from the fourth quarter of 2020, including
$75 million in the company's international business where terms are typically longer. Days sales outstanding remain well below the peak
of 103 days in the first quarter of 2020. As of March 31, 2021, cash and cash equivalents were $515 million, with gross debt of $6.25
billion, and resulting net debt of $5.74 billion. The company continues to expect gross debt paydown of $500 million in 2021. Elanco now
expects to end 2021 with net leverage of approximately 5.0x compared with our prior year-end target of approximately 5.5x, reflecting
the increased adjusted EBITDA outlook.
First Quarter Reported Results
In the first quarter of 2021, total revenue was $1,242 million, an
increase of 89 percent, or an increase of 88 percent without the impact of foreign exchange rates, compared with the first quarter of
2020, driven by the inclusion of the Bayer Animal Health business. Legacy Elanco revenue in the first quarter was $683 million, an
increase of 4 percent year over year. Gross margin, as a percent of revenue, was 54.2 percent, an improvement of 480 basis points as compared
with the first quarter of 2020. Total operating expense was $437 million, an increase of 76 percent compared with the first quarter of
2020, driven by the inclusion of the Bayer Animal Health business. Net loss for the first quarter of 2021 was $61 million, or $0.12 per
diluted share, compared with net loss of $49 million, or $0.12 per diluted share, for the same period in 2020.
Pet Health revenue increased
213 percent for the quarter, driven by the addition of Bayer Animal Health product revenue of $369 million. Legacy Elanco revenue
increased 34 percent in the quarter, driven by a favorable comparison to the prior period which included an approximately $60 million
reduction in channel inventory levels, and in the current period, higher underlying volume trends from newer generation parasiticide and
Farm Animal revenue increased
33 percent for the quarter, driven by the addition of Bayer Animal Health product revenue of $174 million. Legacy Elanco revenue
declined 7 percent in the quarter, driven by an unfavorable comparison to the prior period which included anticipatory buying by direct
customers in international export markets to ensure continuity of supply ahead of potential COVID-19 disruptions and, in the current period,
lower levels of demand in certain markets due to the negative impact of the pandemic on poultry and aqua consumption, production, and
profitability as well as generic competition, partly offset by increased demand in China and price growth.
Contract Manufacturing (formerly
Strategic Exits) represents contract manufacturing relationships which are not long-term value drivers for the company. Contract Manufacturing
revenue was flat in the quarter, and represented 2 percent of total revenue, including $16 million from the addition of Bayer Animal
Gross profit was $673 million, or 54.2 percent of revenue, in the first
quarter of 2021 compared with $325 million, or 49.4 percent, for the first quarter of 2020. Gross margin as a percent of revenue increased
480 basis points, primarily due to benefit from the inclusion of the legacy Bayer Animal Health portfolio and continued improvements in
manufacturing productivity and price, partially offset by amortization of inventory fair value adjustments recorded from the acquisition
of Bayer Animal Health.
Total operating expenses increased $188 million to $437 million in
the first quarter of 2021 compared with the first quarter of 2020. Marketing, selling and administrative expenses increased $166 million
to $348 million, as a result of the inclusion of expenses supporting Bayer Animal Health. Research and development expenses increased
$22 million to $89 million, or 7 percent of revenue, as a result of the inclusion of the Bayer Animal Health business.
Amortization of intangibles increased $95 million to $147 million in
the first quarter of 2021 as compared with the first quarter of 2020. Asset impairment, restructuring, and other special charges increased
to $108 million in the first quarter of 2021 from $75 million in the first quarter of 2020. Charges recorded in the first quarter of 2021
include costs primarily related to our integration efforts, costs necessary to stand up our organization as an independent company, and
charges related to previously announced restructuring activities.
Net interest expense was $61 million in the first quarter of 2021,