Elanco Animal Health Clocks 11% Lower Q4 Sales, FY22 Profit Guidance Below Consensus

• Elanco Animal Health Inc (NYSE: ELAN) has reported a Q4 FY22 revenue of $988 million. That's a decrease of 11% Y/Y on a reported basis, or down 6%, excluding the unfavorable impact of foreign exchange rates, above the consensus of $980.94 million.

• Adjusted EPS of $0.19, below the $0.21 reported a year ago, surpassing analysts' view of $0.13.

• Pet Health's revenue decreased by 14% (-10% CER) to $423 million, with a 2% increase in price. Volume declines were driven by continued competitive pressure, global economic conditions impacting consumer purchasing behavior, and supply constraints.

• Farm Animal revenue decreased 9% (-3% CER) to $552 million, increased demand for aqua products, and strength in international cattle was more than offset by declines in U.S. cattle.

• The adjusted gross profit margin of 54.7% improved by 70 bps, primarily driven by improved price, partially offset by inflation and unfavorable product mix.

• Guidance: Elanco expects FY23 revenue of $4.28-$4.40 billion, compared to the consensus of 4.39 billion, with a headwind of approximately $10-$15 million from the unfavorable impact of foreign exchange rates. It expects revenue to be flat to declining 3% in 2023, excluding currency impacts.

• It forecasts adjusted EPS of $0.74-$0.83 versus the consensus of $0.99.

• Investment bank William Blair & Co. writes that details around margin pressure are light, but the company is continuing to invest in pipeline innovation and growth initiatives despite expectations for declining 2023 reported sales.

• This should be a positive signal for the company's long-term growth prospects, though it would come with near- to medium-term margin pressures.

• Price Action: ELAN shares closed at $13.25 on Friday.

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