Elanco Animal Health Inc (ELAN) Q1 2025 Earnings Call Highlights: Strong Innovation Revenue and ...

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Thu, May 8, 2025, 12:09 AM 4 min read

Revenue: $1.193 billion, a decrease of 1% on a reported basis; 4% organic constant currency growth.
Adjusted EBITDA: $276 million, a decrease of $18 million year-over-year.
Adjusted EPS: $0.37, a $0.03 improvement year-over-year.
Net Leverage Ratio: 4.4 times adjusted EBITDA.
Innovation Revenue: $198 million in Q1; full-year expectations raised to $660 million to $740 million.
US Pet Health Revenue: Declined 3% due to challenging retail environment and soft vaccine demand.
International Pet Health Revenue: Grew 5% in constant currency.
US Farm Animal Business: Grew 17%, driven by demand for Experior.
Gross Margin: Increased 10 basis points to 57.4%.
Interest Expense: $40 million, down from $66 million last year.
Cash Used from Operations: $4 million in the quarter.
Full-Year Revenue Guidance: Raised for FX impact; organic constant currency growth expected at 4% to 6%.
Full-Year Adjusted EBITDA Guidance: $830 to $870 million.
Full-Year Adjusted EPS Guidance: $0.80 to $0.86.
Q2 Revenue Guidance: $1.175 billion to $1.195 billion.
Q2 Adjusted EBITDA Guidance: $200 million to $220 million.
Q2 Adjusted EPS Guidance: $0.17 to $0.21.

Warning! GuruFocus has detected 3 Warning Signs with ELAN.

Release Date: May 07, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Elanco Animal Health Inc (NYSE:ELAN) exceeded first-quarter guidance for revenue, adjusted EBITDA, and adjusted EPS, marking the seventh consecutive quarter of underlying growth.
The company reported 4% organic constant currency revenue growth, driven by both price and volume increases.
Elanco raised its full-year expectations for new product revenue to $660 million to $740 million, with strong performance from recently launched products like Credelio Quattro.
The company is deleveraging faster than planned, improving its net leverage target for year-end to 3.9 to 4.3 times, aided by strong working capital performance and favorable currency impacts.
Elanco's innovation strategy is yielding results, with $198 million in first-quarter revenue from new products and a robust pipeline, including the anticipated IL-31 approval in late 2025.

Negative Points

The US retail business faced challenges, with a 21% decline in the first two months of the year due to cooler weather impacting consumer spending.
Elanco is exposed to potential tariff impacts, estimating a $16 million to $20 million negative impact on adjusted EBITDA for 2025, primarily due to US-China tariffs.
The company is maintaining its full-year adjusted EBITDA and EPS guidance despite macroeconomic uncertainties and potential tariff risks.
Operating expenses increased by 3% year-over-year, driven by investments in product launches and R&D, impacting short-term profitability.
The international farm animal business faced headwinds from the Echstone recall and commercial model changes, creating a 4% point headwind to year-over-year growth.

Q & A Highlights

Q: Can you elaborate on the Q2 guidance and the impact of increased operating expenses on earnings? A: We are investing heavily in our big six blockbusters, particularly during the northern hemisphere parasiticide season. This includes significant media spending on Credelio Quattro, which has already captured a 10% share in vet clinics. The timing of sales and investments, especially in Europe with AdTab, affects the quarterly cadence, but we expect these investments to drive revenue growth in the second half of the year.

Q: How are tariffs impacting your financial guidance, and what is the status of the Zenrelia label change? A: We have a $25 million tailwind from a weaker dollar, which we have not yet factored into our guidance due to uncertainty around the pharma exemption. Regarding Zenrelia, we are in constructive dialogue with the FDA about label changes, with an expected update in the second half of the year. The product is performing well, with increasing adoption in clinics.

Q: Can you explain the strong Q1 innovation revenue and the decision to only slightly raise full-year innovation guidance? A: The $198 million in Q1 innovation revenue was driven by our big six products, particularly Credelio Quattro and Experior. While we are optimistic about continued growth, we are cautious in our guidance to account for the launch phase and seasonal factors. The basket of innovations is performing well, and we expect continued momentum.

Q: What are the top revenue contributors to the innovation portfolio in 2025? A: Experior is the largest contributor, having exceeded $100 million last year, with significant growth expected due to expanded market opportunities. Credelio Quattro is also a major driver, with strong initial uptake and low cannibalization. The overall innovation portfolio is diverse and performing well across global markets.

Q: How is the US retail environment affecting your business, and what are your expectations for the rest of the year? A: The US retail environment faced challenges due to cold weather, impacting foot traffic and sales early in the year. However, we saw a rebound in March and April. We expect stable performance in the retail segment, supported by our strong product portfolio and distribution capabilities. The focus remains on maintaining high-margin products and cash flow.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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