Elanco revenue down 25% on channel inventory reduction

Elanco revenue down 25% on channel inventory reduction

Phongphan | Bigstock.com

COVID-19 pandemic also had negative effects on revenue, company says

Elanco Animal Health Inc.’s second quarter revenue fell 25%, mostly due to channel inventory reduction and effects from the novel coronavirus (COVID-19) pandemic. Meanwhile, company executives said the company’s acquisition of Bayer Animal Health is on track to close “in the coming days.”

Total revenue for the second quarter was US$586.3 million, the company reported on July 30. Third quarter revenue is expected to be between US$660 million and US$710 million, excluding revenue from divestitures and with continued impact from the COVID-19 pandemic, primarily in livestock.

“The channel inventory reduction was the most significant driver of the overall year-on-year revenue decline in the second quarter,” Elanco President and CEO Jeff Simmons said during an earnings call with investors on Thursday. “We completed our efforts on this front, working in collaboration with our distributor partners to determine the minimum amount of inventory necessary to ensure adequate stock and flexibility in order to maintain strong service levels for customers around the world. The impact in the quarter was roughly US$100 million, with about US$45 million coming from U.S. companion animal, about US$45 million from U.S. food animal and about US$10 million from international business.”

He said the company does not anticipate further reductions in overall channel inventory levels.

COVID-19 effects

In addition to inventory reduction, Simmons said COVID-19 affected revenues in the second quarter.

“We believe the second quarter represents the most profound impact for both companion animals and livestock as related to COVID this year,” he said. “While we do expect sequential improvement in the coming quarters, we caution that the headwinds of the pandemic, particularly in livestock, will likely persist through the balance of 2020.”

Food Animal Ruminants & Swine revenue decreased 42% for the quarter, driven by lower volume. Food Animal Future Protein & Health revenue decreased 10% for the quarter. The volume decline was driven by lower levels of demand due to impacts of the pandemic on global protein markets and the unwind of anticipatory buying by direct customers in international export markets from the first quarter of 2020, partially offset by continued strong growth in the aqua portfolio.

“As anticipated, COVID-19 also had a meaningful impact on our global business in the second quarter representing, by our estimate, approximately US$75 million to US$85 million headwind, based on changes as compared to our underlying business trends,” Simmons said. “The majority of the pandemic headwind was felt in our global food animal business.”

While, Simmons said, Elanco’s U.S. food animal business was “significantly impacted” by inventory reduction and COVID-19-related pressure, its international business saw underlying growth.

“In food animal, aqua, poultry and our swine portfolio in China continue to perform,” he said. “Although pressure from African swine fever persists in China, we’re encouraged by the repopulation efforts of large, industrialized farms. As a lead indicator, Elanco China, in the first half of 2020, outgrew the first half of 2018.”

Bayer deal remains on track

Simmons said Elanco’s pending acquisition of Bayer Animal Health remains on track to close “in the coming days,” as all of the necessary antitrust clearances have been met.