Results reflect strong volume growth, strategy execution
Elanco Animal Health Inc.’s global revenue for the full year 2018 increased 6 percent to $3.1 billion. For the fourth quarter of 2018, global revenue also grew 6 percent to $799.3 million.
The results reflect strong volume growth and the execution of the company’s targeted, three-pillar strategy focused on portfolio, innovation and productivity. The results also reflect strong full-year performance in its three targeted growth categories: companion animal disease prevention, companion animal therapeutics and food animal future protein and health.
“Our solid results for the full year demonstrate that our strategy is on track, we’re executing efficiently and making strong progress against our strategy to deliver the results we promised to our customers, investors and employees,” said Jeff Simmons, president and CEO of Elanco. “Overall, the animal health market continues to display strong fundamentals that will drive growth going forward. We are well positioned to capitalize on these industry growth drivers and are optimistic about our ability to continue to drive top- and bottom-line growth with the momentum we are carrying into 2019.”
In the fourth quarter of 2018, global revenue was $799.3 million, an increase of 6 percent compared with the fourth quarter of 2017. Revenue, excluding strategic exits, increased 6 percent to $774.7 million. Gross margin, as a percent of revenue, increased 200 basis points to 48 percent. Tax expense was a benefit of $18.6 million in the fourth quarter of 2018. Net income for the fourth quarter increased $177.9 million to $16.4 million, or $0.04 per basic share.
Food Animal Future Protein & Health revenue increased 8 percent for the quarter, driven by volume and increased price, partially offset by an unfavorable impact from foreign exchange. Growth was driven by poultry animal-only antibiotics and vaccines, as well as aqua products.
Food Animal Ruminants & Swine revenue decreased 8 percent for the quarter, driven by price, volume and an unfavorable impact from foreign exchange. The revenue decline was driven by softness in swine antibiotics, particularly in Asia, and a stock-outage of Micotil, an injectable treatment for Bovine Respiratory Disease, now resolved.
Strategic Exits are businesses Elanco has exited or has made the decision to exit. Revenue from Strategic Exits decreased 6 percent for the quarter, and now represents 3 percent of total revenue.
Gross profit increased 11 percent, to $386.8 million, in the fourth quarter of 2018 compared with the fourth quarter of 2017. Gross margin, as a percent of revenue, was 48 percent, an increase of 200 basis points period over period. The gross margin increase was primarily due to favorable product mix and non-recurring costs in 2017 associated with the unwinding of purchase accounting inventory adjustments, partially offset by 200 basis points of unfavorable impact from foreign exchange rates.
Research and development expenses decreased 1 percent, to $61.1 million, or 8 percent of revenue. This decrease was primarily driven by timing of certain projects within the year. Marketing, selling and administrative expenses decreased 6 percent, to $185.1 million, primarily driven by continued productivity initiatives, cost control measures across the business, and timing of marketing investments.
Amortization of intangibles decreased 17 percent to $50.1 million primarily driven by the acceleration of amortization related to certain product exits and rationalization in 2017.
Asset impairments, restructuring, and other special charges decreased $139.8 million to $46.0 million primarily due to elevated severance and terminations cost incurred in 2017 associated with the U.S. voluntary early retirement program offered by Lilly and asset impairment charges in 2017 related to acquired IPR&D assets.
Net interest expense was $21.0 million in the fourth quarter of 2018; no net interest expense was incurred in the previous year. Other-net, (income) expense was expense of $25.7 million in the fourth quarter of 2018, compared with income of $0.1 million in the fourth quarter of 2017. The increase in expense was primarily driven by an increase in the Aratana contingent consideration associated with Galliprant.