ELAN - Elanco Q4 revenue declines amid competitive pressure; macro headwinds to continue in FY23

Elanco Animal Health ( NYSE: ELAN ) Q4 top and bottom line beat estimates but the company's FY23 adjusted EPS outlook is seen below estimates.

Q4 adjusted EPS declined -9.5% Y/Y to $0.19, while total revenue fell -11.2% Y/Y to $988M. However, both figures surpassed analysts expectations.

"Although we continued to experience environmental and competitive pressure on our topline performance, we delivered operating cost discipline contributing to an Adjusted EBITDA margin expansion of 90 basis points for the year," said Elanco President and CEO Jeff Simmons.

Elanco added that as per the U.S. FDA's requirement to commercialize Bovaer — a medicated feed additive for methane reduction in cattle — the company the approval and launch by H1 2024.

Q4 revenue from Pet Health segment declined -14.3% Y/Y to $423M, while Farm Animal segment revenue fell -8.6% Y/Y to $552M.

Outlook :

"As we look to 2023, we recognize environmental and competitive pressures will persist; but are encouraged by strengthening Elanco tailwinds from price, innovation and improving supply," added Simmons.

Elanco expects full year 2023 revenue to be between $4.28B and $4.4B, with a headwind of about $10M to $15M from the unfavorable impact of foreign exchange rates compared to prior year. ( consensus $4.37B).

The company added that excluding the unfavorable impact of foreign exchange rates, it expects revenue to be flat to declining 3% Y/Y.

In 2023, Elanco anticipates continued pressure from competitive innovation in the U.S. pet health veterinary market and economic weakness in Europe and U.S. to impact pet retail markets. The company expects this to be partially offset by accelerating growth from innovation products, increased price, and improving dynamics in China.

Elanco expects FY23 Adjusted EPS in the range of $0.74 to $0.83 (consensus $0.99).

H1 : For H1, Elanco expects revenue between $2.23B and $2.31B, with a headwind of about $40M to $45M from the unfavorable impact of foreign exchange rates compared to the year ago period.

The company noted that it plans to return to quarterly guidance in May for Q2 2023.

H2 Adjusted EPS expected between $0.43 and $0.50.

The company said it has provided H1 outlook because the ERP system would go-live in April 2023, and affiliates will experience sales order processing blackout periods on legacy Bayer products. Due to this, Elanco expects a shift of about $40M to $80M in revenue into Q1 2023 from what otherwise would have been expected in Q2 2023.

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