Elanco Animal Health Incorporated recently announced the next step in its ongoing efforts to improve operational efficiency. The proposed actions are focused on streamlining processes and delivering increased efficiency in functional areas while, importantly, improving the productivity of Elanco’s investments in innovation. These actions build on the September 2020 restructuring that focused mainly on optimizing the combined Elanco and Bayer Animal Health commercial operations.
The initiatives announced, which were approved by the Elanco board of directors on Jan. 25, include the consolidation of R&D activities to align capabilities to the newly combined innovation portfolio and support the company’s Innovation, Portfolio and Productivity (IPP) strategy. Elanco intends to close R&D sites in Manukau, New Zealand and Cuxhaven, Germany, subject to appropriate local consultation processes. Elanco will also reduce duplication and optimize structures in U.S. operations, Marketing, Manufacturing and Quality central functions, and administrative areas. The restructuring will result in the elimination of approximately 350 positions around the world.
“With a number of milestones achieved since IPO, including the Bayer acquisition, today’s actions are the next step in our commitment to drive operational efficiencies and deliver attractive returns,” said Jeff Simmons, Elanco president and CEO. “As we start 2021, our team is clear on their priorities and brings momentum as we continue to execute and deliver against our expanded and strengthened IPP strategy.”
The company expects to record charges of between $58-$77 million in connection with this restructuring, with $55-$70 million in severance and other cash charges and the balance in asset impairments and other non-cash charges. Elanco expects to recognize between $58-$70 million of the total restructuring costs in the first quarter of 2021 with the remaining amount recognized over the balance of 2021. The compensations and benefit savings in 2021 are anticipated to be approximately $20-$24 million, annualizing to $45-$50 million in 2022 and beyond.
“This restructuring is part of our Investor Day commitment to deliver on $300 million in cost efficiencies by the end of 2023,” said Todd Young, chief financial operator of Elanco. “This program is part of right-sizing our combined organization as we progress toward our goals of delivering 60% adjusted gross margin and 31% adjusted EBITDA margin. The cash costs from this restructuring will not affect our expectation of repaying $500 million in gross debt in 2021.”
2021 guidance update
As a result of today’s actions, Elanco is increasing and tightening its 2021 guidance as follows:
- GAAP earnings per share from ($0.28) to ($0.14), to ($0.37) to ($0.25)
- Adjusted earnings per share from $0.83 to $0.95, to $0.86 to $0.96, and
- Adjusted EBITDA from $940 million to $1,000 million, to $955 million to $1.005 billion
The benefits from this wave of restructuring will be weighted to the back half of the year, the company said. The company will provide a more complete guidance update during its fourth quarter and full year 2020 earnings conference call on February 24, 2021.