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Elanco reports 2019 Q4, full year results

Company notes Bayer Animal Health transaction is developing better than expected.

Elanco Animal Health Inc. reported Feb. 19 its financial results for the fourth quarter and full year of 2019 -- its first full year as an independent company.

Elanco said the full year 2019 results "reflect the durability and agility of a fit-for-purpose dedicated animal health company driving growth in our core business" and improved profitability through execution of the company's productivity agenda.

Jeff Simmons, president and chief executive officer at Elanco, said, “In our first full year as an independent, public company, Elanco advanced our fit-for-purpose model, allowing us to move with speed and agility like never before in our history. We are advancing our pipeline, executing across a diverse portfolio and improving profitability through a robust productivity agenda. We remain confident in the underlying fundamentals in our base business, with core revenue growing 3% at constant currency and our disciplined execution generating 220 basis points of improvement in adjusted gross margin for the full year. We continue to execute a robust productivity agenda to drive shareholder value."

Elanco said it has made significant progress with the Bayer Animal Health transaction since its last earnings call, noting that previously announced signed agreements to divest global rights for Osurnia, U.S. rights for Capstar, and European Economic Area and U.K. rights for Drontal and Profender from the Bayer portfolio, further advanced efforts to gain antitrust clearances.

Elanco added that it has received antitrust clearance for the transaction in China, Ukraine and Turkey and has secured the financing necessary to fund the cash component of the payment to Bayer AG through a combination of common stock, tangible equity units and a Term Loan B.

"Holistically, the Bayer Animal Health transaction is developing better than we expected when we announced in August of 2019," Simmons said. "We are encouraged by the progress from a regulatory, financing and integration planning perspective, as well as, Bayer's underlying market positioning and performance. We continue to look toward a mid-2020 close."

Fourth quarter results

In the fourth quarter of 2019, Elanco said total revenue was $787.0 million, a decrease of 2%, or a decrease of 1% without the impact of foreign exchange rates, compared with the fourth quarter of 2018. Revenue, excluding strategic exits, was $775.7 million; an increase of 1% without the impact of foreign exchange rates. Gross margin, as a percent of revenue, was 47.9%, a decline of 50 basis points as compared with the fourth quarter of 2018.

Net loss for the fourth quarter of 2019 was $9.5 million, or 3 cents per diluted share, compared with net income of $16.4 million for the same period in 2018.

Elanco reported that its Companion Animal Disease Prevention revenue decreased 15% for the quarter, driven by decreased volume and to a lesser extent decreased price and an unfavorable impact from foreign exchange rates.

Companion Animal Therapeutics revenue increased 33% for the quarter, driven by increased volume and to a lesser extent price, partially offset by an unfavorable impact from foreign exchange rates, the company noted.

For the Food Animal Future Protein & Health segment, Elanco reported that revenue increased 1% for the quarter, driven by increased price, partially offset by a decrease in volume and an unfavorable impact from foreign exchange rates. Without the impact of foreign exchange rates, the category grew 2%. Growth was driven by the continued uptake of the Aqua portfolio, poultry vaccines and nutritional products, partially offset by the impact of changing policies in Asia and poultry producer rotation out of Elanco products in the fourth quarter, the company explained.

Food Animal Ruminants & Swine segment revenue increased 2% for the quarter, driven by increased volume and price, offset by an unfavorable impact from foreign exchange rates, Elanco said.

The growth in this segment was primarily driven by contribution from Posilac and the return of sales for sterile injectable products in the quarter, notably Micotil, which also experienced a stock outage in the previous period, creating a favorable comparison, the company said. Growth was partially offset by the continued impact of African swine fever in Asia, changing U.S. producer use of Paylean, and, to a lesser extent, decreased Rumensin sales.

Strategic Exits are businesses Elanco has exited or has made the decision to exit. Revenue from Strategic Exits decreased 54% for the quarter, and represented 1% of total revenue, Elanco said.

Gross profit was $376.9 million, or 47.9% of revenue, in the fourth quarter of 2019 compared with $386.8 million, or 48.4%, for the fourth quarter of 2018, Elanco reported.

Full year results

For the full year 2019, Elanco said total revenue was $3.071 billion, or flat with the previous year. Core revenue was $2.991 billion, representing growth of 1% or 3%, when excluding the impact of foreign exchange rates.

Elanco is a global animal health company that develops products and knowledge services to prevent and treat disease in food animals and pets in more than 90 countries.

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