Elanco posts 10% sales decline in Q1' 2020

Elanco reported a drop in Q1 sales of 10% year-on-year to $657.7 million. Elanco said its quarterly turnover was negatively impacted by a reduction inventory driven by factors resulting from the COVID-19 pandemic.

Elanco reported Q1' 2020 revenues of $638.7m, representing a 10% year-on-year decline, and this figure is excluding the divestments mandated on account of ongoing integration with Bayer Animal Health.

Elanco also took the decision to reduce its channel inventory during the quarter, largely in its US companion animal business. The company expects to further tighten channel inventory across all its business areas, mainly in the second quarter of 2020.

Jeff Simmons – Elanco's president and chief executive – stated: "The decrease in channel inventory is a structural change that will improve our working capital and maximize our operational flexibility in the current environment and beyond.

"While the actions we are taking with our commercial partners negatively impact our reported sales performance in the near term, these changes will strengthen our position, optimize our promotional approach and enable us to direct investment to the internal commercial activities that drive demand for our products over the long term."

He said the channel inventory reduction is independent of underlying growth drivers that show promise for Elanco's future performance.

Q1 insight

Elanco's pet health division was impacted by the company's decision to reduce channel inventory levels for many brands due to the impact of COVID-19 on the companion animal market. Overall pet health sales dropped 23% to $206.1m.

Companion animal disease prevention revenues fell 25% to $140.3m in Q1. The firm's companion animal therapeutics division witnessed a 19% decline to $65.8m in first-quarter sales.

Elanco noted clinic-level demand for Galliprant grew in major markets and geographic expansion for the product continued into Latin America. The company also offset declines with the inclusion of sales for Entyce and Nocita – products gained through Elanco's acquisition of Aratana Therapeutics.

The food animal division fared better than the pet segment in the first quarter of 2020. Overall food animal revenues were $432.6m – a year-on-year fall of 2%.

The food animal future protein and health unit posted an 8% upswing in turnover to $180m.

This growth was driven by "continued strong demand in the international poultry and aqua portfolios, in addition to anticipatory buying in the quarter by direct customers in international export markets to ensure continuity of supply ahead of potential COVID-19 pandemic disruptions".

Revenues for the ruminants and swine business dropped 8% to $252.6m, following expected headwinds for Rumensin and Paylean. This division was also impacted by the continued replenishment of sterile injectable products from the company's contract manufacturing partner and actions to reduce inventory levels.

These negatives were partially offset by "increased demand in China's swine market, as a result of favorable producer economics and positive efforts to repopulate herds impacted by African swine fever in 2019", as well as anticipatory buying by direct customers in international export markets.

Elanco posted a net loss of $49.1m for the quarter, compared to income of $31.5m this time last year. The company paid significantly higher asset impairment, restructuring costs and other special charges during Q1 2020. These expenses were related to Elanco's integration efforts and the pending purchase of Bayer Animal Health.

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