Elanco Animal Health's Strategic Plans for Sustained Growth and Innovation
2024-02-28
Elanco Animal Health recently held its fourth quarter earnings conference call, where key speakers including Jeff Simmons, the president and CEO, Todd Young, the CFO, and Katy Grissom, the head of investor relations, discussed various topics related to the company's performance and future plans.
One of the main focuses of Elanco Animal Health's strategy for 2024 was to deliver sustained revenue growth, innovation, and improved cash conversion. In the fourth quarter of 2023, the company experienced revenue growth driven by innovation, strength across the farm animal business, improved conditions in the European pet health retail market, and increased prices. However, unexpected items, primarily related to the devaluation of the Argentinian peso, adversely impacted the company's adjusted EBITDA.
Elanco Animal Health took actions to reduce debt and improve its leverage profile. The company exceeded its debt paydown expectations and announced the sale of its aqua business to prioritize investments in larger markets with greater earnings potential. In 2024, the company expected cash available for debt paydown to be approximately $300 million, four times that of 2023.
To further optimize its operations, Elanco Animal Health announced a restructuring plan. The company planned to shift resources from the farm animal to the pet health business across the international market. It also aimed to capitalize on efficiencies from ERP system integration and transition the business model to distribution or other third-party models in certain markets. The restructuring would impact approximately 420 personnel, or about 4% of the global workforce, and was expected to deliver net savings of $20 million to $25 million in 2024.
In terms of revenue growth, the company saw 4% constant currency revenue growth in the farm animal business in 2023, with accelerated growth rates for poultry, cattle, and swine. The retail channels also performed well, with an 11% sales growth driven by the top six retailers. In the vet clinic, products like Credelio, CPMA, Zorbium, and Bexacat showed growth.
The international pet health segment, however, experienced a 1% constant currency revenue decline, primarily due to demand pressure in the Spain retail market. Despite this, there was encouraging growth from the Credelio family and AdTab in Europe.
Elanco Animal Health made significant progress in terms of innovation in 2023. The company obtained approval and launched their canine parvovirus monoclonal antibody. They were also excited about entering the derm market with the launch of Zenrelia and had more products in development in their pipeline.
To strengthen its financial position, Elanco Animal Health decided to sell its aqua business for approximately $1.3 billion. The proceeds from the sale would be used to accelerate debt paydown and improve free cash flow. The company was confident in its growth prospects for 2024, supported by its innovation expectations, investment in key capabilities, restructuring actions, experienced team, and differentiated omnichannel strategy.
Elanco Animal Health expected 1% to 3% constant currency revenue growth for the full year 2024, including price growth of approximately 3% and incremental innovation revenue contribution of at least 2% to 3%. The company planned to drive growth in its pet health business through improved supply and innovation, increased investment in the U.S. field force, expanded physical availability in new channels, enhanced brand activations, and increased promotional investments during the Northern Hemisphere flea and tick season.
In the livestock sustainability market, Elanco Animal Health expected poultry and cattle to remain growth drivers. The approval of Bovaer was seen as a catalyst for further expansion in this market.
Overall, Elanco Animal Health had shown positive performance and was focused on sustaining growth, driving innovation, reducing debt, and optimizing its operations to achieve its strategic goals.