- Streamlining and simplifying organizational structure to reduce
complexity and focus investments in priority areas that drive
growth and innovation.
- Eliminating approximately 380 positions, including
approximately 20% of Elanco’s senior management, creating a fourth
quarter 2021 charge to GAAP net income of $65 million to $71
million and generating approximately $70 million in savings once
fully realized to support delivery of the company’s adjusted gross
margin and adjusted EBITDA expansion goals.
- Savings of approximately $60 million in 2022 will help offset
added inflation costs, drive incremental productivity savings, and
enable concentrated investments driving growth and innovation.
- These moves are part of Elanco’s company-wide productivity
agenda to maintain its value creation trajectory since the Bayer
Animal Health acquisition.
Elanco Animal Health Incorporated (NYSE: ELAN) today announced
proposed structural changes to simplify the organization as it best
positions the company to create long-term value.
The changes are intended to reduce organizational complexity,
increase productivity, and enable investment in the highest growth
and innovation opportunities, helping to offset previously
disclosed higher cost pressures and maintaining the company’s
current path to 60% adjusted gross margin by 2023 and 31% adjusted
EBITDA margin by 2024. The moves include:
- Consolidating commercial operations for Elanco International
and Elanco Europe into one organization under the leadership of
Ramiro Cabral, executive vice president and president Elanco
International.
- Consolidating marketing efforts to simplify and reduce
duplication by integrating the centralized marketing organization
and concentrating investments in focus brands, digital
capabilities, product launches and China.
- Transforming and simplifying the R&D organizational
structure to narrow its focus and concentrate investments on
accelerating delivery of the company’s late-stage Pet Health
pipeline, while continuing to build the long-term pipeline.
- Continuing adjustments throughout the remainder of the
organization to help drive operational efficiency without directly
affecting customer-facing roles.
The restructuring will eliminate approximately 380 positions
around the world, including reducing Elanco’s senior management by
approximately 20%. As part of the senior management reduction,
executive committee members Racquel Harris Mason, executive vice
president and Chief Marketing Officer, Dirk Ehle, executive vice
president and president Elanco Europe, and Joyce Lee, executive
vice president and president U.S. Pet Health and Commercial
Operations will exit the company on December 31, 2021. The company
expects to name a new leader for an expanded U.S. Pet Health role
in the future.
“Elanco nears the end of 2021 with momentum, consistently
achieving our commitments over the past four quarters while
executing against our priorities of driving innovation, creating
stronger growth and delivering our company-wide productivity agenda
to increase profitability,” said Jeff Simmons, president and CEO,
Elanco. “I want to thank Racquel, Dirk and Joyce for the important
role they played as we integrated Bayer Animal Health. Their
leadership and knowledge helped speed the combination of the
companies, quickly putting the business on a path of greater
disciplined execution and delivery. With that strong foundation, we
are well positioned to further streamline our structure today and
remove additional cost, allowing us to shift resources into areas
of greatest opportunity.”
The company expects to record a fourth quarter 2021 pre-tax
charge for severance costs of between $86 million to $94 million in
connection with this restructuring, reducing fourth quarter
reported GAAP net income by $65 million to $71 million and earnings
(loss) per share by approximately $0.13 to $0.15. Updated fourth
quarter and full year 2021 GAAP guidance for net income and
earnings per share is provided in the chart below. The
restructuring charge does not impact the company’s adjusted
(non-GAAP) expectations, as previously disclosed on November 5,
2021. The compensation and benefits savings in 2022 are anticipated
to be approximately $60 million, and once fully implemented, are
expected to provide annual savings of approximately $70
million.
A percentage of these savings are expected to be reinvested in
key growth areas, including advancing leadership in digital
capabilities, driving focus brands, supporting product launches and
increasing investment in the rapidly growing Chinese market. A
portion of these savings was part of the $300 million value capture
commitment associated with the Bayer Animal Health acquisition and
a portion is incremental. Even including the cash cost of this
restructuring, the company continues to expect it will reach its
net leverage target of less than 3x by the end of the first quarter
of 2024.
“While actions that impact our team are always difficult, it is
imperative that we simplify our organization and focus on
delivering customer value to meet our commitments to improve our
profitability, even in the midst of increasing inflationary and
supply chain costs,” said Todd Young, executive vice president and
CFO. “We look forward to sharing our financial guidance for 2022
during our fourth quarter 2021 earnings call in February, where we
intend to provide more specific details on how these savings are
expected to help offset inflation and drive increased EBITDA.”
2021 Full Year
(dollars in millions, except per share
amounts)
Impact from the Charge
New Q4 202 Guidance
New FY 2021 Guidance
Reported Net Loss
$(71) to $(65)
$(136) – $(95)
$(476) – $(425)
Reported Earnings per Share
$(0.15) to $(0.13)
$(0.29) – $(0.20)
$(1.06) – $(0.96)
There is no change to the 2021 full year guidance disclosed on
November 5 2021 for revenue of $4,730 to $4,770 million, adjusted
EBITDA of $1,035 million to $1,075 million and adjusted earnings
per share of $0.97 to $1.03.
ABOUT ELANCO
Elanco Animal Health Incorporated (NYSE: ELAN) is a global
leader in animal health dedicated to innovating and delivering
products and services to prevent and treat disease in farm animals
and pets, creating value for farmers, pet owners, veterinarians,
stakeholders, and society as a whole. With nearly 70 years of
animal health heritage, we are committed to helping our customers
improve the health of animals in their care, while also making a
meaningful impact on our local and global communities. At Elanco,
we are driven by our vision of Food and Companionship Enriching
Life and our Elanco Healthy Purpose™ Sustainability/ESG Pledges –
all to advance the health of animals, people and the planet. Learn
more at www.elanco.com.
Cautionary Statement Regarding Forward-Looking
Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, including, without limitation, statements about the
anticipated cost savings and expenses related to the restructuring,
expected synergies, reduction of debt and leverage, the company’s
2021 full year and fourth quarter guidance and long-term
expectations regarding Elanco’s profitability. Forward-looking
statements are based on the company’s current expectations and
assumptions regarding the company’s business, the economy and other
future conditions, including but not limited to the company’s
ability to successfully implement the restructuring, including its
ability to realize the anticipated benefits within the expected
time frames or at all; and the impact of the restructuring on the
company’s ability to serve its customers, execute its strategy and
attract and retain employees.
Because forward-looking statements relate to the future, by
their nature, they are subject to inherent uncertainties, risks and
changes in circumstances that are difficult to predict. As a
result, the company’s actual results may differ materially from
those contemplated by the forward-looking statements. Important
factors that could cause actual results to differ materially from
those in the forward-looking statements include regional, national
or global political, economic, business, competitive, market, and
regulatory conditions, including but not limited to the
following:
- heightened competition, including from generics;
- the impact of disruptive innovations and advances in veterinary
medical practices, animal health technologies and alternatives to
animal-derived protein;
- changes in regulatory restrictions on the use of antibiotics in
farm animals;
- our ability to implement the company’s business strategies or
achieve targeted cost efficiencies and gross margin
improvements;
- consolidation of the company’s customers and distributors;
- an outbreak of infectious disease carried by farm animals;
- the impact on the company’s operations, the supply chain,
customer demand, and the company’s liquidity as a result of the
COVID-19 global health pandemic;
- the success of the company’s research and development (R&D)
and licensing efforts;
- misuse, off-label or counterfeiting use of the company’s
products;
- unanticipated safety, quality or efficacy concerns and the
impact of identified concerns associated with the company’s
products;
- the impact of weather conditions and the availability of
natural resources;
- use of alternative distribution channels and the impact of
increased or decreased sales to the company’s channel distributors,
resulting in fluctuation in the company’s revenues;
- manufacturing problems and capacity imbalances;
- challenges to the company’s intellectual property rights or
alleged violation of rights of others;
- risks related to the company’s presence in foreign
markets;
- breaches of the company’s information technology systems;
- the company’s ability to complete acquisitions and successfully
integrate the businesses it acquires, including Kindred
Biosciences, Inc. and the animal health business of Bayer AG (Bayer
Animal Health);
- the terms, timing, or structure of any separation of the
microbiome R&D platform, including whether it will be
consummated at all, and whether the operational and strategic
benefits of such transaction can be achieved, including whether the
uncertainty of announcing the separation initiative will have
adverse impacts on the employees, customers and suppliers related
to the platform;
- the effect of the company’s substantial indebtedness on its
business;
- the uncertainties inherent in research related to product
safety and additional analyses of existing safety data;
- actions by regulatory bodies, including as a result of their
interpretation of studies on product safety;
- unfavorable publicity results from media reports on the
company’s products;
- public acceptance of the company’s products;
- fluctuations in the company’s business results due to
seasonality and other factors; and
- the impact of litigation, regulatory investigations, and other
legal matters.
For additional information about the factors that could cause
actual results to differ materially from forward-looking
statements, please see the company’s latest Form 10-K and
subsequent Form 10-Qs filed with the Securities and Exchange
Commission. Although the company has attempted to identify
important risk factors, there may be other risk factors not
presently known to the company or that it presently believes are
not material that could cause actual results and developments to
differ materially from those made in or suggested by the
forward-looking statements contained in this press release. If any
of these risks materialize, or if any of the above assumptions
underlying forward-looking statements prove incorrect, actual
results and developments may differ materially from those made in
or suggested by the forward-looking statements contained in this
press release. The company cautions you against relying on any
forward-looking statements, which should also be read in
conjunction with the other cautionary statements that are included
elsewhere in this press release. Any forward-looking statement made
by the company in this press release speaks only as of the date
thereof. Factors or events that could cause the company’s actual
results to differ may emerge from time to time, and it is not
possible for the company to predict all of them. The company
undertakes no obligation to publicly update or to revise any
forward-looking statement, whether as a result of new information,
future developments or otherwise, except as may be required by law.
Comparisons of results for current and any prior periods are not
intended to express any future trends or indications of future
performance, unless specifically expressed as such, and should be
viewed as historical data.
Use of Non-GAAP Financial Measures
The company uses non-GAAP financial measures, such as expected
adjusted net (income) loss and adjusted EPS, to assess and analyze
its operational results and trends as explained in more detail in
the reconciliation table later in this release.
The company believes these non-GAAP financial measures are
useful to investors because they provide greater transparency
regarding its operating performance. Reconciliation of non-GAAP
financial measures and reported GAAP financial measures are
included in the tables accompanying this press release and are
posted on the company’s website at www.elanco.com. The primary
material limitations associated with the use of such non-GAAP
measures as compared to U.S. GAAP results include the following:
(i) they may not be comparable to similarly titled measures used by
other companies, including those in the company’s industry, (ii)
they exclude financial information and events, such as the effects
of an acquisition or amortization of intangible assets, that some
may consider important in evaluating the company’s performance,
value or prospects for the future, (iii) they exclude items or
types of items that may continue to occur from period to period in
the future and (iv) they may not exclude all unusual or
non-recurring items, which could increase or decrease these
measures, which investors may consider to be unrelated to the
company’s long-term operations. These non-GAAP measures are not,
and should not be viewed as, substitutes for U.S. GAAP reported
measures. The company encourages investors to review its unaudited
condensed consolidated and combined financial statements in their
entirety and caution investors to use U.S. GAAP measures as the
primary means of evaluating the company’s performance, value and
prospects for the future, and non-GAAP measures as supplemental
measures.
Reconciliation of 2021 full year reported EPS guidance to
adjusted EPS guidance is as follows:
Full Year 2021
Guidance
Reported Earnings per Share
$(1.06)
to
$(0.96)
Cost of sales(1)
$0.13
Amortization of intangible assets
$1.14
Asset impairment, restructuring, and other
special charges(2)
$1.30
to
$1.33
Other (income) expense, net
$(0.02)
Subtotal
$2.54
to
$2.58
Tax impact of adjustments
$(0.55)
Total Adjustments to Earnings per
Share
$1.99
to
$2.03
Adjusted Earnings per Share(3)
$0.97
to
$1.03
Numbers may not add due to rounding.
(1) Cost of sales adjustment is related to the amortization of
inventory fair value adjustments recorded from the acquisition of
Bayer Animal Health.
(2) Asset impairment, restructuring, and other special charges
adjustments are primarily related to integration efforts and other
related activities, including severance.
(3) Adjusted EPS is calculated as the sum of reported EPS and
total adjustments to EPS.
Reconciliation of 2021 full year reported net loss to adjusted
EBITDA guidance is as follows:
$ millions
Full Year 2021
Guidance
Reported Net Loss
$(476)
to
$(425)
Net interest expense
$240
to
$245
Income tax provision
$(163)
to
$(146)
Depreciation and amortization
$715
to
$720
EBITDA
$321
to
$389
Non-GAAP Adjustments
Cost of sales
Approx. $60
Asset impairment, restructuring, and other
special charges
$664
to
$631
Other (income) expense, net
$(10)
to
$(5)
Adjusted EBITDA
$1,035
to
$1,075
Adjusted EBITDA Margin
22%
to
22.5%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211130005300/en/
Investor Contact: Dave Pugh (317) 361-9892 or
david.pugh@elancoah.com Media Contact: Colleen Parr Dekker (317)
989-7011 or colleen.dekker@elancoah.com
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