Elanco Animal Health Inc (ELAN) Q1 2023 Earnings Summary

Executive Summary

Q1 2023 revenue was $1.257B (+3% reported, +6% CC), with an estimated $90–$110M pull-forward from the April ERP blackout that will depress Q2 growth; adjusted EPS was $0.45 and adjusted EBITDA was $379M (30.2% margin) .
Management raised the bottom end of FY23 guidance for revenue ($4.31B–$4.40B), adjusted EBITDA ($$940M–$1,000M), and adjusted EPS ($0.76–$0.83), citing pipeline progress, successful ERP integration, and improving U.S. Pet Health and international poultry indicators .
Underlying Pet Health improved sequentially (U.S. roughly flat ex-ERP), aided by price (+5%), distribution expansion (+17% retail points), and innovation; Seresto and Advantage grew in the U.S., but international trends remained pressured; farm animal improved sequentially ex-ERP but U.S. vaccines faced supply constraints .
Key catalysts: formal EPA decision on Seresto stewardship actions (management “pleased” and expects continued registration), near‑term launch of canine parvovirus mAb, and preparation for multiple 2024 potential blockbusters (IL‑31 mAb, broad‑spectrum parasiticide, derm assets), with minimal pre‑approval spend and tighter post‑launch staging .

What Went Well and What Went Wrong

What Went Well

Successful ERP integration for legacy Bayer Animal Health; customers pulled forward purchases into Q1 as expected, enabling cleaner system cutover and reducing uncertainty .
U.S. Pet Health execution improved: +5% price, +17% retail distribution points; Seresto and Advantage family grew in the U.S., benefiting from stronger OTC dispensing and commercial actions .
Pipeline progress: USDA conditional approval for canine parvovirus mAb; FDA conditional approval of Varenzin-CA1 (cats); EU launch of Adtab OTC oral flea/tick; IL‑31 mAb submission initiated; monoclonal mfg site approved .

What Went Wrong

ERP pull-forward will reverse in Q2 (negative 8–9 pp impact to growth), and adjusted EBITDA/EPS will be negatively impacted; guidance embeds continued competitive and environmental headwinds .
U.S. farm animal faced vaccine supply constraints and lower demand in select categories; international pet health remained pressured against tough prior-year comps and retailer inventory management .
Working capital pressure: cash used in operations of $145M driven by higher AR, interest, and inventories; net leverage remained elevated at 5.4x adjusted EBITDA .

Financial Results

Metric	Q3 2022	Q4 2022	Q1 2023
Revenue ($USD Millions)	$1,028	$988	$1,257
Reported EPS ($)	$(0.10)	$(0.11)	$0.21
Adjusted EPS ($)	$0.20	$0.19	$0.45
Gross Margin (%)	54.1%	54.7%	60.7% (reported), 60.8% (adjusted)
Adjusted EBITDA ($USD Millions)	$205	$174	$379
Adjusted EBITDA Margin (%)	19.9%	17.6%	30.2%
Price Contribution (quarter)	+4% (Q3)	+2% (Q4)	+5% (Q1)

Segment revenue trajectory

Segment ($USD Millions)	Q3 2022	Q4 2022	Q1 2023
Pet Health	$471	$423	$675
Farm Animal	$545	$552	$573
- Cattle	$227	$222	$248
- Poultry	$176	$187	$183
- Swine	$95	$100	$102
- Aqua	$47	$43	$40
Contract Manufacturing	$12	$13	$9

KPIs and non-GAAP drivers

KPI	Q1 2023
ERP Blackout Revenue Benefit	$90–$110M; +7–9 pp to growth
ERP Impact by Segment	Pet Health +$65–$80M (10–12%); Farm Animal +$25–$30M (4–5%)
ERP Benefit to Adjusted EBITDA	$70–$90M; +370–460 bps to margin
ERP Benefit to Adjusted EPS	$0.11–$0.14 (assumes 21.9% tax)
Net Leverage Ratio	5.4x adjusted EBITDA
Gross Margin ERP Benefit	+130–170 bps
Cash Used in Operations	$(145)M

Note on estimates: S&P Global consensus data was unavailable due to access limits at time of writing; therefore, comparison to Street estimates is not provided. Values would be retrieved from S&P Global if available.

Guidance Changes

Metric	Period	Previous Guidance (Feb 2023)	Current Guidance (May 2023)	Change
Revenue ($USD Billions)	FY 2023	$4.28–$4.40	$4.31–$4.40	Raised bottom end
Adjusted EBITDA ($USD Millions)	FY 2023	$920–$1,000	$940–$1,000	Raised bottom end
Adjusted EPS ($)	FY 2023	$0.74–$0.83	$0.76–$0.83	Raised bottom end
Reported EPS ($)	FY 2023	$(0.32)–$(0.22)	$(0.27)–$(0.20)	Raised bottom end
Revenue ($USD Billions)	H1 2023	$2.23–$2.31	$2.26–$2.31	Raised bottom end
Adjusted EBITDA ($USD Millions)	H1 2023	$490–$540	$510–$540	Raised bottom end
Adjusted EPS ($)	H1 2023	$0.43–$0.50	$0.45–$0.50	Raised bottom end
Revenue ($USD Billions)	Q2 2023	—	$1.003–$1.053	New
Adjusted EBITDA ($USD Millions)	Q2 2023	—	$131–$161	New
Adjusted EPS ($)	Q2 2023	—	$0.00–$0.05	New

Management notes Q2 will absorb the ERP reversal (−8–9 pp growth impact) and FX headwinds (~$15M), with underlying base business trends similar to Q1; H2 implies flat to +2% CC growth on innovation ramp, vaccine supply improvement, and price >2% for FY .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2022)	Previous Mentions (Q4 2022)	Current Period (Q1 2023)	Trend
ERP integration	Go‑live accelerated to early Q2 2023; blackout expected	Go‑live expected early Q2 2023; inventory build ahead of blackout	Completed; customers pulled forward; operations resumed Apr 10–27	Positive execution; near-term Q2 reversal
U.S. Pet Health execution	Category pressure; price +4%	Pet retail pressure; innovation launches (Bexacat, OTC relaunch)	Share of voice, distribution (+17%), price (+5%); U.S. Seresto/Advantage growth	Improving sequentially
Seresto/EPA	Ongoing safety scrutiny (implied)	—	Aligned with EPA stewardship supporting continued registration; EPA formal results expected	Reduced regulatory uncertainty
Supply chain/vaccines	U.S. cattle vaccine constraints	U.S. cattle vaccine constraints	U.S. vaccine supply constraints persist; improvement expected in H2	Near-term headwind, easing later
Macro Europe/China	Worsened: Europe slowdown; China lockdowns	Europe/China pressure; cautious 2023 outlook	Sequential improvement signs; caution remains	Gradual stabilization
Pricing	+4% (Q3)	+2% (Q4)	+5% (Q1); FY >2%; MAP suspension Q1, reinstated end-April	Strong start; moderates Q2
Pipeline/R&D	Broad spectrum parasiticide submission; parvo mAb near approval	Bexacat approval; OTC relaunch; JAK inhibitor submission	Parvo mAb conditional approval; IL‑31 submission; Adtab EU launch; Varenzin‑CA1 approval	Building towards 2024 blockbusters

Management Commentary

CEO: “Elanco delivered sequentially improved underlying business performance… successful integration… customers shifting their purchases ahead of our system blackout. We expect lower revenue in the second quarter as a result of this shift.” .
CEO on Seresto: “We continue to align with the EPA on its recommended stewardship actions supporting the continued registration of Seresto.” .
CFO: “Gross margin increased 230 bps to 60.8%, driven by price and productivity; ERP blackout benefited gross margin by an estimated 130–170 bps.” .
CEO on pipeline: “We received USDA conditional approval for our breakthrough Canine Parvovirus Monoclonal Antibody treatment and initiated USDA submission for our IL‑31 monoclonal antibody for canine dermatology.” .

Q&A Highlights

ERP impact quantification: CFO detailed the $90–$110M pull-forward estimate based on customer orders, dispensing data, and April sales visibility; emphasizes timing reversal in Q2 .
Pricing/MAP: MAP policy was temporarily suspended to avoid supply interruptions; reinstated end‑April; Q1 price capture remained strong at +5% .
Seresto/EPA: Management expects stewardship actions with continued registration; U.S. demand showed sequential improvement; no covenant risk flagged related to Seresto .
Free cash flow/inventory: Q1 operating cash flow negative due to AR build late in quarter and farm animal inventory; retail partner inventory increased for legacy Bayer products ahead of blackout, but balance sheet inventory growth skewed to farm animal and FX effects .
2024 launch cadence: Targeting 2–4 months post-approval launch timing; staged investment post‑approval; seasonality less critical for parasiticide under programmatic compliance .

Estimates Context

Wall Street consensus (S&P Global) for Q1 2023 EPS, revenue, and EBITDA was unavailable due to access limits at time of writing; as a result, explicit beat/miss vs consensus cannot be provided. Consensus comparisons would normally anchor on S&P Global data. Values would be retrieved from S&P Global if available.

Key Takeaways for Investors

Q1 strength was partially artificial due to ERP-related pull-forward; expect Q2 payback in revenue and margins, then H2 stabilization and modest growth on innovation and supply improvement .
U.S. Pet Health is inflecting: commercial discipline, price, and expanded distribution are offsetting competitive pressures; watch for MAP normalization effects on OTC demand in Q2 .
Regulatory overhang on Seresto likely easing; EPA stewardship actions expected to support continued registration, reducing a key risk .
Leverage remains high (5.4x), but management targets ~$100M free cash flow for debt paydown in 2023; interest rate swaps extended to maintain 65–70% fixed debt through 2024 .
Pipeline momentum is a medium-term growth driver: near‑term parvovirus mAb launch and 2024 potential blockbusters (IL‑31 derm, broad‑spectrum parasiticide, derm assets) with disciplined post‑approval spend .
Tactical watch items: vaccine supply recovery timing, international pet health demand, FX headwinds (~$15M in Q2), and the ERP reversal magnitude on Q2 EPS/EBITDA .

Bolded elements (beats/misses) are omitted due to unavailable S&P Global consensus at time of writing. All numeric and qualitative claims are sourced from Elanco’s Q1 2023 earnings materials and prior-quarter press releases as cited above.