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Why Elanco Animal Health Stock Is Falling Today

By Cory Renauer – Aug 9, 2021 at 12:55PM

Key Points

  • Elanco Animal Health completed a big acquisition of Bayer Animal Health last year, and investors are jumpy about the merger's execution.
  • Second-quarter results exceeded expectations on the top and bottom lines.
  • The company disappointed investors with a slight downward revision to its full-year earnings outlook.

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A downward guidance revision for 2021 earnings is overshadowing impressive sales growth.

What happened

Shares of Elanco Animal Health (ELAN -2.50%) are under pressure after the company's second-quarter earnings call. While results met previous expectations, a revised outlook for the bottom line in the second half upset investors enough to push the stock 14.2% lower as of 12:07 p.m. EDT on Monday.

So what 

Elanco Animal Health reported second-quarter earnings results that exceeded the quarterly guidance management provided in June. Around a year ago, Elanco splashed out on the $7.6 billion acquisition of Bayer Animal Health, and investors are looking for any signs of trouble. 

Unhappy investor looking at a downward sloping stock chart.

Image source: Getty Images.

Second-quarter revenue more than doubled year over year to $1.28 billion, which was $24 million above the high end of the company's guided range. Adjusted earnings came in at $0.28 per share, which was $0.01 above the high point of the company's expected range.

Investors probably should have been encouraged by gross margins that expanded by 7.5% year over year to 57%, but they got hung up on the company's slightly downward earnings guidance revision.

Now what

In June, Elanco Animal Health told investors to expect adjusted earnings between $1 and $1.06 per share. Despite rising revenue and expanding gross margins, the company now expects adjusted earnings for 2021 to fall in a range between $0.97 and $1.03 per share. 

Elanco promised increased profitability through synergies with Bayer's operation, but the latest guidance revision is a step in the wrong direction. The company blamed logistics, inflation, and a higher share count resulting from the pending acquisition of Kindred Biosciences (KIN).

If all goes to plan, Elanco will pay $440 million for Kindred's pet dermatology products later this year. Elanco doesn't currently have a presence in the growing space for pet skincare, and Kindred's drugs could add a few hundred million dollars annually to its top line several years down the road.

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Elanco Animal Health Inc. Stock Quote
Elanco Animal Health Inc.
ELAN
$12.87 (-2.50%) $0.33
Kindred Biosciences Stock Quote
Kindred Biosciences
KIN

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