What happened

Shares of Elanco Animal Health (ELAN 0.22%) 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.