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Elanco Narrows Guidance Amid Spread of African Swine Fever

Elanco Narrows Guidance Amid Spread of African Swine Fever

(Bloomberg) -- Elanco Animal Health Inc. narrowed its sales forecast for the year as a worsening outbreak of a deadly swine flu ravages the pork industry in Asia.

The company, which was spun off last year from drugmaker Eli Lilly & Co., reined in the higher end of its revenue outlook, saying it now sees 2019 sales of $3.08 billion to $3.12 billion, compared with the $3.08 billion to $3.14 billion it had forecast in May.

African swine fever has led to the slaughter of millions of animals in China as officials seek to contain the outbreak and limit the damage to the country’s pork producers. The virulent flu jumped from Africa to Europe and spread quickly in Asia. For companies like Elanco, the culling of livestock has led to lower demand for medicines and other products.

“I haven’t seen something like this in my 30 years working in animal health,” said Elanco Chief Executive Officer Jeff Simmons in a telephone interview. He said that swine fever is the most significant headwind the company faces. The disease is expected to cut into Elanco’s sales by $40 million to $50 million this year, the company said.

Elanco is meanwhile weighing steps to get bigger. Last week, Bloomberg reported that Elanco is attempting to reach a deal to combine with Bayer AG’s animal-health unit.

Chief Financial Officer Todd Young said on a conference call that Elanco is postponing the initiation of a dividend so the company can use its cash “in the most productive way possible.”

Shares of Elanco gained as much as 2.9% to $30.40 in New York on Tuesday.

Street Skepticism

Wall Street has been skeptical about Elanco’s bid for the Bayer division. Since July 8, the day before Reuters reported that the companies were in talks, Elanco’s shares are down about 9%.

While Bayer prefers a deal with Elanco, no final agreements have been reached and the talks could drag on or fall apart, people familiar with the matter told Bloomberg. Bayer may proceed with its previous plans for a broader auction process if it can’t agree on terms with Elanco by early September, one of the people said at the time.

Asked repeatedly about the possible combination with Bayer on the call with investors, Simmons said Elanco is always “evaluating vectors of risk and opportunity.” He declined to comment further on the potential deal.

“We believe we have the scale and the global reach that we need,” Simmons said in the telephone interview. “We’ll continue to expand and accelerate this strategy, we’ll continue to bolt-on.”

Elanco’s pet businesses helped offset the sales declines in the farm unit in the most recent quarter, with disease prevention sales increasing 4% from a year earlier to $223.4 million and therapeutics sales rising 22% to $83.4 million.

Second-quarter adjusted earnings were 28 cents a share, the company said in a statement, topping an average of analysts’ estimates.

To contact the reporter on this story: Riley Griffin in New York at rgriffin42@bloomberg.net

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Timothy Annett

©2019 Bloomberg L.P.