Group 1 - Encompass Health (EHC) is a strong performer in the Medical sector, with a year-to-date return of approximately 30.3%, significantly outperforming the sector average loss of 3.5% [4] - The Zacks Rank for Encompass Health is 1 (Strong Buy), indicating a positive earnings outlook and strong analyst sentiment, with earnings estimates having increased by 4.4% in the past quarter [3][4] - The Medical sector consists of 998 individual stocks and currently holds a Zacks Sector Rank of 6, reflecting the average performance of stocks within this sector [2] Group 2 - Encompass Health operates within the Medical - Outpatient and Home Healthcare industry, which includes 17 stocks and has a Zacks Industry Rank of 39, with an average gain of 4.9% this year [6] - Another notable stock in the Medical sector is Elanco Animal Health Incorporated (ELAN), which has achieved a 15% increase year-to-date and has a Zacks Rank of 2 (Buy) [5][6] - Both Encompass Health and Elanco Animal Health are highlighted as stocks to watch for continued solid performance in the Medical sector [7]

Company Overview - Elanco Animal Health Incorporated (ELAN) is currently experiencing significant activity in the options market, particularly with the Jan 16, 2026 $3.00 Call option showing high implied volatility, indicating potential for a major price movement [1] Market Sentiment - The high implied volatility suggests that investors are anticipating a significant price change for Elanco Animal Health shares, which could be driven by an upcoming event [2][4] - Analysts have a mixed outlook on Elanco, with the company holding a Zacks Rank 3 (Hold) in the Medical - Outpatient and Home Healthcare industry, which is in the top 26% of the Zacks Industry Rank [3] Earnings Estimates - Over the past 60 days, there have been no increases in earnings estimates for the current quarter, while six analysts have lowered their estimates, resulting in a decrease of the Zacks Consensus Estimate from earnings of 25 cents per share to 20 cents [3]

Core Insights - Nearly 90% of U.S. dogs are reported as "itchy dogs" by their owners, with over 80% of owners indicating that pollen levels in their cities exacerbate their dogs' itchiness [1][4] - Pet owners spend an average of $173 more and use two additional treatments during allergy season to manage their dogs' itch [1] - There is a significant emotional toll on dog owners, with 75% feeling hopeless when their veterinarian cannot provide relief for their itchy dogs [3] Treatment and Veterinary Insights - Itching is a leading reason for veterinary visits, with owners typically waiting an average of 6 weeks before seeking help [2] - 90% of veterinarians believe that dog owners wait too long to bring in their itchy dogs, leading to more severe skin issues [2] - A majority of dog owners prefer a single daily pill for treatment rather than multiple pills [2] - 75% of dog owners expressed a need for more affordable options to manage their dogs' itch [2] Emotional and Social Impact - 53% of itchy dog owners feel judged by their community, and 75% feel hopeless when treatment is ineffective [3] - Successful treatment of itchy dogs strengthens the bond between veterinarians and pet owners, with 84% of veterinarians noting increased visits for other issues and 70% of owners referring others to their practice [3] Geographic Insights - In the highest human allergy cities, 85% of dogs experience itch during allergy season, compared to 79% of all U.S. dogs [4] - Specific cities exhibit unique trends, such as Memphis, TN, where owners spend an average of $548 year-round on treatments, significantly higher than the national average of $302 [11]

Summary of Elanco Animal Health Conference Call Company Overview - **Company**: Elanco Animal Health - **CEO**: Jeff Simmons - **Event**: Stifel Jaws and Paws Conference 2025 Key Points Leadership Transition - Elanco announced a proactive leadership change with the departure of the CFO Todd, who has been with the company for over six years, to be succeeded by Bob Ben Hinbergen from Hillenbrand, emphasizing a cultural fit and value creation focus [2][4][6] Financial Performance - Elanco reported a solid first quarter with innovation revenue reaching **$198 million** and a **4% growth** in revenue, guiding for **4% to 6% growth** for the year [7][9][12] - The company has absorbed tariff impacts and earmarked **$25 million** of FX EBITDA tailwind for future potential pharma tariffs [7][12] - Cash debt paydown was raised from **$150 million** to between **$450 million and $500 million**, indicating strong cash flow management [12] Innovation and Growth - Elanco has seen **seven consecutive quarters of growth**, driven by innovation across its product portfolio, including products like Experior, Credelio, and AdTap [8][10][11] - The company is focusing on a basket of **six blockbusters** and additional products launched in the last three years to drive growth [11] - Credelio Quattro has captured **10% market share** shortly after launch, indicating strong market acceptance [29][30] Market Dynamics - The OTC business experienced a decline in January and February due to cold weather but rebounded in March and April, continuing into May [13][16] - Elanco's distribution strategy has expanded to include retailers like Tractor Supply and Target, enhancing accessibility for pet owners [16][17] Product Development - ZENRELIA is positioned for growth with a focus on changing language on labels to enhance vet adoption, with **11,000 vet clinics** currently using the product [41][42] - The company anticipates a significant market opportunity in the derm category, projected to exceed **$2 billion** [45] Margin Expansion Strategy - Elanco is implementing a company-wide margin expansion approach, focusing on gross-to-net pricing strategies and operational efficiencies [22][58][60] - The company expects to leverage new product launches for improved pricing realization in 2026 [62] Regulatory Environment - Elanco is advocating for streamlined regulatory processes and an exemption from pharma tariffs, emphasizing the unique nature of the animal health industry compared to pharmaceuticals [76][77][78] Future Outlook - The company is optimistic about the growth trajectory in both the pet and farm animal segments, with a focus on innovation and market expansion [70][72] - Elanco aims to solidify its position as a leader in the derm market and capitalize on the growing demand for animal protein [67][70] Additional Insights - The company is closely monitoring weather impacts on sales and is prepared to adjust strategies accordingly [16][17] - Elanco's approach to innovation is multi-faceted, focusing on both product differentiation and market penetration strategies [25][62] This summary encapsulates the key discussions and insights from the Elanco Animal Health conference call, highlighting the company's strategic direction, financial performance, and market opportunities.

Core Viewpoint - Elanco Animal Health Incorporated has appointed Robert VanHimbergen as Executive Vice President and Chief Financial Officer, effective July 7, 2025, following a competitive search aimed at long-term value creation [1][3] Company Leadership Transition - Robert VanHimbergen will succeed Todd Young, who will remain as an advisor until August 31, 2025, to ensure a smooth transition [1][3] - VanHimbergen has nearly three decades of experience in finance, having previously served as CFO at Hillenbrand, Inc. and held various roles at Johnson Controls [2][3] Company Growth and Strategy - Elanco has experienced seven consecutive quarters of growth and is focused on accelerating growth, globalizing operations, maximizing innovation, and improving cash generation [3] - The company aims to build on its current momentum and leverage its diverse portfolio of innovations to enhance shareholder value [3] Financial Guidance - Elanco reconfirms its second quarter and full year guidance as previously issued during the first quarter earnings call on May 7, 2025 [3]

Summary of Elanco Animal Health Conference Call Company Overview - **Company**: Elanco Animal Health - **Industry**: Animal Health Key Points and Arguments Financial Performance - Elanco reported a robust Q1 with a **4% constant currency revenue growth**, marking the **seventh consecutive quarter of growth** [4][5] - The company exceeded guidance on revenue, adjusted EBITDA, and adjusted EPS [5] - Revenue guidance was raised to **$660 million to $740 million** for the innovation basket initiated in 2021 [6] Innovation and Product Development - The innovation basket includes six key products contributing significantly to growth, particularly **Quattro**, **Experior**, and **ZENRELIA** [7][8] - **Experior** is identified as having a **$350 million potential market** in North America [8] - ZENRELIA is gaining traction with **11,000 clinics** adopting it, indicating strong market demand in the **$1.9 billion dermatology market** [25][26] - The derm market is expected to grow **double digits**, with ZENRELIA positioned as a leading product [25] Cash Flow and Debt Management - Elanco announced monetizing royalties on the Lotta Lanner asset, bringing in nearly **$300 million** for debt reduction [9] - The company anticipates **$450 million to $500 million** for debt paydown, improving leverage ratios [9] Tariff and Regulatory Environment - Elanco is actively managing tariff impacts, estimating a **$16 million to $20 million** effect primarily from U.S.-China trade relations [10][11] - The company is engaged in discussions with the administration regarding potential tariff exemptions for the animal health industry [16][19] - Regulatory reform discussions are ongoing, with a focus on streamlining processes with the FDA and USDA [17][34] Market Dynamics and Competitive Landscape - The farm animal segment is experiencing growth, with Elanco being a leader in beef, swine, and poultry [73] - The company is optimistic about the protein market, noting a **20% decline** in animal protein alternatives [74] - Elanco's competitive strategy includes leveraging its innovation pipeline and addressing market needs effectively [46][87] Future Outlook - Elanco is focused on expanding its product portfolio, with plans for **seven blockbuster products** in the pipeline [87] - The company is enhancing its distribution strategy, increasing physical availability across various retail channels [90][92] - The outlook for the farm animal segment remains positive, with specific growth anticipated in cattle and poultry, while the pig industry faces challenges [99] Additional Insights - Elanco emphasizes the importance of a stable core business supported by innovation, which is crucial for sustained growth [100] - The company is committed to maintaining a competitive edge through scientific rigor and addressing consumer demands for sustainability [80][81] Conclusion Elanco Animal Health is positioned for continued growth through innovation, effective management of market dynamics, and a strong focus on regulatory engagement. The company's diverse product portfolio and strategic initiatives in the animal health sector are expected to drive future performance.

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Financial Performance - Elanco Animal Health reported first-quarter 2025 adjusted earnings per share of 37 cents, a 9% increase year over year, surpassing management guidance of 29 to 34 cents and consensus of 31 cents [1] - The company achieved sales of $1.19 billion, exceeding the consensus of $1.17 billion and management guidance of $1.16 billion to $1.18 billion, although sales decreased 1% on a reported basis but increased 4% on organic constant currency growth [1] Segment Performance - Pet Health revenue was $635 million, reflecting a 1% decrease on a reported basis but a 1% increase when excluding foreign exchange rates, with a 2% increase from price compared to Q1 2024 [2] - Farm Animal revenue was $546 million, a 2% decrease on a reported basis, but a 7% increase when excluding unfavorable impacts from aqua divestiture and foreign exchange rates, driven by a 3% increase from price [3] - First-quarter volumes for Farm Animal were up 4%, primarily due to strength in U.S. cattle, led by the product Experior [3] EBITDA and Leverage - Adjusted EBITDA was $276 million, a decrease of 6%, with an adjusted EBITDA margin of 23.1% compared to 24.4% a year ago [3] - As of March 31, Elanco's net leverage ratio was 4.4x adjusted EBITDA, an increase of 0.1x compared to December 31, 2024, with expectations of gross debt paydown of $450 million to $500 million in 2025 [4] Guidance and Future Outlook - The company raised its 2025 full-year revenue guidance from $4.45 billion to $4.51 billion, now expecting between $4.51 billion and $4.58 billion, compared to the consensus of $4.484 billion [7] - Elanco reaffirmed its 2025 adjusted EPS guidance of 80 to 86 cents, against the consensus of 83 cents, and expects second-quarter 2025 adjusted earnings of 17 to 21 cents, compared to the consensus of 25 cents [8] Market Context - The year-over-year volume decline in Q1 was primarily due to a challenging U.S. retail environment and decreased vaccine sales, offset by increased sales of new products and strong demand for parasiticide products in Europe [9] - The Advantage Family of products and Seresto contributed revenues of $123 million and $153 million, respectively [9]

Core Insights - Elanco Animal Health Incorporated reported revenue of $1.19 billion for the quarter ended March 2025, reflecting a year-over-year decline of 1% [1] - The earnings per share (EPS) for the same period was $0.37, an increase from $0.34 a year ago, indicating a positive trend in profitability [1] - The reported revenue exceeded the Zacks Consensus Estimate of $1.17 billion, resulting in a surprise of +2.17% [1] - The company delivered an EPS surprise of +19.35%, with the consensus EPS estimate being $0.31 [1] Revenue Breakdown - Total Pet Health revenue was $635 million, slightly below the estimated $649.71 million, representing a -0.6% change year-over-year [4] - Total Contract Manufacturing revenue reached $12 million, surpassing the estimated $9.95 million, marking a +20% change compared to the previous year [4] - Total Farm Animal revenue was $546 million, exceeding the estimated $510.15 million, but showing a -1.8% change year-over-year [4] Stock Performance - Elanco Animal Health shares have returned +14.2% over the past month, outperforming the Zacks S&P 500 composite's +10.6% change [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3]

PART I - Financial Information [Financial Statements](index=6&type=section&id=Item%201.%20FINANCIAL%20STATEMENTS) Unaudited condensed consolidated financial statements for Q1 2025 show $1.193 billion revenue, $67 million net income, and $12.94 billion total assets | | Three Months Ended March 31, | | :--- | :--- | :--- | | (in millions, except per-share data) | 2025 | 2024 | | **Revenue** | **$1,193** | **$1,205** | | Gross profit | $684 | $690 | | Income before income taxes | $60 | $12 | | **Net income** | **$67** | **$32** | | **Diluted EPS** | **$0.13** | **$0.06** | | | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | (in millions) | (Unaudited) | | | **Total current assets** | **$3,440** | **$3,215** | | Total assets | $12,941 | $12,614 | | **Total current liabilities** | **$1,269** | **$1,315** | | Total liabilities | $6,588 | $6,518 | | **Total equity** | **$6,353** | **$6,096** | | | Three Months Ended March 31, | | :--- | :--- | :--- | | (in millions) | 2025 | 2024 | | **Net Cash (Used for) Provided by Operating Activities** | **($4)** | **$2** | | Net Cash (Used for) Provided by Investing Activities | ($58) | $37 | | Net Cash Provided by (Used for) Financing Activities | $52 | ($27) | | **Net increase (decrease) in cash and cash equivalents** | **$19** | **($7)** | [Notes to Financial Statements](index=11&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) Key notes detail revenue disaggregation, the 2024 aqua business divestiture, total debt, a May 2025 royalty sale, and ongoing shareholder lawsuits | Product Category | Q1 2025 Revenue (in millions) | Q1 2024 Revenue (in millions) | | :--- | :--- | :--- | | Pet Health | $635 | $639 | | Farm Animal | $546 | $556 | | Contract Manufacturing and Other | $12 | $10 | | **Total Revenue** | **$1,193** | **$1,205** | - In July 2024, the company sold its aqua business to Merck Animal Health for **$1.294 billion** in cash, recognizing a pre-tax gain of **$640 million**; the divested assets had a carrying value of **$634 million**, including **$458 million** in goodwill[41](index=41&type=chunk)[42](index=42&type=chunk) - Total long-term debt, including the current portion, was **$4.42 billion** as of March 31, 2025, with approximately **80%** bearing a fixed interest rate, inclusive of interest rate swaps[46](index=46&type=chunk)[49](index=49&type=chunk) - The company is defending against several shareholder lawsuits, including class actions and derivative actions, related to allegations of misleading statements about product safety (Zenrelia), launch timelines, and financial disclosures[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk) - In May 2025, after the quarter's end, Elanco sold the rights to future U.S. royalties and certain milestones for the human health product XDEMVY to Blackstone for **$295 million**[77](index=77&type=chunk) [Management's Discussion and Analysis (MD&A)](index=21&type=section&id=Item%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses Q1 2025 financial results, including a 1% revenue decrease, doubled net income, key product launches, and sufficient liquidity [Business Overview and Key Developments](index=21&type=section&id=Business%20Overview%20and%20Key%20Developments) Elanco, a global animal health leader, highlights key product approvals and launches, alongside the strategic divestiture of its aqua business - Key product innovation and launch highlights include: **Bovaer** (FDA approval in May 2024 for a first-in-class methane-reducing feed ingredient); **Zenrelia** (FDA approval in September 2024 for a canine dermatitis treatment); and **Credelio Quattro** (FDA approval in October 2024 for a comprehensive chewable parasiticide for dogs, launched in January 2025)[82](index=82&type=chunk) - The divestiture of the aqua business was completed on July 9, 2024, for **$1.294 billion** in cash, resulting in a **$640 million** pre-tax gain[87](index=87&type=chunk) - The business experiences seasonality, particularly in Pet Health, where key parasiticide products like Seresto and Advantage Family generated **70%** and **55%** of their respective 2024 annual revenues in the first half of the year[89](index=89&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Q1 2025 total revenue decreased 1% to $1.193 billion, with Pet Health down 1% and Farm Animal down 2%, while net income significantly increased to $67 million | (Dollars in millions) | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | **Revenue** | **$1,193** | **$1,205** | **(1)%** | | Gross profit | $684 | $690 | (1)% | | Asset impairment, restructuring | $9 | $46 | (80)% | | Interest expense, net | $40 | $66 | (39)% | | **Net income** | **$67** | **$32** | **109%** | | (Dollars in millions) | Revenue | Price | FX Rate | Volume | Divestiture | Total % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Pet Health | $635 | 2% | (2)% | (1)% | —% | (1)% | | Farm Animal | $546 | 3% | (3)% | 4% | (6)% | (2)% | | **Total** | **$1,193** | **2%** | **(2)%** | **2%** | **(3)%** | **(1)%** | - Pet Health revenue decreased **1%** due to lower volumes from a prior year channel stocking event and a challenging U.S. retail environment, partially offset by new product revenue and strong demand in Europe[95](index=95&type=chunk) - Farm Animal revenue decreased **2%**, as the impact of the aqua business divestiture and unfavorable FX outweighed a **4%** increase in volumes (led by U.S. cattle) and a **3%** price increase[96](index=96&type=chunk) - Interest expense decreased by **$26 million** (**39%**) compared to the prior year, primarily due to lower average outstanding debt balances[102](index=102&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) Primary liquidity sources include $487 million cash, operating cash flow, and over $825 million in credit facilities, deemed sufficient to meet obligations | (in millions) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash from Operating activities | $(4) | $2 | | Net cash from Investing activities | $(58) | $37 | | Net cash from Financing activities | $52 | $(27) | | **Net change in cash** | **$19** | **$(7)** | - As of March 31, 2025, the company had **$487 million** in cash, approximately **$750 million** available on its Revolving Credit Facility, and approximately **$75 million** available on its Securitization Facility[107](index=107&type=chunk) - Cash used for investing activities was **$58 million**, primarily due to **$65 million** in purchases of property, equipment, and software, an increase of **$41 million** from the prior year, mainly for the expansion of the monoclonal antibody manufacturing facility in Elwood, Kansas[111](index=111&type=chunk) [Market Risk Disclosures](index=27&type=section&id=Item%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Elanco is exposed to foreign currency and interest rate risks, mitigated by derivative instruments, with approximately 80% of long-term debt at a fixed rate - The company is exposed to foreign currency exchange risk, primarily with respect to the Euro, British pound, Swiss franc, Brazilian real, Australian dollar, Japanese yen, Canadian dollar, and Chinese yuan[118](index=118&type=chunk) - To manage interest rate risk, the company uses interest rate swaps; including these swaps, approximately **80%** of its long-term indebtedness bears interest at a fixed rate as of March 31, 2025[120](index=120&type=chunk) [Controls and Procedures](index=27&type=section&id=Item%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - Management, with the participation of the CEO and CFO, evaluated disclosure controls and procedures as of March 31, 2025, and concluded they were effective[122](index=122&type=chunk) - There were no changes in internal control over financial reporting during the first quarter of 2025 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[123](index=123&type=chunk) PART II - Other Information [Other Information (Items 1-5)](index=28&type=section&id=Item%201.%20LEGAL%20PROCEEDINGS) This section refers to Note 11 for legal proceedings, the 2024 Form 10-K for risk factors, and confirms no unregistered equity sales or new trading plans - For a summary of legal proceedings, the report refers to Note 11. Commitments and Contingencies in the financial statements[126](index=126&type=chunk) - There have been no material changes from the risk factors previously disclosed in the company's 2024 Form 10-K[127](index=127&type=chunk)