Elanco Animal Health 2026 UBS Global Healthcare Conference

Yeah, great. Hey, thanks for having me, and thanks for the time today. Last Thursday, we did have our third quarter earnings release, and I think the message coming out of it is that momentum for the business continues from what we have seen the previous several quarters. Growth in the quarter was 9% organically, 11% reported, which included about a point of growth from AHV that we acquired here earlier this year. Pricing was a key topic going into the quarter, and pricing, we were pleased with the acceleration that we expected. Pricing in the quarter was 4%, a little bit higher on the pet side and a little bit lower than that on the farm side, but strong growth there. Overall, the business performed extremely well across all four quadrants. Our pet business grew 14%.

Bobby's U.S. Pet Health grew 13%, internationally grew 17%, really on the backs of continued share gains of some of our newer products. Earnings came in strong as well. Our gross margin was up 300 basis points from the previous year, really led from our innovation or our innovative products, a continued focus on our manufacturing capabilities, and really just continuous improvement processes throughout that, and then some favorable mix as we did grow stronger in the pet side. Earnings came in stronger than we expected, and then on the cash side and balance sheet, we did get levered below three times. That was a key milestone for us. We had originally expected that to be in 2027, and just with the stronger growth in earnings as well as continued fundamentals around trade working capital, we were able to get leverage at 2.9 times.

That was a major milestone for the company.

Yeah, great. We highlighted last week, we have a tremendous amount of clarity around our 2027 business plan, and we will be meeting with the board next week to present that. Just a high degree of confidence, what we did do is reiterate our algorithm that we shared at Investor Day in December last year, which we did say we expect to grow mid-single digits from 2025 to 2028. We expect EBITDA to grow at high single digits, and we expect earnings to grow at low double digits. What we reiterated was, that is not only over the course of three years, but that is individually each year. We did highlight, we expect that coming in 2027, and that is going to be a mix of both pricing. We do see pricing about that 2%-3% at the historical rate that we have been at.

We expect that in Q4 and that to carry on into 2027. We see volume picking up the rest with some great growth in our innovation and the products around that.

Yeah, maybe I'll give you a couple comments and then I'll let Bobby give a little bit more color. But as you think about just the impact of Costco, what's important for people to understand is we actually see retail growing in 2027 versus 2026, even after considering the loss of the Costco business. Costco for the year, it was less than a half point of growth for us. It was particularly stronger in Q1 in 2026 just because of the launch of it. But Bobby and the team have done a great job of adding more customers, and retail should be a growth driver for us next year.

Yeah, and it's not uncommon for us to see retailers make decisions on assortment, and Costco's a limited assortment environment. They carry only one SKU of flea and tick, and we had won that business from the incumbent for the first time in history, and they decided to make a different decision sort of going forward. This has happened to us before. We've lost major customers in the past, and we think it was largely driven by timing of execution and missing some part of the season when we sort of got in. And so, we're optimistic that the business will come back over time.

Yeah, I want to be very clear. That's a great follow-up question, Andrea. It's just our OTC business sold in the brick-and-mortar stores in Costco. So we still have our online OTC business, and we have a very large RX business with Costco as well.

Yeah. Typically, the contracts are on an annual cycle, and it is largely driven by performance. So, performance of something else that they put in there, whether that be another flea and tick product or, frankly, a different category altogether, and it is all about meeting certain velocity hurdles for dollars per store per club.