Elanco Animal Health Inc.: Pushing Back on Macro Narrative – US Pet Health Positioned for Robust Acceleration; Fireside 6/4

Research evidence excerpt

Elanco Animal Health Inc.: Pushing Back on Macro Narrative – US Pet Health Positioned for Robust Acceleration; Fireside 6/4

Barclays | Elanco Animal Health Inc.

relates to the uptick in its US Pet business, which has been driven by 1) innovation and 2) base

business stabilization. As a result, we struggle to make the case that the broader industry

experienced an unexpected negative downturn in 1Q (outside of Jan/Feb weather issues) as

peer commentary around lack of market growth has alluded to. Overall, we think the narrative

that seemingly emerged around downturn/worsening outlook in macro trends with increased

fears around pricing have largely been misleading as it relates to Elanco. Based on our

conversations with multiple management teams in the space, we don't think there has been a

meaningful shift on the macro side, which is an important distinction, in our view.

March and April trends position the 2H26 US Pet ramp in a much more reasonable place.

The more modest ~6% US Pet Health growth in 1Q (funny that we now consider 6% growth for

Elanco US Pet as modest!) was largely driven by weather impacts in Jan/Feb. That said, we think

sentiment coming out of the quarter was initially very positive given how upbeat management

sounded on the call, and in that light, the 2H26 US Pet Health guide was not necessarily viewed

as aggressive considering the ongoing trends in the innovation basket ($287M in 1Q, +45% y/y).

However, when the company's largest competitor came out the next day with the weakening

macro narrative, suddenly Elanco's 2H26 guide felt concerning in that context given

uncertainty around industry growth and increased consumer price sensitivity. We think the

most important data points to call out are: US Pet growth in March (+8%) and April (>8%)