Animal products firm faces COVID-related shareholder suit

A shareholder has filed a putative class-action lawsuit against an animal products manufacturer and its directors and officers, charging them with issuing false and misleading information after it revised its earnings projections based on the COVID-19 pandemic.

 Shareholder Sandra Hunter said in a lawsuit filed in U.S. District Court in Indianapolis on May 20 that Greenfield, Indiana-based Elanco Animal Health Inc.’s share price dropped 13% after the company said on March 24 it was withdrawing its previously announced 2020 revenue and earnings per share guidance “as the situation around the COVID-19 pandemic is rapidly evolving,” according to the lawsuit, Sandra Hunter v. Elanco Animal Health Inc., Jeffrey N. Simmons and Todd S. Young.

Mr.  Simmons is the company’s CEO and Mr. Young its chief financial officer. The lawsuit was first reported by the D&O Diary blog.

In 2020 financial guidance issued on Jan. 20, the company had said it expected 2020 revenue of $3.05 billion to $3.11 billion and earnings per share to be in the 4 cents to 16 cents range on a reported basis and $1.09 to $1.16 on an adjusted basis.

In withdrawing that guidance on March 24, the company did not cite projections for 2020, but said it was “monitoring several global dynamics” including declining veterinary clinic visits and the growing use of direct-to-consumer animal protein market shipping.

On May 7, the company reported a 12 cents per share decline in its first-quarter results, which reflected a $60 million reduction in channel inventory “driven by factors resulting from the COVID-19 pandemic.” Channel inventory is inventory that has been sent to a retailer but not yet sold.

The lawsuit charges that its 2020 guidance was “materially false and/or misleading and failed to disclose material adverse facts by the Company’s business, operations, and prospects.” It charges the firm and its officers with violating federal securities law. 

The company did not respond to a request for comment.

Experts have said companies can minimize their pandemic-related D&O risk by thoroughly documenting board meetings and avoiding or withdrawing previously issued, overly optimistic guidance.