Earnings Preview: Eli Lilly - Analyst Blog


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Eli Lilly & Company ( LLY ) is scheduled to announce its fourth quarter and full year 2011 results on January 31, 2012 before the start of trading. The Zacks Consensus Estimate for the fourth quarter is $0.80 (year-over-year decrease of 27.9%) on revenues of $5,920 million (year-over-year decrease of 4.3%).

For fiscal 2011, the Zacks Consensus Estimate is $4.35 (year-over-year decrease of 8.2%) on revenues of $24,146 million (year-over-year increase of 4.6%). The Zacks Consensus Estimate for 2011 is at the highest end of the guidance range of $4.30-$4.35 per share provided by the company.

Third Quarter Recap

Eli Lilly reported third quarter 2011 adjusted earnings per share of $1.13, in line with the Zacks Consensus Estimate but 7% below the year-ago earnings of $1.21. Earnings in the quarter were hurt by higher operating expenses, which offset the rise in revenues.

Third quarter revenues increased 9% to $6.1 billion, just above the Zacks Consensus Revenue Estimate of $6.0 billion. Revenues were boosted by increased demand for Lilly's major products. Exchange rates also favorably impacted revenues during the quarter. Reported earnings (including special items), declined 6% to $1.11. Reported earnings included $25.2 million of restructuring costs.

 (Read our full coverage on this earnings report: Earnings Decline at Eli Lilly ).

Agreement of Estimate Revisions

The analysts project an optimistic sentiment on Eli Lilly's to-be-reported quarter. Out of the 13 analysts covering the stock for the fourth quarter, 5 have revised their estimates upwards, while 1 has moved in the opposite direction over the last 30 days. Fiscal 2011 estimates too have witnessed an upward bias over the last 30 days with 6 analysts raising estimates and 1 trimming the same.

However, fiscal 2012 estimates have witnessed a significant downward trend over the last 30 days. 14 analysts have slashed their 2012 earnings estimates with a sole upward movement. We believe that the downward bias is attributable to the disappointing 2012 guidance issued by the company earlier this month. The lackluster guidance was primarily attributable to the loss of exclusivity of the blockbuster Zyprexa (a treatment for schizophrenia and bipolar disorder) in the EU and US in late 2011.

Sales of Zyprexa are expected to erode by more than $3 billion in 2012. The product, which posted $5.03 billion in sales in 2010, generated more than $3.8 billion in sales in the first nine months of 2011.

The loss of exclusivity of Zyprexa reflects the tough times ahead for the company. Like several pharma companies including Pfizer ( PFE ), also reporting on January 31, Eli Lilly is facing or will be facing generic competition for blockbuster drugs in its portfolio.

About eight products, representing 74% of 2010 total revenues, have lost or are expected to lose exclusivity over the next few years at Eli Lilly. 2013 will see anti-depressant Cymbalta, another blockbuster drug in Eli Lilly's portfolio, losing patent protection. Osteoporosis drug Evista is expected to lose exclusivity in 2014.

Magnitude of Estimate Revisions

Estimates for the fourth quarter as well as for fiscal 2011 have gone up by a cent each over the last 30 days. Estimates for fiscal 2012 have gone down by 41 cents to $3.17 per share due to the significant downward revisions over the last 30 days.

Surprise History

Eli Lilly has surpassed earnings estimates in two of the last four quarters, missing estimates by a whisker in the second quarter and reporting in-line earnings in the third quarter of 2011. On average, the earnings surprise was 2.02%.

Our Recommendation

We currently have a Neutral recommendation on Eli Lilly, which carries a Zacks #3 Rank (short-term Hold rating).

LILLY ELI & CO ( LLY ): Free Stock Analysis Report
PFIZER INC ( PFE ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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