Lilly Beats, Ups Earnings Outlook - Analyst Blog

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Eli Lilly & Company ( LLY ) reported first quarter 2012 adjusted earnings per share of 92 cents, 14 cents above the Zacks Consensus Estimate but 26% below the year-ago earnings of $1.24. The year-over-year decline was attributable to lower revenues and higher operating expenses in the first quarter of 2012.

Reported earnings (including special items), declined 4% to 91 cents per share. Reported earnings included special charges to the tune of $23.8 million associated with the withdrawal of Xigris.

First quarter revenues declined 4% to $5.6 billion. However, revenues exceeded the Zacks Consensus Estimate of $5.3 billion. Revenues were hurt by reduced sales of Zyprexa. Sales of Zyprexa, which went off-patent in the EU and the US in late 2011, plummeted 56% in the first quarter of 2012. Exchange rate fluctuations did not have a material impact on revenues.

Quarterly Details

First quarter revenues declined mainly due to a 7% decrease in volume. A 4% price increase partially mitigated the effect of lower volume.

US revenues remained flat at $3.1 billion mainly due to the loss of market exclusivity of Zyprexa. Ex-US revenues fell 9% to $2.5 billion, mainly due to the loss of exclusivity for Zyprexa.

During the first quarter, Zyprexa recorded a 56% decline in revenues, which came in at $562.7 million. US revenues plummeted 66% due to lower prices. International revenues decreased 47%, mainly due to the loss of market exclusivity in major markets apart from Japan.

Products which performed well in the first quarter included Cymbalta (23% growth to $1.1 billion), Humalog (12% growth to $590.3 million), Forteo (26% growth to $271.3 million), and Strattera (15% growth to $158.9 million).

Eli Lilly's Animal Health segment contributed $490.7 million (up 33%) to revenues. Higher demand, customer buying pattern and the impact of the acquisition of certain animal health products from the Janssen unit of Johnson and Johnson ( JNJ ) helped boost revenues from the segment.

Effient posted revenues of $115.8 million with US revenues coming in at $89.8 million.

Expenses

Adjusted expenses increased 3% during the quarter, mainly due to Eli Lilly's deal with Boehringer Ingelheim and other pharmaceutical expenses.

Research and development (R&D) expenses increased 2% to $1.2 billion. Marketing, selling and administrative expenses increased 3% to $1.8 billion mainly due to costs associated with the agreement with Boehringer Ingelheim and higher expenses associated with new product launches.

Earnings Guidance Up

Apart from announcing first quarter results, Eli Lilly upped its earnings guidance for 2012. Eli Lilly now expects earnings in the range of $3.15 - $3.30 on revenues of $21.8 - $22.8 billion. The Zacks Consensus Estimate is currently towards the lower end of the guidance range at $3.18 per share. The Zacks Consensus Estimate for 2012 revenue is currently $22.4 billion. Earlier, Eli Lilly had guided towards earnings of $3.10 - $3.20 on revenues of $21.8 - $22.8 billion.

While the loss of Zyprexa exclusivity is expected to impact revenues by more than $3 billion, products like Cymbalta, Cialis, Humalog, Humulin and Forteo are expected to continue performing well. Moreover, new products like Effient, Axiron and Tradjenta should also boost revenues.

The Animal Health business should also continue performing well. Meanwhile, revenue growth in Japan and emerging markets will be impacted by pricing actions in the country and the loss of patent protection for Zyprexa and other products in some emerging markets.

Eli Lilly is working on controlling costs and expects operating expenses to remain flat in 2012. While marketing, selling and administrative expenses are expected to decline to $7.4 billion - $7.8 billion, research and development expenses are expected to remain flat in the range of $5.0 billion - $5.3 billion.

Neutral on Eli Lilly

We currently have a Neutral recommendation on Eli Lilly, which carries a Zacks #3 Rank (short-term Hold rating). The biggest near-term challenge for Eli Lilly will be to replace the revenues that will be lost to generic competition now that Zyprexa has lost exclusivity in the US and EU. Zyprexa sales are expected to erode significantly in 2012, as well. The generic threat will continue to pose challenges for Eli Lilly with Cymbalta slated to lose patent protection in 2013 and Evista in 2014.

We expect the top-and bottom-line to remain under pressure as the contraction in Zyprexa sales more than offsets growth in Cymbalta, diabetes and new product sales. On the flip side, the Animal Health business, Japan and emerging markets should offer some downside support. We are also pleased to see Eli Lilly pursuing small acquisitions and in-licensing deals to boost its pipeline.


 
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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 The NASDAQ OMX Group, Inc.




This article appears in: Investing , Business , Stocks

Referenced Stocks: JNJ , LLY

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