Eli Lilly (LLY) Misses on Q4 Earnings, Beats on Revenues

Eli Lilly and Company 's LLY fourth-quarter results were mixed with the company beating on revenues but missing earnings expectations.

In the past one year, Lilly's share price was down 4.8%, comparing unfavorably with the 2.5% decrease witnessed by the Zacks classified Large-Cap Pharma industry.

Earnings Disappoint

Lilly's fourth-quarter 2016 adjusted earnings per share of 95 cents missed the Zacks Consensus Estimate of 99 cents by 4%. Reported earnings, however, soared 22% from the year-ago quarter.

Including special items, earnings were up 62% to 73 cents per share in the quarter.

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Revenues Impress

Quarterly revenues grew 7% to $5.76 billion. Sales beat the Zacks Consensus Estimate of $5.55 billion by 3.8%. The top line was primarily driven by volume growth of Trulicity and other new pharmaceutical products.

Volumes rose 8% driven by higher volumes of new products like Trulicity, Cyramza, Taltz and Jardiance, as well as Humalog, Humulin and companion animal products. The total increase in volume was partially offset by lower volumes of established products like Zyprexa, Alimta and Cialis as well as the Animal Health division.

Higher volumes and a slightly favorable foreign currency impact (1%) were partially offset by lower realized prices.

Quarter in Detail

U.S. revenues grew 14% to $3.22 billion reflecting higher volume of products like Trulicity, Humalog, Taltz, Jardiance, Humulin, as well as companion animal products.

Ex-U.S. revenues declined 1% to $2.54 billion mainly due to lower volumes and realized prices. Higher volumes of newer products like Cyramza and Trulicity were partially offset by lower volumes of Zyprexa, Cymbalta and Alimta due to the loss of exclusivity. Cymbalta lost exclusivity in Europe and Canada, Zyprexa in Japan and Alimta in several countries.

Trulicity generated revenues of $337 million with U.S. revenues benefiting from increasing momentum in the glucagon-like peptide-1 (GLP-1) market and a higher market share. Cyramza revenues were $177.1 million, up 51% year over year, despite U.S. revenues being negatively impacted by competition in the non-small cell lung cancer indication. Ex-U.S. revenues benefited from strong uptake in the gastric cancer indication in Japan.

Jardiance sales ($76.1 million) were driven by increased market share within the growing SGLT2 class. Basaglar, approved for controlling high blood sugar in adults and children with type I diabetes and adults with type II diabetes, recorded revenues of $39.5 million. Basaglar was launched in the U.S. in mid 2016.

Other products that recorded growth during the quarter include Forteo (up 12% to $422.5 million), Humalog (up 3% to $819.8 million), Strattera (up 10% to $243.2 million) and Cialis (up 6% to $676.3 million).

Alimta sales, however, declined 14% to $541.6 million, reflecting lower demand in the U.S. due to competitive pressure mainly from immuno-oncology agents. Outside the U.S., sales of Alimta were hurt by loss of exclusivity in several countries.

Zyprexa sales declined 33% to $153 million due to loss of exclusivity.

Sales of Lilly's Animal Health segment increased 3% to $837.6 million. Favorable wholesaler buying patterns for companion animal products in the U.S., and higher food animal products' sales in ex-U.S. markets drove segment sales.

Lung cancer drug Portrazza generated sales of $3.8 million, while plaque psoriasis drug Taltz brought in sales of $61.3 million.

Meanwhile, Erbitux sales deteriorated 13% to $153.7 million in the quarter.

Gross Margins & Operating Income Up

Adjusted gross margin of 77.4% in the quarter increased 10 basis points primarily driven by increased volume in the U.S. and efficiencies in manufacturing processes.

Operating income increased 33% to $1.22 billion due to higher research and development costs.

2016 Results

Full-year sales rose 6% to $21.22 billion, barely beating the Zacks Consensus Estimate of $21.03 billion.

Adjusted earnings for 2016 were $3.52 per share, up 3% year over year but falling short of the Zacks Consensus Estimate of $3.56.

2017 Outlook

Lilly provided its guidance for 2017. The company expects revenues in the range of $21.8- $22.3 billion, consistent with the outlook provided in Dec 2016. Lilly also continues to expect earnings per share in the range of $4.05 to $4.15. The Zacks Consensus Estimate for earnings and revenues is pegged at $4.10 and $21.96 billion, respectively.

Marketing, selling and administrative expenses are expected in the range of $6.4-$6.6 billion, while research and development expenses are projected in the range of $4.9-to $5.1 billion band.

Pharmaceutical products including Trajenta, Forteo and Humalog, and the Animal Health segment should drive growth. However, Alimta will continue to be impacted by competition.

Eli Lilly and Company Price and Consensus

Eli Lilly and Company Price and Consensus | Eli Lilly and Company Quote

Zacks Rank & Key Picks

Lilly currently carries a Zacks Rank #2 (Buy). Other favorably placed stocks in the health care sector include Sucampo Pharmaceuticals, Inc. SCMP , Sunesis Pharmaceuticals SNSS and Anika Therapeutics Inc. ANIK . While Sucampo sports a Zacks Rank #1 (Strong Buy), Anika and Sunesis both carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Sucampo's earnings estimates were stable at $1.22 for 2016 but have increased from $1.58 to $1.74 for 2017 over the last 60 days. The company posted a positive earnings surprise in all of the four trailing quarters with an average beat of 35.5%.

Sunesis' loss estimates narrowed 5.06% and 8.80% for 2016 and 2017, respectively, over the past 60 days. The company recorded a positive earnings surprise in three of the last four quarters, the average being 0.54%.

Anika's earnings estimates for 2016 and 2017 were up 3.9% and 0.5%, respectively, over the last 60 days. The company recorded a positive earnings surprise in each of the last four quarters, the average being 33.14%.

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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.

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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