Earnings Preview: Eli Lilly

Eli Lilly & Company (LLY) is all set to announce its first quarter 2011 results on April 18, 2011 before the opening bell. The Zacks Consensus Estimate for the first quarter is $1.16, representing a year-over-year decrease 1.7%. Eli Lilly has surpassed earnings estimates consistently in the last four quarters with a trailing four-quarter average of 6.04%.

Fourth Quarter Recap

Eli Lilly reported fourth quarter earnings per share of $1.11, a penny above the Zacks Consensus Estimate and 22% above the year-ago earnings of $0.91. Fourth quarter results were driven by higher revenues and a lower tax rate. Fourth quarter revenues increased 4% to $6.2 billion, slightly above the Zacks Consensus Revenue Estimate of $6.0 billion.

Fourth quarter revenues increased mainly due to a 3% volume growth and 2% price increase, which was offset by unfavorable foreign exchange fluctuations (1%). Healthcare reform impacted revenues by $70 million.

(Read our full coverage of the fourth quarter and full year 2010 earnings report at Eli Lilly Tops Ests; Guides In Line)

Agreement of Estimate Revisions

Estimate revisions for Eli Lilly have been scarce over the past month. Over the past thirty days, only 2 of the 16 analysts covering Eli Lilly for the first quarter of 2011 have revised their earnings estimates. While 1 analyst has upped his earnings estimate, the other has moved in the opposite direction.

The estimates for 2011 have been revised upwards by only 2 of the 20 analysts with no movement in the opposite direction over the last 30 days. We expect the top-and bottom-line to remain under pressure from late 2011 as the contraction in lead product Zyprexa’s (a treatment for schizophrenia and bipolar disorder) sales more than offsets growth in Cymbalta (approved for treating depression), the diabetes franchise and sales of new products.

Magnitude of Estimate Revisions

Estimates for the first quarter of 2011 have remained static at $1.16 over the last 30 days due to a lack of significant estimate revisions by the analysts following the stock. Estimates for 2011 too are static at $4.24 over a similar time period due to lack of significant estimate revisions.

Neutral on Eli Lilly

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

Even though we are concerned about the generic threat to key products and the lack of a significant enough pipeline to offset key patent expirations at Eli Lilly, a strong performance of the diabetes business should offer some downside support. Moreover, the ramp of blood thinner Effient, upside from the ImClone deal coupled with Eli Lilly’s focus on emerging markets should provide a boost to revenues.

We are also pleased to see Lilly pursuing small acquisitions and in-licensing deals to boost its pipeline. These positive catalysts cause us to maintain our ‘Neutral’ stance on the stock in the long-run.

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