It has been about a month since the last earnings report for Eli Lilly (LLY - Free Report) . Shares have added about 11.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lilly due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Q1 Earnings & Sales Miss, COVID-19 Drug Demand Low
Lilly reported first-quarter 2021 adjusted earnings per share of $1.87, which missed the Zacks Consensus Estimate of $2.12. Earnings however rose 16% year over year driven by higher operating income.
Revenues of $6.81 billion also missed the Zacks Consensus Estimate of $6.89 billion. Nevertheless, sales increased 16% (13% in constant currency) year over year as volume increases and currency tailwinds offset the impact of lower realized prices of several of its drugs.
Inventory patterns had a negative impact on revenue growth in the first quarter of 2021 as significant COVID-related customer stocking had benefited sales by roughly $250 million in the year-ago quarter. The unfavourable comparison mainly hurt sales of Lilly’s diabetes medicines, most notably Trulicity. Meanwhile, lower expected revenues from Lilly’s COVID-19 antibody sales due to lower demand hurt sales in the quarter.
Excluding the COVID-19 antibody revenue and the Q1 2020 COVID-related stocking benefit, total revenues rose 7% in the quarter.
Quarter in Detail
Lower realized prices had a negative impact of 4% on sales. Volumes rose 17%. Foreign exchange had a positive impact of 3% on revenue growth in the quarter.
Key growth products (products launched since 2014) drove 8% of revenue growth and represented nearly 52% total revenues, excluding revenues from COVID-19 antibodies (core business revenue). U.S. revenues climbed 18% to $3.94 billion while ex-U.S. revenues increased 13% to $2.86 billion.
Among the growth products, Trulicity generated revenues worth $1.45 billion, up 18% year over year driven by higher volumes, which offset decline in prices.
The lower realized prices were a result of higher contracted rebates partially offset by favorable segment mix (due to decreased 34B segment utilization) and modest list price increases.
Cyramza revenues of $240.5 million were up 1% year over year, as lower realized prices and decreased demand in the United States were partially offset by higher volumes and currency tailwinds in the ex-U.S. markets.
Jardiance sales rose 17% to $312.0 million driven by increased demand trends within the SGLT2 class of diabetes medicines in the United States and increased volume outside the United States.
Basaglar recorded revenues of $246.6 million, down 19% year over year due to lower realized prices and weak demand caused by competitive pressure in the United States. Basaglar sales also declined in international markets.
Taltz brought in sales of $403.2 million, down 9% year over year as U.S. sales were hurt by lower realized prices driven by increased rebates to gain broad commercial access. Ex-U.S. sales rose driven by increased volume. Lilly believes Taltz should return to positive sales growth in the second quarter as volume growth from the major access upgrade outpaces the related pricing headwind.
Olumiant generated sales of $193.8 million in the quarter, up 39% year over year backed by increased volume in international markets and currency tailwinds.
Verzenio generated sales of $269.0 million in the reported quarter, up 43% year over year, driven by increased demand and to some extent, higher realized prices.
Emgality generated revenues of $119.5 million in the quarter, up 61% year over year due to increased demand and higher realized prices in the United States.
Among the newer drugs, Retevmo, launched last year, generated sales of $16.8 million in the quarter compared with $18.7 million in the previous quarter.
Among the established products, Forteo sales declined 27% to $198.5 million and Humalog sales declined 11% to $617.0 million. Humulin sales rose 2% to $321.7 million while Alimta sales were flat at $559.0 million.
Lilly generated revenues of $810.1 million from its COVID-19 therapies, bamlanivimab and its combination medicines in the quarter, less than $871.2 million recorded in the previous quarter.
Gross Margin & Operating Income
Adjusted gross margin was 75.4% in the quarter, down 490 basis points primarily due to unfavorable product mix driven by COVID-19 antibodies sales and the impact of lower realized prices and unfavorable effect of foreign exchange rates on international inventories sold.
Operating income rose 6% year over year to $1.87 billion. Operating margin was 27.5% in the quarter, down 250 bps year over year, driven entirely by the impact of foreign exchange on international inventories sold. Operating expenses rose 11% in the quarter.
Marketing, selling and administrative expenses rose 2%. R&D expense rose 21% in the quarter due to increased costs for development of COVID-19 treatments. R&D costs included expenses of $220 million to develop COVID-19 therapies.
Adjusted effective tax rate was 10.8%, lower than 12.9% in the year-ago quarter.
2021 Guidance
Lilly also narrowed its previously issued earnings and sales forecast for 2021 due to lower-than-expected demand for its COVID-19 antibody medicines and higher R&D costs
Lilly expects adjusted earnings in the range of $7.80-$8.00 per share in 2021 compared with the prior expectation of $7.75-$8.40.
Revenues in 2021 are expected in the range of $26.6 billion-$27.6 billion, compared with $26.5 billion-$28.0 billion expected previously.
Lilly expects revenues in the range of $1.0-$1.5 billion from COVID-19 therapies compared with the prior range of $1-$2 billion.
Lilly expects its revenue growth to be driven by higher volumes for key products including Trulicity, Taltz, Verzenio, Jardiance, Olumiant, Cyramza, Emgality and Retevmo.
However, generic competition for several drugs, rising pricing pressure in the United States due to increased rebates and price declines in some international markets like China, Japan and Europe will continue to remain top-line headwinds in 2021. In the United States, prices are expected to decline in a low-to-mid-single digit range.
Gross margin is expected to be approximately 79% (maintained). Adjusted tax rate is expected to be approximately 13% (previously 15%). Adjusted operating margin is expected to be 31% (previously 32%) in 2021.
Marketing, selling and administrative expense are expected to be in the range of $6.2 billion to $6.4 billion (maintained). Research and development expense is expected to be in the range of $6.9 billion to $7.1 billion, higher than $6.5 billion to $6.7 billion previously to reflect additional investments in donanemab for Alzheimer’s disease and COVID-19 antibodies. R&D costs include investment of approximately $400 million to $500 million in developing COVID-19 therapies mainly to support the advancement of a third antibody, LY-1404.
Q2 Outlook
Revenues in the second quarter of 2020 were hurt by the reversal of $250 million COVID-related stocking benefit from the first quarter as well as an additional $250 million due to business disruption from COVID-19. This means the second quarter of 2021 will face easier comparisons from the year-ago quarter.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
Currently, Lilly has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Lilly has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
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It has been about a month since the last earnings report for Eli Lilly (LLY - Free Report) . Shares have added about 11.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lilly due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Q1 Earnings & Sales Miss, COVID-19 Drug Demand Low
Lilly reported first-quarter 2021 adjusted earnings per share of $1.87, which missed the Zacks Consensus Estimate of $2.12. Earnings however rose 16% year over year driven by higher operating income.
Revenues of $6.81 billion also missed the Zacks Consensus Estimate of $6.89 billion. Nevertheless, sales increased 16% (13% in constant currency) year over year as volume increases and currency tailwinds offset the impact of lower realized prices of several of its drugs.
Inventory patterns had a negative impact on revenue growth in the first quarter of 2021 as significant COVID-related customer stocking had benefited sales by roughly $250 million in the year-ago quarter. The unfavourable comparison mainly hurt sales of Lilly’s diabetes medicines, most notably Trulicity. Meanwhile, lower expected revenues from Lilly’s COVID-19 antibody sales due to lower demand hurt sales in the quarter.
Excluding the COVID-19 antibody revenue and the Q1 2020 COVID-related stocking benefit, total revenues rose 7% in the quarter.
Quarter in Detail
Lower realized prices had a negative impact of 4% on sales. Volumes rose 17%. Foreign exchange had a positive impact of 3% on revenue growth in the quarter.
Key growth products (products launched since 2014) drove 8% of revenue growth and represented nearly 52% total revenues, excluding revenues from COVID-19 antibodies (core business revenue). U.S. revenues climbed 18% to $3.94 billion while ex-U.S. revenues increased 13% to $2.86 billion.
Among the growth products, Trulicity generated revenues worth $1.45 billion, up 18% year over year driven by higher volumes, which offset decline in prices.
The lower realized prices were a result of higher contracted rebates partially offset by favorable segment mix (due to decreased 34B segment utilization) and modest list price increases.
Cyramza revenues of $240.5 million were up 1% year over year, as lower realized prices and decreased demand in the United States were partially offset by higher volumes and currency tailwinds in the ex-U.S. markets.
Jardiance sales rose 17% to $312.0 million driven by increased demand trends within the SGLT2 class of diabetes medicines in the United States and increased volume outside the United States.
Basaglar recorded revenues of $246.6 million, down 19% year over year due to lower realized prices and weak demand caused by competitive pressure in the United States. Basaglar sales also declined in international markets.
Taltz brought in sales of $403.2 million, down 9% year over year as U.S. sales were hurt by lower realized prices driven by increased rebates to gain broad commercial access. Ex-U.S. sales rose driven by increased volume. Lilly believes Taltz should return to positive sales growth in the second quarter as volume growth from the major access upgrade outpaces the related pricing headwind.
Olumiant generated sales of $193.8 million in the quarter, up 39% year over year backed by increased volume in international markets and currency tailwinds.
Verzenio generated sales of $269.0 million in the reported quarter, up 43% year over year, driven by increased demand and to some extent, higher realized prices.
Emgality generated revenues of $119.5 million in the quarter, up 61% year over year due to increased demand and higher realized prices in the United States.
Among the newer drugs, Retevmo, launched last year, generated sales of $16.8 million in the quarter compared with $18.7 million in the previous quarter.
Among the established products, Forteo sales declined 27% to $198.5 million and Humalog sales declined 11% to $617.0 million. Humulin sales rose 2% to $321.7 million while Alimta sales were flat at $559.0 million.
Lilly generated revenues of $810.1 million from its COVID-19 therapies, bamlanivimab and its combination medicines in the quarter, less than $871.2 million recorded in the previous quarter.
Gross Margin & Operating Income
Adjusted gross margin was 75.4% in the quarter, down 490 basis points primarily due to unfavorable product mix driven by COVID-19 antibodies sales and the impact of lower realized prices and unfavorable effect of foreign exchange rates on international inventories sold.
Operating income rose 6% year over year to $1.87 billion. Operating margin was 27.5% in the quarter, down 250 bps year over year, driven entirely by the impact of foreign exchange on international inventories sold. Operating expenses rose 11% in the quarter.
Marketing, selling and administrative expenses rose 2%. R&D expense rose 21% in the quarter due to increased costs for development of COVID-19 treatments. R&D costs included expenses of $220 million to develop COVID-19 therapies.
Adjusted effective tax rate was 10.8%, lower than 12.9% in the year-ago quarter.
2021 Guidance
Lilly also narrowed its previously issued earnings and sales forecast for 2021 due to lower-than-expected demand for its COVID-19 antibody medicines and higher R&D costs
Lilly expects adjusted earnings in the range of $7.80-$8.00 per share in 2021 compared with the prior expectation of $7.75-$8.40.
Revenues in 2021 are expected in the range of $26.6 billion-$27.6 billion, compared with $26.5 billion-$28.0 billion expected previously.
Lilly expects revenues in the range of $1.0-$1.5 billion from COVID-19 therapies compared with the prior range of $1-$2 billion.
Lilly expects its revenue growth to be driven by higher volumes for key products including Trulicity, Taltz, Verzenio, Jardiance, Olumiant, Cyramza, Emgality and Retevmo.
However, generic competition for several drugs, rising pricing pressure in the United States due to increased rebates and price declines in some international markets like China, Japan and Europe will continue to remain top-line headwinds in 2021. In the United States, prices are expected to decline in a low-to-mid-single digit range.
Gross margin is expected to be approximately 79% (maintained). Adjusted tax rate is expected to be approximately 13% (previously 15%). Adjusted operating margin is expected to be 31% (previously 32%) in 2021.
Marketing, selling and administrative expense are expected to be in the range of $6.2 billion to $6.4 billion (maintained). Research and development expense is expected to be in the range of $6.9 billion to $7.1 billion, higher than $6.5 billion to $6.7 billion previously to reflect additional investments in donanemab for Alzheimer’s disease and COVID-19 antibodies. R&D costs include investment of approximately $400 million to $500 million in developing COVID-19 therapies mainly to support the advancement of a third antibody, LY-1404.
Q2 Outlook
Revenues in the second quarter of 2020 were hurt by the reversal of $250 million COVID-related stocking benefit from the first quarter as well as an additional $250 million due to business disruption from COVID-19. This means the second quarter of 2021 will face easier comparisons from the year-ago quarter.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
Currently, Lilly has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Lilly has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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