Eli Lilly & Co. (NYSE: LLY) – Q4 FY 2010 Earnings on January 27
Wednesday, January 26, 2011 3:10 PM

One of the largest pharmaceutical companies Eli Lilly & Co. (NYSE: LLY) is scheduled to report its fourth quarter earnings on January 27, 2011. In the last four quarters ended September 2010, Eli's reported EPS exceeded analysts' consensus estimates for quarters ended March 2010, June 2010, and September 2010, by margins of 7.30 percent, 12.70 percent, and 5.20 percent, respectively. For quarter ended December 2009, the reported EPS missed analysts' consensus by margin of 1.10 percent.

Eli Lilly and Company discovers, develops, manufactures, and sells pharmaceutical products. The company also has an animal health business segment. It manufactures and distributes its products through facilities in the United States, Puerto Rico, and 17 other countries. Its products are sold in approximately 128 countries. The company's products include Neuroscience products, Endocrinology products, Oncology products, Cardiovascular products, Animal health products, and other pharmaceuticals. In the United States, Eli Lilly and Company distributes pharmaceutical products principally through independent wholesale distributors, with some sales directly to pharmacies. Eli Lilly is the seventh largest pharmaceutical company with total sales of $21.8 billion, of which almost a quarter come from Zyprexa, a schizophrenia and bipolar disorder drug.

Q3 FY 2010 results beat analysts' consensus estimates

For the third quarter ended September, 2010, the company reported worldwide total revenue of $5.655 billion, an increase of 2 percent compared with $5.562 billion in the third quarter of FY 2009. Total revenue in the U.S. was flat at $3.150 billion, due to higher prices, offset by decreased volume due primarily to wholesaler buying patterns. Total revenue outside the U.S. increased 4 percent to $2.504 billion due to increased demand. Gross margin increased by 3 percent in the third quarter to 82.5 percent of total revenue. Net income and earnings per share increased to $1.303 billion and $1.18, respectively, compared with third-quarter 2009 net income of $941.8 million and earnings per share of $0.86.

Eli Lilly & Co. raises FY 2010 guidance

For the fourth quarter, Eli Lilly & Co. raised its FY 2010 earnings guidance. The company now expects earnings per share to be in the range of $4.55 to $4.65 on a reported basis and $4.65 to $4.75 on a non-GAAP basis. The company now expects volume-driven revenue growth in the mid-single digits, driven primarily by Alimta, Cymbalta, Humalog, Cialis and Effient. For 2010, the company expects the U.S. health care reform to reduce its revenue by approximately $225 million to $275 million. The company anticipates the gross margin as a percent of revenue to be flat.

Competition in the pharmaceutical industry lies mostly in specific drug markets. Eli Lilly & Co. competes with GlaxoSmithKline Plc (NYSE: GSK) and Sanofi-Aventis (NYSE: SNY). In the last one year, GlaxoSmithKline reported earnings of 2.47 per share, on revenues of $46.86 billion. Sanofi-Aventis reported earnings of $3.25 per share, on revenues of $43.54 billion. On the other hand, Eli Lilly & Co. reported earnings of $4.36 per share, on revenues of $22.82 billion.

Eli Lilly & Co. (NYSE: LLY) has a P/E ratio of 7.97, which is lower than the industry's P/E of 14.62. The P/S ratio of the company is 1.68 compared to industry's P/S of 2.07. The quarterly revenue growth of the company is 1.70 percent, against industry's quarterly revenue growth of 10.50 percent.

For the fourth quarter ending December 31, 2010, analysts' EPS estimates range from a low of $1.04 to a high of $1.13 per share, compared to the consensus estimate of $1.09 or $0.91 earned in the year ago quarter. Analysts' revenue estimates for the fourth quarter range from a low of $5.74 billion to a high of $6.27 billion, compared to a consensus estimate of $5.99 billion or $5.93 billion reported in the same quarter a year ago. For the quarter ended December 31, 2010, the current consensus EPS forecast has remained unchanged at $1.09 for the past 60 days.

As of December 31, 2009, the company has repurchased $2.58 billion of its announced $3 billion share repurchase program. No shares were repurchased in FY 2009, FY 2008, and FY 2007. Eli Lilly's board of directors declared a fourth quarter dividend of $0.49 per share on its outstanding common stock. On December 13, 2010, the company also declared its first quarter FY 2011 dividend of $0.49 per share, payable to shareholders on March 10, 2011, to shareholders of record at the close of business on February 15, 2011. In the last 52 weeks, Eli Lilly's stock has been trading in the range of $32.02 to $38.08. Based on the EPS estimates and key statistical and financial data, I set a one year target price of $35 on Eli Lilly's stock.



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