A month has gone by since the last earnings report for Eli Lilly and Company (LLY Quick QuoteLLY - Free Report) . Shares have added about 8.1% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Lilly Misses on Fourth-Quarter Earnings, Beats on Revenues

Lilly’s fourth-quarter results were mixed with the company beating on revenues but missing earnings expectations.

Lilly’s fourth-quarter 2016 adjusted earnings per share of $0.95 missed the Zacks Consensus Estimate of $0.99 by 4%. Earnings, however, rose 22% from the year-ago quarter backed by higher volume driven sales growth.
 
Including special items, earnings were up 62% to $0.73 per share in the quarter.

Revenue in Detail

Quarterly revenues grew 7% to $5.76 billion. Sales beat the Zacks Consensus Estimate of $5.55 billion by 3.8%. Excluding the impact of foreign exchange, worldwide revenues grew 6%.
 
The top line was primarily driven by strong performance in the key diabetes franchise. Lilly’s new products contributed more than 700 million to sales this quarter with Trulicity and Cyramza doing well. At the conference call, Lilly said it expects to launch three new products by the end of 2018.

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

Volumes rose 8% as higher volumes of new products like Trulicity, Cyramza, Taltz and Jardiance and older products like Humalog/Humulin as well as the Animal Health division was offset by lower volumes of established products like Zyprexa, Alimta and Cymbalta.

U.S. revenues grew 14% to $3.22 billion, reflecting higher volume of products like Trulicity, Humalog, Taltz and Jardiance as well as companion animal products. Higher realized prices also propelled U.S. sales.

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, Jardiance and Trulicity were partially offset by lower volumes of Zyprexa, Cymbalta and Alimta due to the loss of exclusivity. Cymbalta has lost exclusivity in Europe and Canada, Zyprexa in Japan and Alimta in several countries.

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.

Humulin sales decreased 1% in the quarter as higher sales in the U.S. were offset by lower volumes in outside U.S. markets.

Erbitux sales declined 13% to $153.7 million in the quarter.

Lilly's Animal Health segment sales 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.

Among new products, Trulicity generated revenues of $337 million, almost double from last year’s fourth quarter, with U.S. revenues benefiting from growth in the GLP-1 market and market share gains. Cyramza revenues were $177.1 million, up 51% year over year backed mainly by higher outside U.S. revenues. Cyramza’s ex-U.S. revenues benefited from strong uptake in the gastric cancer indication in Japan. However, U.S. revenues declined, being hurt by competition in the non-small cell lung cancer indication.

Jardiance sales ($76.1 million) were driven by increased market share within the growing SGLT2 class. In Dec 2016, the FDA approved Jardiance for the CV indication while the American Diabetes Association updated its diabetes treatment guidelines. Management believes that both these factors will drive growth of Jardiance and the SGLT-2 class.

Basaglar recorded revenues of $39.5 million. Basaglar was launched in the U.S. in mid-Dec 2016 where it generated revenues of $15.8 million largely due to initial stocking.

Portrazza brought in sales of $3.8 million while Taltz brought in sales of $61.3 million.

Lartruvo generated revenues of $11.9 million in the quarter. Lartruvo was launched in the U.S. in late Oct 2016 where it generated revenues of $11.0 million. In Europe, it was launched in mid November with the company booking initial sales in Germany and Austria in December.

Gross Margins & Operating Income Rise

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

Operating income increased 33% to $1.22 billion due to higher revenues. Total operating expenses (R&D+ marketing, selling and administrative expenses) were flat in the quarter. Marketing, selling and administrative expenses were flat in the quarter as lower costs related to established products were offset by higher spending on new products. R&D was also flat in the quarter.

Lilly bought back shares worth $300 million during the quarter and has $2.35 billion left in its $5 billion share buyback program.

2016 Results

Full-year sales rose 6% to $21.22 billion, barely beating the Zacks Consensus Estimate of $21.03 billion. Revenues were in-line with the guidance range of $20.8 billion to $21.2 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. Earnings were in-line with the guidance range of $3.50 to $3.60.

2017 Forecast

Adjusted earnings per share are expected in the range of $4.05 to $4.15, representing a growth rate of 15% to 18%.  

Revenues are expected in the range of $21.8–$22.3 billion. While new products like Trulicity, Taltz, Basaglar, Cyramza, Jardiance and Lartruvo are expected to see higher revenues in 2017, Lilly expects some established products like Trajenta, Forteo and Humalog to continue doing well. The Animal Health division is also expected to see revenue growth.

Gross margin is expected to be approximately 77%. Adjusted tax rate is expected to be approximately 22%.

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

How Have Estimates Been Moving Since Then?

It turns out, fresh estimate flatlined during the past month. There has been one upward revision for the current quarter compared to one downward.

Eli Lilly and Company Price and Consensus

 

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

VGM Scores

At this time, Eli Lilly's stock has a nice Growth Score of 'B', however its Momentum is doing a bit better with an 'A'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is suitable for value, growth and momentum investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.