Eli Lilly and Company LLY will report first-quarter 2018 results on Apr 24, before market opens. Last quarter, the company delivered a positive earnings surprise of 5.56%.

Lilly’s shares have declined 5.5% this year so far, underperforming the industry ‘s decrease of 4.3%.

Lilly’s performance has been pretty impressive with earnings beating expectations in each of the last four quarters, bringing the average positive surprise to 4.08%.

Eli Lilly and Company Price and EPS Surprise

 

Eli Lilly and Company Price and EPS Surprise | Eli Lilly and Company Quote

Let’s see how things are shaping up for this quarter.

Factors to Consider

Like the previous couple of quarters, strong uptake trends of new products like Trulicity, Taltz, Basaglar, Cyramza, Jardiance and Lartruvo should make up for the decline in sales of established products like Zyprexa, Alimta, Cialis, Strattera and Effient.

While Trulicity sales are being driven by growth in the GLP-1 market and market share gains, Jardiance sales are likely to be driven by increased market share within the growing SGLT2 class. The positive trend is expected to continue in the first quarter. The Zacks Consensus Estimate for Trulicity first-quarter revenues is $586 million.

Continued strong uptake outside the United States is likely to drive sales of Cyramza. Strong launch uptake is expected to drive sales of Taltz and Lartruvo.

The loss of exclusivity in some countries for Cymbalta, Strattera, Effient, Axiron, Zyprexa and Evista will continue to hurt volumes. Also, lower demand in the United States due to competitive pressure mainly from immuno-oncology agents is hurting Alimta sales in the country – a trend which we believe persisted in the first quarter. The Zacks Consensus Estimate for Alimta sales in the first quarter is pegged at $466 million.

Olumiant (baricitinib) was launched in select European countries and in Japan in 2017 and generated sales of $46 million in the year supported by a strong launch uptake in Germany, The drug is under review in the United States. Lilly and partner Incyte Corporation INCY re-submitted the NDA for baricitinib in January.

Verzenio, which was launched in the United States in the fourth quarter of 2017, generated sales of $21 million. We expect the new cancer drug to generate higher sales in the first quarter. Also, this advanced breast cancer treatment gained FDA approval in the first-line setting in February, which might have led to additional sales in the first quarter.

Some older products like Humulin and Forteo are expected to do well while others like Cialis are likely to see weak sales due to lower demand.

Elanco Animal Health segment sales were hurt by global competitive pressure in 2017, a trend that may have continued in the first quarter. On the fourth-quarter conference call, management had said that after being slightly negative in the first half of 2018, Animal Health revenues are expected to improve in the second half supported by new product launches. The Zacks Consensus Estimate for sales in the Animal Health segment is $770 million.

Lilly is exploring strategic alternatives for this business including a sale, merger or creating a separate company through an initial public offer. A decision regarding the same is expected to be announced in July and Lilly may ultimately opt to retain the business. Investors may look for an update on the first-quarter conference call.

Earnings Whispers

Our proven model does not conclusively show that Lilly will beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Its Earnings ESP is -0.08%. The Zacks Consensus Estimate for earnings is $1.13 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Lilly’s Zacks Rank #2 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some large-cap health care stocks worth considering per our model. These have the right combination of elements to beat on earnings this time around:

Merck & Co., Inc. MRK has an Earnings ESP of +0.27% and a Zacks Rank of 2. The company is scheduled to report first-quarter earnings on May 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pfizer, Inc. PFE is also slated to announce financial figures on May 1. The company has an Earnings ESP of +2.28% and is also a Zacks #2 Ranked stock.

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