Eli Lilly Faces a Rough Patch: Stock Drops Over 6% Following Disappointing Earnings

Eli Lilly stock (NYSE: LLY) declined more than 6% on Wednesday, October 30, as the company reported disappointing quarterly results. With a revenue of $11.4 billion and adjusted earnings of $1.18 per share, both figures fell short of analysts’ expectations of $12.1 billion and $1.45. In this article, we will unpack the key insights from its recent performance and what it means for investors. Additionally, we’ll touch on why SNAP stock rose 10%.

Understanding Eli Lilly’s Q3 Performance

Eli Lilly’s revenue for the third quarter reached $11.4 billion, marking a year-over-year increase of 20%. This growth was supported by a doubling of sales for its weight loss drug, Mounjaro, which brought in $3.1 billion. Meanwhile, the company’s obesity treatment, Zepbound, generated $1.3 billion. However, these numbers fell short of expectations, as estimates were $3.5 billion and $1.5 billion respectively. In contrast, Verzenio exceeded predictions slightly with $1.4 billion in sales against an estimate of $1.3 billion. A significant factor contributing to the loss in Zepbound sales was reduced inventory in wholesale channels. Eli Lilly has faced supply challenges due to heightened demand for its obesity treatments and is working to expand production capacity.

The company reported a gross margin of 82.2%, a 50 basis point increase from the previous year’s quarter. The growth in revenue and improvement in margins resulted in adjusted earnings that surged 12 times year-over-year to $1.18 per share. Last year, the profits had been depressed due to a $3 billion IPR&D charge tied to acquisitions that included DICE Therapeutics, Versanis Bio, and Emergence Therapeutics. Similarly, in Q3 2024, the company recorded $2.8 billion in IPR&D charges related to acquiring Morphic Holding.

Future Outlook for Eli Lilly

In light of recent results, Eli Lilly has revised its annual sales forecast down to $45.7 billion, with adjusted earnings now projected at $13.27. Previously, guidance had been set at $46 billion and $16.35. This revision reflects ongoing supply challenges impacting sales and the effect of IPR&D charges in Q3 on anticipated earnings growth.

What This Means for LLY Stock

The disappointing results and revised guidance have unsettled investors, resulting in a sharp 6% drop in stock price following the announcement. Nevertheless, some analysts view this downturn as a potential buying opportunity for long-term investors. The drop in guidance does not stem from a decrease in demand, which remains strong for Eli Lilly’s obesity treatments. Notably, analysts have maintained an average price target of $1,025, suggesting a potential upside of over 20% from the current trading levels around $850.

This year, LLY stock has outperformed major indices, boasting a gain of 46% compared to the S&P 500’s 22%. Remarkably, LLY has delivered superior returns relative to broader market averages for the past three years: 66% in 2021, 34% in 2022, and 61% in 2023. Comparatively, the Trefis High Quality (HQ) Portfolio, composed of 30 stocks, has consistently outperformed the S&P 500, highlighting the benefit of stable investments that yield higher returns with lower volatility over time.

As LLY stock faces its challenges, it’s prudent to monitor how Eli Lilly’s peers are performing based on relevant metrics, which can be explored further under Peer Comparisons.

[1] Returns as of 10/31/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.