This is starting to become a tradition or something. For
the
second quarterin a row,
Eli Lilly (NYSE: LLY) beat expectations, it
raised guidance, and its stock fell for the day.
Such is the life of a drugmaker headed toward a patent
cliff. Increased sales are just seen as increasing the burden
it'll have when drugs start to face generic competition.
The quality of the increased earnings could also have
affected investors' feelings about the quarter. A decreased
tax rate and lower cost of foreign goods contributed to the
increase in adjusted earnings. Not something that's exactly
repeatable for years to come.
The 22% increase in adjusted earnings was also
artificially inflated in my opinion. I'm generally OK with
companies removing one-time costs to get reasonable
year-over-year comparisons; GAAP earnings can lead to
distorted comparisons like
Pfizer 's (NYSE: PFE) 26%
increase in earningsdue in part to a large lawsuit last
year. But Eli Lilly retrospectively lowered its third quarter
2008 adjusted earnings to pretend like it owned ImClone
Systems last year.
On the revenue side, that makes sense; investors would
like to know the real rate of sales growth ignoring extrinsic
growth through acquisitions. But on the earnings side, it
seems to be stepping over the line of useful information.
Management decided to outbid
Bristol-Myers Squibb (NYSE: BMY) to buy
ImClone Systems, they should stick with their decision and
not artificially increase earnings by backing out charges
related to that purchase.
Stepping down from my soapbox, I have to say that
management isn't doing everything wrong. On the conference
call, management was very clear that they're focused on the
pipeline rather than on making a large acquisition like
Pfizer and
Merck (NYSE: MRK) have done. A majority of
those molecules are too early to save the company from
descending over the patent cliff, but the strategy still
seems
more soundthan expanding sales through a large
acquisition.
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This article was originally published as
Beat Earnings, Stock Down, Rinse and Repeaton
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