Are Eli Lilly & Co. (LLY) Earnings Headed Down?

One area that has been more promising lately has been Lilly’s Elanco animal health division, which has had its revenue climb almost 50% and its pre-tax profits more than double between 2010 and 2012. Elanco faces huge competition from the recently spun-off Zoetis Inc (NYSE:ZTS), as well as the Merck & Co., Inc. (NYSE:MRK) animal-health division, both of which managed to post stronger revenue growth in the first quarter than Elanco did. One big question that Lilly will face is whether it makes sense to follow Pfizer Inc. (NYSE:PFE)‘s lead and spin off Elanco, but given Lilly’s overall challenges elsewhere, it might want to hold onto Elanco if only to maintain a brighter spot in the gloom of patent expirations.

In the meantime, Eli Lilly & Co. (NYSE:LLY) is preparing for generic competition by trying to cut costs. Last week, it froze base pay for most of its workers in 2014, including its executives. As more of its big drugs start going off patent, the possibility also exists for staffing cutbacks unless Lilly can get some pipeline success.

In the Lilly earnings report, look for CEO John Lechleiter, who recently returned from a medical leave, to provide guidance on how the drugmaker will overcome all its challenges and keep moving forward. At this point, though, Lilly doesn’t seem to have the answers that will avoid a crushing earnings blow next year.

The article Are Eli Lilly Earnings Headed Down? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned.

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