Eli Lilly (NYSE: LLY) reported a decline in net income of $1 billion or 16% year-over-year to $5.2 billion in 2023, mainly due to higher acquired in-process research and development expenses. Despite this, the company’s stock performance has been strong, with LLY stock seeing gains of 345% over the last three years, outperforming the S&P 500 each year. This outperformance is notable, as many other individual stocks and heavyweights in the Health Care sector have struggled to beat the market in recent years.
Eli Lilly’s gross and operating margins have been expanding in recent years, with gross profit rising from $19 billion in 2020 to $27 billion in 2023. The company’s gross profit margin also increased from 77.7% to 79.2% over this period. Operating margin expanded from 28.9% in 2020 to 31.6% in 2023, and 32.9% for the last twelve months. Despite increased investments in research and development, Eli Lilly managed to cut its SG&A costs, resulting in a lower increase in combined SG&A and R&D expenses compared to revenue growth.
However, the company saw its net income margin contract in recent years, with net income declining from $6.2 billion in 2020 to $5.2 billion in 2023. This was primarily due to non-operating expenses, especially in-process research and development costs, which rose significantly over the period. On an adjusted basis, net income margin decreased from 25.2% in 2020 to 16.7% in 2023, leading to a decline in earnings per share. Despite this, Eli Lilly’s outlook for 2024 is positive, with revenue expected to grow significantly driven by key drugs like Mounjaro and Zepbound.
The company expects its adjusted earnings per share to increase by 2.2 times year-over-year in 2024, with revenue projected to be between $42.4 billion and $43.6 billion. Eli Lilly plans for SG&A expenses to rise at a slower pace than revenues, while R&D expenses are expected to increase at a higher pace than SG&A. The company’s bottom line is expected to double in 2024, leading to a sharp jump in net income margin and continued expansion of its operating margin with disciplined spending.
Overall, while Eli Lilly’s stock may see higher levels, the company’s peers must also be considered. Investors can explore valuable comparisons for companies across industries to make informed decisions. With a positive outlook for 2024 and strong revenue growth expected, Eli Lilly is positioned to improve its margin profile and stock performance in the coming year.
