Cost cuts boost Lilly's 2013 profits forecast, but what next?

Eli Lilly ($LLY) sees better-than-expected times ahead, at least for its bottom line. The drugmaker issued a 2013 profits forecast that surpassed analyst estimates, despite sales still suffering from the patent cliff. What's the secret sauce? Cost-cutting.

While sales will grow somewhat, operating expenses will be flat--or even down a bit from 2012 levels, the company says. "It looks like cost-cutting is coming in a little more quickly than we were anticipating," Morningstar analyst Damien Conover told The Wall Street Journal. Barclays Capital's Tony Butler was more emphatic: "Overall, it was better than anyone expected. From an earnings perspective, no one believed that operating expenses would be kept in check."

The numbers? Earnings are expected to hit a range of $3.75 to $3.90 per share, after amounting to $3.30 to $3.40 for 2012, Lilly said. Revenue is expected to grow, albeit slightly, to $22.6 billion to $23.4 billion from 2012's range of $21.8 billion to $22.8 billion.

ISI Group analyst Mark Schoenebaum says Lilly has beaten its recent financial forecasts. "Bear in mind for the past two years, Lilly's initial guidance has proved conservative," Schoenebaum said in an investor note (as quoted by Bloomberg). But one forecast Lilly has fallen short of is perhaps its most important: The expectation that it would roll out two drugs a year beginning this year. And that's the number that long-term forecasts will depend upon.

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