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Why Is Merck (MRK) Up 3.8% Since Last Earnings Report?
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A month has gone by since the last earnings report for Merck (MRK - Free Report) . Shares have added about 3.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Merck due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Q2 Earnings & Sales Beat Estimates, Guidance Cut
Merck’s second-quarter results were better than expected as it beat estimates for earnings as well as sales.
Merck reported adjusted earnings of $2.28 per share for second-quarter 2024, beating the Zacks Consensus Estimate of $2.16. In the year-ago period, management incurred an adjusted loss of $2.06 per share due to a one-time charge of $4.02 per share related to the Prometheus Biosciences acquisition.
Including acquisition and divestiture-related costs, restructuring costs, income and losses from investments in equity securities and certain other items, earnings per share were $2.14 against a loss of $2.35 in the year-ago quarter.
Revenues rose 7% year over year (11% excluding Fx) to $16.11 billion driven by key brands, Keytruda and Gardasil. Sales beat the Zacks Consensus Estimate of $15.90 billion.
Quarter in Detail
The Pharmaceutical segment generated revenues of $14.41 billion, up 7% year over year (11% excluding Fx). Higher sales of oncology drugs, cardiovascular and vaccines were partially offset by lower sales of Merck’s diabetes and virology medicines. Pharmaceutical segment revenues beat the Zacks Consensus Estimate of $14.16 billion and our model estimate of $14.04 billion.
All sales growth numbers discussed below exclude Fx impact.
Keytruda, the biggest product in Merck’s portfolio, generated sales of $7.27 billion in the quarter, up 21% year over year. Keytruda sales benefited from rapid uptake across earlier-stage indications like triple-negative breast cancer, renal cell carcinoma and early-stage non-small cell lung cancer, for which approval was received in the United States in October 2023. Continued strong momentum in metastatic indications also boosted sales growth. Keytruda sales beat the Zacks Consensus Estimate of $7.12 billion and our estimate of $7.11 billion.
The company expects continued growth from Keytruda, particularly in early lung cancer.
Alliance revenues from Lynparza and Lenvima also boosted oncology sales in the quarter
Alliance revenues from Lynparza increased 4% year over year to $317 million in the quarter, driven by higher demand in the United States as well as some international markets, like China and Europe. Lenvima alliance revenues were $249 million, up 4% from the year-ago period’s levels.
Welireg recorded sales of $126 million, up 150% year over year, driven by the launch of a new indication of previously treated advanced renal cell carcinoma for which FDA approval was received in December 2023.
In vaccines, sales of HPV vaccines — Gardasil and Gardasil 9 — rose 4% year over year to $2.48 billion, driven by strong demand in the United States and certain ex-U.S. markets, partially offset by lower sales in China. In the United States, sales benefited from price as well as demand and favorable CDC purchasing patterns. Sales declined in China due to a significant step down in shipments from Merck’s distributor and commercialization partner, Zhifei, which resulted in higher inventory. Though Gardasil sales missed the Zacks Consensus Estimate of $2.53 billion, it beat our estimate of $2.39 billion.
Gardasil sales in China can be affected by less shipments in China than expected in 2024. However, the company maintained its guidance to generate more than $11 billion in sales by 2030 despite this short-term setback.
Proquad, M-M-R II and Varivax vaccines recorded combined sales of $617 million, up 7% year over year. Sales of the rotavirus vaccine, Rotateq, rose 26% to $163 million, while Pneumovax 23 (pneumococcal vaccine polyvalent) vaccine sales declined 32% to $59 million. Sales of Vaxneuvance, Merck’s new pneumococcal 15-valent conjugate vaccine, were $189 million, up 16% year over year, driven by continued uptake in Europe and Japan. In the United States, Vaxneuvance sales were hurt by lower demand and unfavorable CDC purchasing patterns.
In the hospital specialty portfolio, neuromuscular blockade medicine, Bridion injection generated sales of $455 million in the quarter, down 8% year over year, due to generic competition in certain ex-U.S. markets, mainly Europe and the Asia Pacific region.
Prevymis recorded sales of $188 million, up 35% year over year.
Januvia/Janumet (diabetes) franchise sales declined 23% year over year to $629 million. The drug’s sales were hurt by lower demand and pricing in the United States and generic competition in certain international markets, mainly Europe and Asia Pacific region.
Lagevrio (molnupiravir) generated sales of $110 million in the second quarter, down 42% year over year. Lower sales in certain Asia Pacific markets were partially offset by higher demand in Japan and the United States.
New PAH drug Winrevair, which was approved in March 2024, recorded sales of $70 million in the second quarter. On the conference call, the company said that the U.S. launch of the drug is progressing well. Approximately 40% of sales were due to doses administered to patients and the remainder were due to inventory building.
Merck’s Animal Health segment generated revenues of $1.48 billion, up 2% year over year (6% excluding Fx impact) driven by growth in livestock products. However, the Animal Health segment’s sales missed the Zacks Consensus Estimate of $1.52 billion and our model estimate of $1.51 billion.
Sales of companion animal products declined 1% to $645 million. Sales rose 1% excluding currency as higher pricing across the product portfolio was partially offset by lower distributor inventory
Sales of livestock products rose 4% (11% excluding currency) to $837 million, driven by higher demand for ruminant and poultry products and higher pricing.
Margin Discussion
Adjusted gross margin was 80.9%, up 430 basis points year over year, driven by a favorable product mix and reduced royalties paid on Keytruda and Gardasil.
Adjusted selling, general, and administrative expenses were $2.7 billion in the reported quarter, up 2% year over year, as higher administrative costs were partially offset by the favorable impact of foreign exchange.
Adjusted research and development (R&D) spending was $3.5 billion compared with $13.3 billion in the year-ago period due to lower costs related to M&A activity in the quarter. In the year-ago quarter, Merck recorded a charge of $10.2 billion related to the acquisition of Prometheus. The decline was partially offset by higher compensation and benefit costs and pipeline development costs.
2024 Guidance
Merck tightened and slightly raised its sales guidance for the year. The company now expects revenues to be in the range of $63.4-$64.4 billion in 2024, compared with its previous expectation of $63.1-$64.3 billion.
The guidance includes a negative impact from foreign exchange of approximately 3% on sales, the same as expected previously.
The revenue range indicates year-over-year growth in the range of 5% to 7%, including Fx, which is expected to be driven by the strong performance of its key products led by Keytruda. Growth of Keytruda is expected to be driven by additional indications and patient demand.
Merck lowered its adjusted earnings guidance for the year to account for the costs related to the acquisition of EyeBio, which closed in July and costs to finance the recent acquisitions.
Adjusted EPS is expected to be between $7.94 and $8.04 versus the prior expectation of $8.53 to $8.65. This guidance includes one-time charges of 26 cents and 51 cents per share related to the Harpoon and EyeBio acquisitions. The guidance includes a negative impact from foreign exchange of more than 30 cents on EPS.
The adjusted gross margin is expected to be approximately 81% (maintained).
Adjusted operating costs are expected to be in the range of $26.8-$27.6 billion (previously $25.2 to $26.1 billion), which includes one-time charges for the EyeBio acquisition. The adjusted tax rate guidance is expected to be in the range of 15.5%-16.5% (previously 14.5-15.5%).
Other expense is anticipated to be approximately $350 million (previously $250 million).
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -19.49% due to these changes.
VGM Scores
Currently, Merck has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Merck has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Merck is part of the Zacks Large Cap Pharmaceuticals industry. Over the past month, Astrazeneca (AZN - Free Report) , a stock from the same industry, has gained 10.4%. The company reported its results for the quarter ended June 2024 more than a month ago.
Astrazeneca reported revenues of $12.94 billion in the last reported quarter, representing a year-over-year change of +13.3%. EPS of $0.99 for the same period compares with $1.08 a year ago.
Astrazeneca is expected to post earnings of $1.08 per share for the current quarter, representing a year-over-year change of +24.1%. Over the last 30 days, the Zacks Consensus Estimate has changed +2.1%.
Astrazeneca has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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Why Is Merck (MRK) Up 3.8% Since Last Earnings Report?
A month has gone by since the last earnings report for Merck (MRK - Free Report) . Shares have added about 3.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Merck due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Q2 Earnings & Sales Beat Estimates, Guidance Cut
Merck’s second-quarter results were better than expected as it beat estimates for earnings as well as sales.
Merck reported adjusted earnings of $2.28 per share for second-quarter 2024, beating the Zacks Consensus Estimate of $2.16. In the year-ago period, management incurred an adjusted loss of $2.06 per share due to a one-time charge of $4.02 per share related to the Prometheus Biosciences acquisition.
Including acquisition and divestiture-related costs, restructuring costs, income and losses from investments in equity securities and certain other items, earnings per share were $2.14 against a loss of $2.35 in the year-ago quarter.
Revenues rose 7% year over year (11% excluding Fx) to $16.11 billion driven by key brands, Keytruda and Gardasil. Sales beat the Zacks Consensus Estimate of $15.90 billion.
Quarter in Detail
The Pharmaceutical segment generated revenues of $14.41 billion, up 7% year over year (11% excluding Fx). Higher sales of oncology drugs, cardiovascular and vaccines were partially offset by lower sales of Merck’s diabetes and virology medicines. Pharmaceutical segment revenues beat the Zacks Consensus Estimate of $14.16 billion and our model estimate of $14.04 billion.
All sales growth numbers discussed below exclude Fx impact.
Keytruda, the biggest product in Merck’s portfolio, generated sales of $7.27 billion in the quarter, up 21% year over year. Keytruda sales benefited from rapid uptake across earlier-stage indications like triple-negative breast cancer, renal cell carcinoma and early-stage non-small cell lung cancer, for which approval was received in the United States in October 2023. Continued strong momentum in metastatic indications also boosted sales growth. Keytruda sales beat the Zacks Consensus Estimate of $7.12 billion and our estimate of $7.11 billion.
The company expects continued growth from Keytruda, particularly in early lung cancer.
Alliance revenues from Lynparza and Lenvima also boosted oncology sales in the quarter
Alliance revenues from Lynparza increased 4% year over year to $317 million in the quarter, driven by higher demand in the United States as well as some international markets, like China and Europe. Lenvima alliance revenues were $249 million, up 4% from the year-ago period’s levels.
Welireg recorded sales of $126 million, up 150% year over year, driven by the launch of a new indication of previously treated advanced renal cell carcinoma for which FDA approval was received in December 2023.
In vaccines, sales of HPV vaccines — Gardasil and Gardasil 9 — rose 4% year over year to $2.48 billion, driven by strong demand in the United States and certain ex-U.S. markets, partially offset by lower sales in China. In the United States, sales benefited from price as well as demand and favorable CDC purchasing patterns. Sales declined in China due to a significant step down in shipments from Merck’s distributor and commercialization partner, Zhifei, which resulted in higher inventory. Though Gardasil sales missed the Zacks Consensus Estimate of $2.53 billion, it beat our estimate of $2.39 billion.
Gardasil sales in China can be affected by less shipments in China than expected in 2024. However, the company maintained its guidance to generate more than $11 billion in sales by 2030 despite this short-term setback.
Proquad, M-M-R II and Varivax vaccines recorded combined sales of $617 million, up 7% year over year. Sales of the rotavirus vaccine, Rotateq, rose 26% to $163 million, while Pneumovax 23 (pneumococcal vaccine polyvalent) vaccine sales declined 32% to $59 million. Sales of Vaxneuvance, Merck’s new pneumococcal 15-valent conjugate vaccine, were $189 million, up 16% year over year, driven by continued uptake in Europe and Japan. In the United States, Vaxneuvance sales were hurt by lower demand and unfavorable CDC purchasing patterns.
In the hospital specialty portfolio, neuromuscular blockade medicine, Bridion injection generated sales of $455 million in the quarter, down 8% year over year, due to generic competition in certain ex-U.S. markets, mainly Europe and the Asia Pacific region.
Prevymis recorded sales of $188 million, up 35% year over year.
Januvia/Janumet (diabetes) franchise sales declined 23% year over year to $629 million. The drug’s sales were hurt by lower demand and pricing in the United States and generic competition in certain international markets, mainly Europe and Asia Pacific region.
Lagevrio (molnupiravir) generated sales of $110 million in the second quarter, down 42% year over year. Lower sales in certain Asia Pacific markets were partially offset by higher demand in Japan and the United States.
New PAH drug Winrevair, which was approved in March 2024, recorded sales of $70 million in the second quarter. On the conference call, the company said that the U.S. launch of the drug is progressing well. Approximately 40% of sales were due to doses administered to patients and the remainder were due to inventory building.
Merck’s Animal Health segment generated revenues of $1.48 billion, up 2% year over year (6% excluding Fx impact) driven by growth in livestock products. However, the Animal Health segment’s sales missed the Zacks Consensus Estimate of $1.52 billion and our model estimate of $1.51 billion.
Sales of companion animal products declined 1% to $645 million. Sales rose 1% excluding currency as higher pricing across the product portfolio was partially offset by lower distributor inventory
Sales of livestock products rose 4% (11% excluding currency) to $837 million, driven by higher demand for ruminant and poultry products and higher pricing.
Margin Discussion
Adjusted gross margin was 80.9%, up 430 basis points year over year, driven by a favorable product mix and reduced royalties paid on Keytruda and Gardasil.
Adjusted selling, general, and administrative expenses were $2.7 billion in the reported quarter, up 2% year over year, as higher administrative costs were partially offset by the favorable impact of foreign exchange.
Adjusted research and development (R&D) spending was $3.5 billion compared with $13.3 billion in the year-ago period due to lower costs related to M&A activity in the quarter. In the year-ago quarter, Merck recorded a charge of $10.2 billion related to the acquisition of Prometheus. The decline was partially offset by higher compensation and benefit costs and pipeline development costs.
2024 Guidance
Merck tightened and slightly raised its sales guidance for the year. The company now expects revenues to be in the range of $63.4-$64.4 billion in 2024, compared with its previous expectation of $63.1-$64.3 billion.
The guidance includes a negative impact from foreign exchange of approximately 3% on sales, the same as expected previously.
The revenue range indicates year-over-year growth in the range of 5% to 7%, including Fx, which is expected to be driven by the strong performance of its key products led by Keytruda. Growth of Keytruda is expected to be driven by additional indications and patient demand.
Merck lowered its adjusted earnings guidance for the year to account for the costs related to the acquisition of EyeBio, which closed in July and costs to finance the recent acquisitions.
Adjusted EPS is expected to be between $7.94 and $8.04 versus the prior expectation of $8.53 to $8.65. This guidance includes one-time charges of 26 cents and 51 cents per share related to the Harpoon and EyeBio acquisitions. The guidance includes a negative impact from foreign exchange of more than 30 cents on EPS.
The adjusted gross margin is expected to be approximately 81% (maintained).
Adjusted operating costs are expected to be in the range of $26.8-$27.6 billion (previously $25.2 to $26.1 billion), which includes one-time charges for the EyeBio acquisition. The adjusted tax rate guidance is expected to be in the range of 15.5%-16.5% (previously 14.5-15.5%).
Other expense is anticipated to be approximately $350 million (previously $250 million).
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -19.49% due to these changes.
VGM Scores
Currently, Merck has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Merck has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Merck is part of the Zacks Large Cap Pharmaceuticals industry. Over the past month, Astrazeneca (AZN - Free Report) , a stock from the same industry, has gained 10.4%. The company reported its results for the quarter ended June 2024 more than a month ago.
Astrazeneca reported revenues of $12.94 billion in the last reported quarter, representing a year-over-year change of +13.3%. EPS of $0.99 for the same period compares with $1.08 a year ago.
Astrazeneca is expected to post earnings of $1.08 per share for the current quarter, representing a year-over-year change of +24.1%. Over the last 30 days, the Zacks Consensus Estimate has changed +2.1%.
Astrazeneca has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.