A month has gone by since the last earnings report for Merck & Company, Inc. (MRK Quick QuoteMRK - Free Report) . Shares have added about 2.3% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it 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.

Merck Beats on Q1 Earnings & Sales, Ups Annual View

Merck reported first-quarter 2017 earnings of $0.88 per share, which beat the Zacks Consensus Estimate of $0.83 by 6%. However, earnings declined 1.1% (down 1% excluding currency headwinds) from the year-ago period.

Revenues for the quarter increased 1% year over year to $9.4 billion, beating the Zacks Consensus Estimate of $9.3 billion. Currency movement negatively impacted revenues by 2%. Excluding currency impact, sales rose 3% year over year.

Quarter in Detail

Merck’s Pharmaceutical segment posted revenues of $8.2 billion, up 1% (up 2% excluding Fx impact) year over year as strong performance of new products like Keytruda, Bridion and Zepatier and higher sales of vaccines and animal health franchises offset lower sales of Januvia/Janumet franchise and loss of market exclusivity for many drugs.

Keytruda brought in sales of $584 million in first-quarter 2017, up 20.9% sequentially and 134.5% year over year. Sales continued to be driven by label as well as geographical expansion.

Keytruda sales gained from launches in new indications like first-line lung cancer (approved in Oct 2016), and recurrent or metastatic head and neck cancer (approved in Aug 2016) in the U.S.; and second-line and first line NSCLC across the world.

U.S. sales were driven by continued strength in melanoma, rapid penetration of head and neck cancer, and launch in the first line lung cancer setting. At the call, management said the “significant acceleration” in PD-L1 testing for NSCLC patients experienced in the fourth quarter of 2016 is starting to translate into higher demand.

Outside U.S, Keytruda sales were primarily driven by the melanoma indication. Meanwhile, at the call, management said it is working on securing reimbursement for the drug in first as well as second-line NSCLC indication and lung cancer sales should become a much larger contributor outside the U.S. as the year progresses.

Meanwhile, competition in the immune-oncology market is rising following recent FDA approval of Pfizer’s Bavencio (avelumab) in Merkel cell carcinoma (MCC) and bladder cancer and AstraZeneca’s Imfinzi (durvalumab) in bladder cancer.

Gardasil/Gardasil 9 sales climbed 41% to $532 million driven by increased pricing and demand in the U.S. and favorable timing of public sector purchases. Total vaccines, sales rose 21% in the quarter to $1.5 primarily driven by increases in Gardasil and Pneumovax. Vaccine sales were also boosted by the addition of approximately $65 million (mostly Gardasil) of sales from the terminated vaccine joint venture with Sanofi.

Zepatier brought in sales of $378 million, up from $229 million in the fourth quarter of 2016, due to ongoing launches globally. Sales in the United States also reflect an approximately $40 million favorable adjustment to rebate accruals.

Zeptier launches are expected to continue across EU this year while it is also being launched in Japan and in other international markets.

Bridion (sugammadex) Injection generated sales of $148 million in the quarter, up 63% year over year, driven by the strong uptake from launch in the U.S. as well as continued demand in Europe and the emerging markets.

Meanwhile, combined sales of Remicade (lost exclusivity in Europe and facing stiff biosimilar competition in the region), Nasonex (generic version launched in the U.S. in Mar 2016), Cubicin (lost patent protection in the U.S. in Jun 2016) and Zetia (lost market exclusivity in the U.S. in Dec 2016) declined $686 million in the quarter. Sales of Isentress and the Januvia/Janumet franchise also declined in the quarter.

Remicade sales declined 34% to $229 million in the quarter. Remicade continues to be affected by biosimilar competition with biosimilars benefiting from increased new patient starts as well as patient switching. Remicade sales are expected to continue to decline due to competitive pressure and also increased switching.

Nasonex sales declined 40% to $139 million in the quarter. Cubicin sales plunged 67% to $96 million in the quarter.

The Zetia/Vytorin franchise recorded sales of $575 million, down 35% due to loss of exclusivity for Zetia. In Apr 2017, Merck lost market exclusivity in the U.S. for Vytorin, which is expected to lead to a sharp decline in sales of the drug.

Januvia/Janumet franchise recorded sales of $1.34 billion in the quarter, down 5% from the year-ago quarter due to unfavorable timing of customer purchases in the U.S. as well as pricing pressures Management said that Januvia witnessed total prescription growth of approximately 3% in the U.S. reflecting that the drugs still enjoy high demand.

Isentress sales declined 10% in the quarter to $305 million. Lower volumes/demand due to competitive pressure is hurting sales of Isentress.

Merck’s Animal Health segment posted revenues of $939 million, up 13% (up 14% excluding Fx impact) from the year-ago quarter, primarily driven by higher sales of companion animal products.

Margin Discussion

Adjusted gross margin came in at 77.8%, up 80 basis points (bps) quarter due to favorable effects of Fx and lower inventory write-offs

Total adjusted operating expenses rose 8% in the quarter due to increased clinical development and promotional spend behind new products. Marketing and administrative (M&A) expenses increased 3% to $2.4 billion in the reported quarter. Research and development (R&D) spend increased 14% to $1.8 billion in the quarter.

2017 Guidance

Merck narrowed and raised its 2017 earnings and revenues guidance. The company now expects adjusted earnings in the range of $3.76–$3.88, an increase from the earlier figure of $3.72–$3.87 per share, including approximately 1.5% negative foreign exchange impact (versus 2% previously).

Merck now expects revenues in the range of $39.1–$40.3 billion, compared with the earlier forecast of $38.6 billion–$40.1 billion, including negative currency impact of approximately 1.5% (versus 2% previously).

Adjusted gross margin is expected to increase moderately in 2017 versus 2016 despite the negative impact of a 6.5% royalty on global sales of Keytruda to Bristol Myers

Operating expenses are expected to increase at a low single-digit rate, driven by an increase in R&D spending, while marketing and administrative expenses are anticipated to be relatively flat.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.

Merck & Company, Inc. Price and Consensus

Merck & Company, Inc. Price and Consensus | Merck & Company, Inc. Quote

VGM Scores

At this time, the stock has a subpar Growth Score of 'D', a grade with the same score on the momentum front. 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.

The company's stock is suitable solely for value based on our styles scores.

Outlook

The stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.