Merck & Co.
) reported second quarter 2014 earnings of 85 cents per share,
beating the Zacks Consensus Estimate of 81 cents. Earnings grew
1.2% from the year-ago period.
Revenues for the quarter declined 1% to $10.9 billion. However,
second quarter revenues were above the Zacks Consensus Estimate of
Including one-time items, second quarter 2014 earnings grew
126.7% to 68 cents per share.
Merck & Co, Inc - Earnings Surprise |
The Quarter in Detail
Merck's Pharmaceutical segment posted revenues of $9.1 billion,
Products like Janumet, Simponi, Isentress, Gardasil and Remicade
performed well. However, the strong performance of these products
was offset by lower revenues of Nasonex, Victrelis, PegIntron,
Cozaar/Hyzaar, Temodar, and Januvia.
While products like Nasonex, Temodar and Cozaar/Hyzaar were
affected by generics, higher competition impacted Victrelis and
Remicade and Simponi combined revenues increased 21% to $781
million with some help from currency (6%). Performance was boosted
by Simponi's launch in additional countries and continued growth in
existing markets. Approval for an additional indication in
ulcerative colitis could drive sales further.
Isentress, the company's product for HIV infection, recorded
revenues of $453 million, up 10%, in the reported quarter mainly
due to strong growth in Europe and emerging markets.
The diabetes franchise, consisting of Januvia and Janumet,
witnessed 2% growth in revenues which came in at $1.6 billion.
Higher sales in Europe and emerging markets were partially offset
by weakness in Japan and lower sales in the U.S.
While Januvia revenues decreased 1% to $1.1 billion, Janumet
revenues grew 9% to $519 million. Merck is working on penetrating
the sulfonylurea class.
Gardasil, Merck's cervical cancer vaccine, recorded revenues of
$409 million, up 7% year over year.
Merck's ProQuad, MMR II and Varivax vaccines recorded combined
revenues of $326 million, down 4%. Vytorin revenues remained flat
at $417 million during the quarter.
Merck's hepatitis C virus (HCV) treatment, Victrelis posted
revenues of $46 million, down 60% from the year-ago period.
Revenues continue to be affected by the entry of Sovaldi as well as
contraction in several markets due to warehousing and a large
number of clinical trials.
Merck's animal health segment posted revenues of $872 million,
up 2%. Although poultry and aqua products recorded growth, this was
partially offset by the voluntary suspension of Zilmax (feed
supplement for cattle) in the U.S. and Canada. Newly launched
Bravecto performed well.
Consumer Care revenues grew 19% to $583 million in the second
quarter of 2014. The company will be selling off its Consumer Care
business to Bayer (
) in the second half of the year for $14.2 billion.
Marketing and administrative expenses declined 6.7% to $2.9
billion in the second quarter of 2014 due to productivity measures
undertaken by the company. R&D spend decreased 12.5% to $1.6
billion in the second quarter of 2014.
Merck expects to earn $3.43 - $3.53 per share on revenues of
$42.4 billion - $43.2 billion. The guidance now excludes the impact
of the potential Venezuelan Bolivar devaluation that was previously
included in the range. The guidance also takes into account a 6-9
cent dilution that could result from the upcoming sale of the
Consumer Care segment.
The Zacks Consensus Estimate of earnings of $3.49 per share and
revenues of $42.6 billion is within the guidance range.
Merck expects R&D as well as marketing and administrative
spend to decline from 2013 levels. The company spent $7.1 billion
and $11.7 billion on R&D and marketing and administrative
matters, respectively, in 2013.
Merck's second quarter results were better-than-expected with
the company beating on earnings as well as revenues. Although
revenues declined from the year-ago period, cost control efforts
helped the company record growth in earnings.
We remain concerned about the performance of Januvia, which
declined from the year-ago period. With Singulair and a few other
products facing generic competition, we expect the top-line to
remain under pressure.
The company will continue to look toward cost-cutting
initiatives and share buybacks to drive the bottom-line.
We are also positive on Merck's efforts to expand its pipeline
and to focus on its core areas of expertise. The company has
launched a tender offer in connection with its upcoming acquisition
of Idenix Pharmaceuticals (
). With the Idenix acquisition, Merck is looking to boost its HCV
Merck is a Zacks Rank #3 (Hold) stock. A better-ranked stock in
the pharma sector is Allergan (
), a Zacks Rank #1 (Strong Buy) company.
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