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Merck Tops on Q4 Earnings, Revenue Outlook Falls Short

Merck & Co.MRK reported fourth quarter 2015 earnings of 93 cents per share, surpassing the Zacks Consensus Estimate of 91 cents and increasing 6.9% from the year-ago period.

Revenues for the quarter declined 2.5% to $10.215 billion, missing the Zacks Consensus Estimate of $10.453 billion. Currency movement negatively impacted revenues by 7%. This was partially offset by the Cubist acquisition.

Full year earnings came in at $3.59 per share, up 2.9% while revenues declined 6.5% to $39.5 billion.

The Quarter in Detail

Merck's Pharmaceutical segment posted revenues of $9 billion, down 4%. Currency movement negatively impacted revenues by 8%. Products like Gardasil 9 and Proquad performed well.

However, this was offset by lower revenues of Janumet/Januvia (reflecting the timing of customer purchases in the third quarter), Remicade (loss of exclusivity in Europe and increasing biosimilar competition in this region), Nasonex, PegIntron, Pneumovax 23 (reflecting near-term market dynamics in the U.S. and the timing of vaccinations linked to the National Immunization Program in Japan), Zetia/Vytorin, and Isentress among others.

New product, Keytruda, brought in sales of $214 million in the fourth quarter of 2015, up from $160 million in the third quarter of 2015. Cubicin sales came in at $322 million.

Merck's animal health segment posted revenues of $830 million, down 6% including a 14% negative impact of currency movement.

Marketing and administrative expenses declined 8.1% to $2.6 billion in the fourth quarter of 2015. R&D spend declined 2.3% to $1.8 billion in the fourth quarter of 2015.

2016 Outlook Mixed

Merck expects to earn $3.60 - $3.75 per share on revenues of $38.7 billion - $40.2 billion. While the Zacks Consensus Estimate for earnings is at the higher end of the guidance range at $3.74 per share, revenue guidance fell short of the Zacks Consensus Estimate of $40.4 billion.

Meanwhile, Merck expects marketing and administrative spend to decline from 2015 levels and R&D spend to be slightly above 2015 levels. The company spent $6.6 billion and $9.8 billion on R&D and marketing and administrative matters, respectively, in 2015.

Our Take

While Merck's fourth quarter earnings were better-than-expected, revenues fell short of estimates. The company's revenue outlook also missed estimates. The top-line will remain under pressure due to generic competition and currency headwinds. Merck will continue to look toward cost-cutting initiatives to drive the bottom-line. We are also positive on Merck's efforts to expand its pipeline and focus on core areas of expertise. Investor focus will remain on the performance of the company's recently approved hepatitis C virus treatment, Zepatier.

Merck is a Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the health care sector include Gilead Sciences Inc. GILD and Celgene Corp. CELG and AstraZeneca plc AZN . While Gilead and Celgene are Zacks Rank #1 (Strong Buy) stocks, AstraZeneca is a Zacks Rank #2 (Buy) stock.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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