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Merck & Co. Inc. (MRK - Analyst Report) is set to announce its third quarter 2012 results on October 26, 2012, before the opening bell. The Zacks Consensus Estimate for the third quarter is 93 cents per share, down 1.1% from the year-ago earnings of 94 cents.

Second Quarter Recap

Merck reported second quarter 2012 earnings per share (excluding special items) of $1.05, 4 cents above the Zacks Consensus Estimate and 10.5% above the year-ago earnings.

Revenues for the quarter increased 1.3% to $12,311 million, just above the Zacks Consensus Estimate of $12,129 million. Revenues were negatively impacted by both currency fluctuations and the arbitration settlement agreement with Johnson & Johnson (JNJ - Analyst Report).

Agreement of Estimate Revisions

Of the 13 analysts following the stock, 3 analysts revised their third quarter 2012 estimate upward, while 2 analysts have trimmed their estimates in the last 30 days.

In contrast, 2012 estimates have witnessed a downward bias over the last 30 days with 3 analysts raising estimates and 4 trimming the same.

The last 7 days saw 1 analyst raising earnings estimates for the third quarter of 2012. For 2012, a sole analyst trimmed the estimates.

We believe that concerns regarding the impact of the Singulair patent expiry (August 2012) has led analysts to revise their estimates downward for the third quarter of 2012. Singulair, indicated for the chronic treatment of asthma and relief of symptoms of allergic rhinitis, recorded $5.5 billion in sales in 2011. The product accounted for approximately 11.4% of total revenues in 2011.

Meanwhile, the upward revisions in 2012 estimates reflect the anticipated strong sales of Januvia/Janumet and new product approvals like Victrelis as well as cost-cutting efforts.

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for the third quarter of 2012 increased by a penny to 93 cents per share in the last 30 days. The Zacks Consensus Estimate for 2012 remained stationary at $3.81 per share in the past 30 days, which is slightly towards the higher end of the earnings guidance range of $3.75 – $3.85 per share provided by the company. In the last 7 days, there was no change in the Zacks Consensus Estimate for the third quarter of 2012 and full year 2012.

Surprise History

Merck has consistently surpassed earnings estimates in the last four quarters. The company recorded a maximum positive surprise of 3.96% in the second quarter of 2012. On an average, the earnings surprise was 2.86%.

Our Recommendation

We currently have a Neutral recommendation on Merck, which carries a Zacks #3 Rank (short-term Hold rating).

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