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Merck (MRK) Q2 Earnings Miss, Sales Rebound, Stock Slips

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Merck & Co., Inc. (MRK - Free Report) reported second-quarter 2021 adjusted earnings of $1.31 per share, which missed the Zacks Consensus Estimate of $1.33. However, earnings rose 28% year over year (27% excluding the impact of currency) due to higher revenues.

Including acquisition- and divestiture-related costs, restructuring costs, income and losses from investments in equity securities and a charge due to its recent acquisition of Pandion, earnings per share were 48 cents, down 48% on a reported as well as constant currency basis.

Revenues rose 22% year over year (19% on a constant currency basis) to $11.4 billion as demand for its drugs recovered after being hit by COVID-19. Sales beat the Zacks Consensus Estimate of $11.21 billion.

Quarter in Detail

The Pharmaceutical segment generated revenues of $9.98 billion, up 22% year over year. Excluding Fx impact, sales rose 18% due to recovery from the pandemic and increase in demand. The recovery from COVID-related business disruption benefited Merck’s second-quarter pharmaceuticals revenues by $900 million.

Keytruda, the largest product in Merck’s portfolio, generated sales of $4.18 billion in the quarter, up 20% (excluding Fx impact) year over year. Keytruda sales have been gaining particularly from continued strong momentum in lung cancer indications and continued uptake in newer indications.

Alliance revenues from Lynparza and Lenvima also boosted oncology sales in the quarter. Merck has a deal with British pharma giant, AstraZeneca (AZN - Free Report) to co-develop and commercialize PARP inhibitor, Lynparza and a similar one with Japan’s Eisai for tyrosine kinase inhibitor, Lenvima.

Lynparza alliance revenues increased 34% year over year to $248 million in the quarter. Lenvima alliance revenues were $181 million, up 15% from the year-ago period.

In the hospital specialty portfolio, Bridion injection generated sales of $387 million in the quarter, up 67% year over year, reflecting ongoing recovery from the pandemic.

Sales of HPV vaccine, Gardasil/Gardasil 9 rose 78% year over year to $1.23 billion. Sales rebounded due to recovery from the ongoing pandemic, strong underlying demand in the United States, and continued market uptake in outside U.S. markets like China.

Proquad, M-M-R II and Varivax vaccines recorded combined sales of $516 million, up 35% year over year. Sales of rotavirus vaccine, Rotateq rose 19% to $208 million. Merck gained FDA approval for its 15-valent pneumococcal conjugate vaccine, Vaxneuvance, earlier this month.

Januvia/Janumet (diabetes) franchise sales declined 10% year over year to $1.26 billion due to continued pricing pressure in the United States, which offset higher demand in some international markets.

Merck’s Animal Health segment generated revenues of $1.47 billion, up 34% from the year-ago quarter. Excluding the impact of currency, sales rose 27% helped by higher demand for companion animal products as well as higher sales of companion animal vaccines and higher higher demand for ruminant, swine and poultry products for livestock products.

Margin Discussion

Adjusted gross margin was 76.5%, down 60 basis points from the year-ago quarter due to pricing pressure and higher manufacturing costs, which offset the favorable impact of product mix.

Selling, general and administrative (SG&A) expenses were $2.3 billion in the reported quarter, up 11% year over year due to higher promotion and administrative costs. Research and development (R&D) spend rose 20% to $2.5 billion due to higher clinical development costs and increased investment in discovery research and early drug development.

2021 Outlook

In June, Merck completed the spinoff of its Women’s Health unit, legacy drugs and biosimilar products into a new publicly traded company called Organon & Co (OGN - Free Report) . Its financial guidance now excludes revenues from the Organon part of business.

Merck tightened its previously issued financial guidance for 2021. Merck expects revenues to be in the range of $46.4 billion to $47.4 billion in 2021 compared with $45.8 billion to $47.8 billion, expected previously. The guidance range indicates growth in the range of 12% to 14% and includes a positive impact from foreign exchange of less than 2%.

Adjusted earnings per share are expected to be between $5.47 and $5.57. The earnings guidance includes a positive impact from foreign exchange of approximately 2%.

Our Take

Merck’s second-quarter results were mixed as it missed estimates for earnings while beating the same for sales. An ongoing recovery from the pandemic and strong global underlying demand across its business led to improved sales in the quarter. Though Merck expects some negative effects from the pandemic on its business performance to persist, the demand trends are overall improving.

Despite the rebound in sales in the second quarter, shares were down around 1.2% in pre-market trading as the full year top-line view probably disappointed investors. 

Merck’s stock has declined 4.3% this year so far against an increase of 11.6% for the industry.


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Merck expects COVID-related business disruptions to hurt sales by less than 3%. Earlier, Merck had expected the pandemic to hurt 2021 revenues by roughly 3%. The entire impact relates to pharmaceutical segment sales.

Investors will focus on how the new Merck, with new CEO Robert Davis and without Organon, will perform this year. He is quite confident of delivering sustained long-term growth.

Merck currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Merck & Co., Inc. Price, Consensus and EPS Surprise

Merck & Co., Inc. Price, Consensus and EPS Surprise

Merck & Co., Inc. price-consensus-eps-surprise-chart | Merck & Co., Inc. Quote

A better-ranked biotech stock is BioMarin Pharmaceuticals (BMRN - Free Report) , which has a Zacks Rank #2 (Buy). Its earnings estimates for 2021 have risen from 87 cents to $1.09 per share and for 2022 from $2.26 per share to $2.35 per share over the past 90 days.

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