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Merck (MRK) Beats on Q4 Earnings & Sales, 2023 View Disappoints

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Merck (MRK - Free Report) reported fourth-quarter 2022 adjusted earnings of $1.62 per share, which beat the Zacks Consensus Estimate of $1.56 as well as our estimate of $1.50. Earnings declined 10% year over year (7% excluding the impact of currency) due to higher tax rates.

Including acquisition and divestiture-related costs, restructuring costs, income and losses from investments in equity securities, and certain other items, earnings per share were $1.18, down 17% (ex Fx) year over year.

Revenues rose 2% year over year (8% on a constant currency basis) to $13.83 billion. Sales beat the Zacks Consensus Estimate of $13.74 billion and our estimate of $13.48 billion.

Quarter in Detail

The Pharmaceutical segment generated revenues of $12.18 billion, up 9% year over year driven by higher sales of oncology drugs and some vaccines.

Keytruda, the largest product in Merck’s portfolio, generated sales of $5.45 billion in the quarter, up 19% (26% excluding Fx impact) year over year. Keytruda sales gained from continued strong momentum in metastatic indications, including in some types of NSCLC renal cell carcinoma, head and neck squamous cell carcinoma, TNBC and MSI-H cancers, and rapid uptake across recent earlier-stage launches. Keytruda sales missed the Zacks Consensus Estimate of $5.57 billion as well as our estimate is $5.62 billion.

The company’s COVID-19 drug, Lagevrio (molnupiravir) generated sales of $825 million during the fourth quarter, compared with $436 million in the previous quarter. Lagevrio sales were better than the Zacks Consensus Estimate of $395 million as well as our estimate of $440 million. Higher sales in Japan and the United Kingdom were offset by a decline in the United States.

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 its tyrosine kinase inhibitor, Lenvima.

Alliance revenues from AstraZeneca-partnered Lynparza increased 14% year over year to $292 million in the quarter driven by increased demand. Lenvima alliance revenues were $216 million, up 9% from the year-ago period.

In the hospital specialty portfolio, neuromuscular blockade medicine — Bridion injection generated sales of $441 million in the quarter, up 7% year over year.

In vaccines, sales of HPV vaccines — Gardasil and Gardasil 9 — rose 6% year over year to $1.47 billion as strong demand in ex-U.S. markets, particularly China, offset softer sales in the United States due to the unfavorable timing of CDC purchasing. Gardasil sales missed the Zacks Consensus Estimate of $1.5 billion but slightly beat our estimate of $1.45 billion.

Proquad, M-M-R II and Varivax vaccines recorded combined sales of $526 million, up 6% year over year. Sales of the rotavirus vaccine, Rotateq declined 31% to $139 million. Pneumovax 23 (pneumococcal vaccine polyvalent) vaccine sales declined 50% to $145 million due to declining demand in the U.S. market. Sales of Merck’s new pneumococcal 15-valent conjugate vaccine, Vaxneuvance, were $138 million due to inventory stocking in the United States.

Januvia/Janumet (diabetes) franchise sales were down 29% year over year to $913 million. The drug sales were hurt by lower demand and pricing in certain international markets due to generic competition. The drugs lost market exclusivity in China in July and the European Union in September last year.

Merck’s Animal Health segment generated revenues of $1.23 billion, down 2% year over year due to currency headwinds. Excluding Fx impact, sales rose 6% in the quarter as higher sales of livestock products were partially offset by lower sales of companion animal products. Animal Health segment sales were less than the Zacks Consensus Estimate of $1.27 billion.

Margin Discussion

Adjusted gross margin was 75.7%, up 90 basis points year over year, driven by the favorable impact of currency and product mix.

Selling, general and administrative (SG&A) expenses were $2.6 billion in the reported quarter, up 1% year over year due to higher administrative costs and higher promotional spending. Research and development (R&D) spending was $3.0 billion, reflecting an increase of 14% year over year.

Full-Year 2022 Results

Full-year 2022 sales rose 22% (26% ex Fx) to $59.28 billion, marginally beating the Zacks Consensus Estimate of $59.19 billion as well as the guided range of $58.5-$59.0 billion.  Pharmaceutical sales grew 22% to $52.0 billion. 

Adjusted earnings for 2022 were $7.48 per share, up 43% year over year. Earnings beat the Zacks Consensus Estimate of $7.40 per share as well as the guided range of $7.32 and $7.37.

2023 Guidance

Merck issued a fresh earnings and sales outlook for 2023.

Merck expects revenues to be in the range of $57.2 - $58.7 billion in 2023. The Zacks Consensus Estimate was $58.5 billion.

Lagevrio is expected to generate $1.0 billion in sales in 2023, a significant decline from $5.7 billion in 2022.

Adjusted earnings per share are expected to be between $6.80 to $6.95, which falls short of the Zacks Consensus Estimate of $7.16 per share.

The guidance includes a negative impact from foreign exchange of approximately 2% on sales and 4% on earnings.

The adjusted gross margin is expected to be approximately 77%.

Adjusted operating costs are expected to be in the range of $23.1 to $24.1 billion. The adjusted tax rate is expected to be approximately 17% to 18%.

Our Take

Merck’s fourth-quarter results were better than expected, as it beat estimates for both earnings and sales. Sales of its COVID-19 antiviral pill Lagevrio were better than expected, backed by higher demand in outside U.S. market. Though sales of key products cancer drug, Keytruda and Gardasil vaccine rose in the quarter, they were less than our expectations. Merck’s full-year profit outlook was below market expectations.

Shares of Merck were down 1.9% in pre-market trading. The stock has rallied 35.4% in the past year compared with the industry’s increase of 9.2%.


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Nonetheless, Merck invested in M&A activity in 2022 to strengthen its pipeline. These included the acquisition of Imago and key agreements with Moderna, Orna, Orion and Kelun-Biotech. Merck also made meaningful progress in its pipeline in the year.

Zacks Rank & Stocks to Consider

Merck currently carries a Zacks Rank #3 (Hold). Some better-ranked large drug stocks include Sanofi (SNY - Free Report) and Novo Nordisk (NVO - Free Report) , both with a Zacks Rank of 2 (Buy).

Estimates for Sanofi’s 2023 earnings per share have increased from $4.31 per share to $4.41 in the past 30 days. Sanofi’s stock has declined 7.3% in the past year.

Sanofi beat earnings expectations in all the trailing four quarters. The company delivered a four-quarter earnings surprise of 9.50%, on average. Sanofi is scheduled to report its fourth-quarter results on Feb 3.

In the past 30 days, estimates for Novo Nordisk’s earnings per share have increased from $4.03 per share to $4.20 per share. Shares of Novo Nordisk have risen 30.4% in the past year.

NVO reported its fourth-quarter results on Feb 1. Novo Nordisk beat estimates for earnings but missed the same for revenues. The Diabetes and Obesity Care segment’s sales rose 20% at CER, while sales in the Rare disease segment were down 2% at CER. In 2023, the company said it expects sales and operating profit to grow in the range of 13-19% at CER.

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