A month has gone by since the last earnings report for Merck (MRK Quick QuoteMRK - Free Report) . Shares have added about 2.8% in that time frame, outperforming the S&P 500.

But investors have to be wondering, will the recent positive trend continue leading up to its next earnings release, or is Merck due for a pullback? Well, first let's take a quick look at its latest earnings report in order to get a better handle on the recent drivers for Merck & Co., Inc. before we dive into how investors and analysts have reacted as of late.

Q2 Earnings Top, Sales Meet Estimates

Merck reported second-quarter 2025 adjusted earnings per share (EPS) of $2.13, which beat the Zacks Consensus Estimate of $2.01. Earnings, however, declined 7% year over year on a reported basis and 5% excluding foreign exchange (Fx). 

Including acquisition and divestiture-related costs, restructuring costs, income and losses from investments in equity securities and certain other items, earnings were $1.76 per share, down 18% on a reported basis and 16% excluding Fx.

Adjusted as well as reported earnings included a charge of 7 cents per share related to the upfront payment for a license agreement with Hengrui Pharma.

Revenues declined 2% year over year on a reported basis as well as excluding Fx to $15.81 billion. Sales were in line with the Zacks Consensus Estimate. Higher sales of Keytruda, new products like Winrevair and Capvaxive and Animal Health segment were offset by lower sales of Gardasil vaccine and some other vaccines.

The decline in sales of Gardasil in China of approximately $1.3 billion hurt top-line growth by approximately 9%. Excluding Gardasil sales in China, Merck’s sales rose 7% in the quarter.

Quarter in Detail

The Pharmaceutical segment generated revenues of $14.05 billion, down 2% year over year (down 3% excluding Fx). Higher sales of oncology and cardiology were partially offset by lower sales of Merck’s vaccines and immunology medicines. Pharmaceutical segment revenues beat the Zacks Consensus Estimate of $13.85 billion.

All sales growth numbers discussed below exclude Fx impact.

Oncology Drugs

Keytruda, the biggest product in Merck’s portfolio, generated sales of $7.96 billion in the quarter, up 9%. Keytruda sales benefited from rapid uptake across earlier-stage indications like triple-negative breast cancer, renal cell carcinoma, cervical cancer and early-stage non-small cell lung cancer. Continued strong momentum in metastatic indications also boosted sales growth. Keytruda sales beat the Zacks Consensus Estimate of $7.90 billion and our estimate of $7.87 billion.

Alliance revenues from Lynparza and Lenvima also boosted oncology sales in the quarter. 

Alliance revenues from Lynparza increased 15% to $370 million in the quarter, driven by increased global demand. Lenvima alliance revenues totaled $265 million, up 5%.

Welireg recorded sales of $162 million, up 29%. The drug’s sales benefited from higher demand in the United States as well as early launch uptake in certain European markets, partially offset by lower pricing. In the United States, sales growth was driven by increased use in certain patients with previously treated advanced renal cell carcinoma.

Vaccines

In vaccines, sales of HPV vaccines — Gardasil and Gardasil 9 — plunged 55% to $1.13 billion due to lower demand in China. The Gardasil/Gardasil 9 sales figure missed the Zacks Consensus Estimate of $1.30 billion and our estimate of $1.43 billion.

Sales in China are being hurt due to elevated inventory levels and soft demand trends. Merck does not expect to resume shipments in China through at least the end of 2025, extended from the prior expectation of mid-2025.

Excluding China, Gardasil sales declined 4% due to lower sales in Japan as well as the unfavorable timing of public-sector purchases in certain international markets. Sales declined in Japan due to the expiration of reimbursement for the catch-up cohort. Sales are expected to remain weak in Japan in the second half of 2025.

In the United States, sales rose 2% as benefit from higher price as well as demand was partially offset by unfavorable public sector buying patterns.

Proquad, M-M-R II and Varivax vaccines recorded combined sales of $609 million, down 2%. Sales of the rotavirus vaccine, Rotateq, declined 26% to $121 million, while Pneumovax 23 (pneumococcal vaccine polyvalent) vaccine sales declined 37% to $38 million. Sales of the pneumococcal 15-valent conjugate vaccine Vaxneuvance rose 20% to $229 million, primarily driven by favorable public-sector activity in the United States and higher demand in ex-U.S. markets which was partially offset by lower demand in the United States and Japan due to competitive pressures.
    
Capvaxive generated sales worth $129 million compared with $107 million in the previous quarter, driven by demand from the retail pharmacy channel.

Other Drugs

In the hospital specialty portfolio, neuromuscular blockade medicine, Bridion injection generated sales of $461 million in the quarter, up 1%. While the drug’s sales benefited from higher demand and pricing in the United States, they were partially offset by generic competition in certain ex-U.S. markets (mainly Europe and Japan).

Prevymis recorded sales of $28 million, up 20% year over year. 

Januvia/Janumet (diabetes) franchise sales were flat year over year at $623 million. Sales were hurt by generic competition in most international markets and lower demand in China and the United States. 

New PAH drug Winrevair, which was launched in the second quarter of 2024, generated sales of $336 million compared with $280 million in the previous quarter, reflecting continued strong uptake. On the conference call, the company said that Winrevair’s launch in the United States continues to outperform due to a steady increase in new prescription trends. In outside U.S. markets, the company is progressing with launches and reimbursement. It expects to launch the drug in Japan in the third quarter.

Merck’s Animal Health segment generated revenues of $1.65 billion, up 11% year over year both on a reported basis and excluding Fx impact, driven by higher demand for livestock products and inclusion of sales from the July 2024 acquisition of Elanco aqua business. The Animal Health segment’s sales beat the Zacks Consensus Estimate as well as our model estimate of $1.55 billion.

Sales of livestock products rose 16% to $961 million, driven by higher demand across all species and inclusion of sales from newly acquired Elanco’s aqua portfolio. Sales of companion animal products rose 6% to $685 million.

Margin Discussion

Adjusted gross margin was 82.2% up 130 basis points year over year, driven by a favorable product mix, partially offset by higher inventory write-offs.

Adjusted selling, general and administrative expenses were $2.63 billion in the second quarter, down 2% year over year, owing to lower administrative and promotional costs.

Adjusted research and development spending was $3.99 billion, up 15% from the year-ago quarter levels. The increase was due to an upfront payment of $200 million made for a license agreement with Hengrui Pharma, as well as higher compensation and benefit costs.

In the quarter, Merck repurchased shares worth approximately $1.3 billion. Merck expects to maintain a similar level of share repurchases in the third and fourth quarters.

2025 Guidance

Merck narrowed its sales guidance for the year while raising the lower end of its EPS outlook. The company now expects revenues to be in the range of $64.3-$65.3 billion, compared with the previous expectation of $64.1-$65.6 billion. The updated guidance includes a revised negative impact on sales from Fx of around 0.5% versus the prior estimate of 1%.

The revenue guidance represents growth of 1% to 2%, excluding Fx.

After a weak sales performance in the first half, Merck expects to return to growth in the second half. It expects growth to be driven by oncology drugs, Animal Health and new products, which will be partially offset by lower sales of Gardasil in China and Japan.

Other revenue is expected to be significantly lower in the second half of the year.

The adjusted gross margin guidance was maintained at 82%. Merck continues to expect $200 million in costs from tariffs implemented to date.

Adjusted EPS is expected to be between $8.87 and $8.97 versus the prior estimated range of $8.82 and $8.97. This guidance range includes a revised negative impact of Fx of around 15 cents per share compared with the previous estimate of more than 20 cents per share.

The guidance continues to include a one-time charge of $200 million or 6 cents per share related to the deal with Chinese biotech Hengrui.

The revised guidance now also accounts for a one-time charge of $300 million (to be recorded in the third quarter of 2025) related to a payment made to LaNova for the technology transfer for MK-2010, which will impact EPS by almost 16 cents in aggregate. The guidance, however, does not include the anticipated impact of the announced acquisition of Verona Pharma, which is expected to be closed in the fourth quarter.

Adjusted operating costs are now expected to be in the range of $25.6 to $26.4 billion (previously: $25.6-$26.6 billion). Operating expenses are expected to be roughly evenly split between the third and fourth quarters, excluding business development expenses.

Merck expects $200 million in costs from tariffs implemented to date. Regarding the potential impact of a preliminary 15% tariff on pharmaceutical imports, Merck believes that it would have minimal impact in 2025 if implemented immediately. The company believes the potential tariffs are manageable as it has managed inventory and moved manufacturing to the United States. 

The adjusted tax rate is now expected to be around 15% to 16% versus the prior guidance of 15.5% to 16.5%.

Other expense is still expected to be between $300 and $400 million.

New Cost Savings Plan

Merck announced a new multi-year optimization initiative, which is expected to save $3 billion in annual costs by the end of 2027.

As part of this restructuring initiative, the company is looking to cut certain administrative, sales, and research and development (R&D) jobs, reduce its global real estate footprint and optimize its manufacturing network. Merck plans to reinvest these savings into higher-growth areas of its pipeline development and broaden its long-term product portfolio.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Merck has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a score of A on the value side, putting it in the top 20% for value investors.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Merck has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Merck is part of the Zacks Large Cap Pharmaceuticals industry. Over the past month, Johnson & Johnson (JNJ Quick QuoteJNJ - Free Report) , a stock from the same industry, has gained 5.7%. The company reported its results for the quarter ended June 2025 more than a month ago.

Johnson & Johnson reported revenues of $23.74 billion in the last reported quarter, representing a year-over-year change of +5.8%. EPS of $2.77 for the same period compares with $2.82 a year ago.

For the current quarter, Johnson & Johnson is expected to post earnings of $2.78 per share, indicating a change of +14.9% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.3% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Johnson & Johnson. Also, the stock has a VGM Score of D.