Merck (MRK) Up 3.9% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Merck (MRK). Shares have added about 3.9% in that time frame, outperforming the S&P 500.Will the recent positive trend continue leading up to its next earnings release, or is Merck due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts. Q4 Earnings & Sales Beat EstimatesMerck reported adjusted earnings of $1.72 per share for fourth-quarter 2024, which beat the Zacks Consensus Estimate of $1.69. In the year-ago period, management reported adjusted EPS of 3 cents. Earnings increased significantly as the year-ago quarter’s number included a one-time charge of $1.69 per share related to a collaboration with Daiichi Sankyo.The fourth-quarter EPS included a charge of 23 cents related to M&A deals with LaNova Medicines and Hansoh Pharma.Revenues rose 7% year over year (9% excluding Fx) to $15.62 billion driven by Keytruda, new products like Winrevair and strong performance of the Animal Health segment, partially offset by lower sales of Gardasil vaccine and diabetes drugs, Januvia and Janumet. Sales also beat the Zacks Consensus Estimate of $15.56 billion.Quarter in DetailThe Pharmaceutical segment generated revenues of $14.04 billion, up 7% year over year (8% excluding Fx). Higher sales of oncology and cardiovascular drugs were partially offset by lower sales of Merck’s  vaccines, diabetes, immunology and virology medicines. Pharmaceutical segment revenues beat the Zacks Consensus Estimate of $13.9 billion.All sales growth numbers discussed below exclude Fx impact.Keytruda, the biggest product in Merck’s portfolio, generated sales of $7.84 billion in the quarter, up 21% year over year. Keytruda sales benefited from rapid uptake across earlier-stage indications like triple-negative breast cancer, renal cell carcinoma 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 $7.73 billion and our estimate of $7.62 billion.In the fourth quarter, U.S. sales of Keytruda benefited from approximately $200 million of wholesale inventory buy-in, which is expected to reverse in the first quarter of 2025.Alliance revenues from Lynparza and Lenvima also boosted oncology sales in the quarter. Alliance revenues from Lynparza increased 18% to $365 million in the quarter, driven by increased global demand. Lenvima alliance revenues totaled $255 million, up 14% due to favorable timing of shipments in some international markets.Welireg recorded sales of $160 million, up 123%. Sales benefited from the increased uptake for the additional indication of previously treated advanced renal cell carcinoma in the United States.In vaccines, sales of HPV vaccines — Gardasil and Gardasil 9 — fell 18% to $1.55 billion due to lower demand in China, partially offset by higher sales in most international markets, particularly Japan. Gardasil sales missed the Zacks Consensus Estimate of $1.66 billion and our estimate of $1.71 billion.In the United States, sales benefited from price as well as demand, partially offset by unfavorable CDC purchasing patterns. Sales declined in China due to a significant decline in demand due to unfavorable economic conditions.Merck announced its decision to temporarily halt shipments of Gardasil in China from February through at least mid-year 2025. Given the economic conditions in China, Merck withdrew its previously issued long-term guidance of generating more than $11 billion in sales form Gardasil by 2030.Proquad, M-M-R II and Varivax vaccines recorded combined sales of $594 million, up 9%. Sales of the rotavirus vaccine, Rotateq, fell 25% to $139 million, while Pneumovax 23 (pneumococcal vaccine polyvalent) vaccine sales declined 12% to $74 million. Sales of Vaxneuvance, Merck’s pneumococcal 15-valent conjugate vaccine, were $161 million, down 9%, primarily due to lower demand in the United States due to competitive pressure, partially offset by growth from launches in Europe and Asia Pacific regions. Capvaxive generated sales of $50 million in the fourth quarter, driven by demand from the retail pharmacy channel.In the hospital specialty portfolio, neuromuscular blockade medicine, Bridion injection generated sales of $449 million in the quarter, up 5%. 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 $215 million, up 23% year over year. Januvia/Janumet (diabetes) franchise sales declined 36% year over year to $487 million. The drug’s sales were hurt by lower demand and pricing in the United States and generic competition in certain international markets, mainly Europe and Asia Pacific region. Supply constraints in China also hurt sales.Sales of Lagevrio (molnupiravir) declined 37% to $121 million in the quarter. New PAH drug Winrevair, which was approved in March 2024, generated sales of $200 million compared with $149 million in the previous quarter. On the conference call, the company said that most of the sales came from the U.S. market as the company is steadily adding new patients. However, the holiday season hurt demand trends to some extent in the fourth quarter. In outside U.S. markets, the initial launch is progressing well.Merck’s Animal Health segment generated revenues of $1.40 billion, up 9% year over year (13% excluding Fx impact), driven by higher demand and pricing for both Companion Animal and Livestock product portfolios. The Animal Health segment’s sales beat the Zacks Consensus Estimate and our model estimate, both of which were $1.34 billion.Sales of companion animal products rose 10% to $508 million, driven by higher pricing.Sales of livestock products rose 14% $889 million, driven by higher demand for poultry products, higher pricing and inclusion of sales from newly acquired Elanco’s aqua portfolio.Margin DiscussionAdjusted gross margin was 80.8%, up 360 basis points year over year, driven by a favorable product mix and reduced royalties paid on Keytruda and Gardasil partially offset by higher manufacturing-related costs.Adjusted selling, general and administrative expenses were $2.82 billion in the reported quarter, up 2% year over year, as higher administrative and selling costs were partially offset by the favorable impact of foreign exchange.Adjusted research and development (R&D) spending was $4.57 billion, down 48% from the year-ago quarter levels due to lower costs related to M&A activity in the quarter and favorable impact of foreign exchange. In the year-ago quarter, Merck recorded a charge of $5.5 billion related to the collaboration with Daiichi Sankyo versus $700 million recorded in the fourth quarter of 2024.Full-Year 2024 ResultsFull-year 2024 sales rose 7% (10% ex Fx) to $64.2 billion, which beat both the Zacks Consensus Estimate of $64.06 billion and the guided range of $63.6-$64.1 billion. Pharmaceutical sales grew 7% (10% excluding Fx) to $57.40 billion.Adjusted earnings for 2024 were $7.65 per share, compared with $1.51 in the year-ago period. Though earnings beat the Zacks Consensus Estimate of $7.62 per share, they missed the company’s guided range of $7.72 and $7.77.2025 GuidanceMerck issued a fresh earnings and sales outlook for 2025.Merck expects revenues to be in the range of $64.1-$65.6 billion in 2025, representing year-over-year growth in the range of 2% to 4%. The guidance fell short of the Zacks Consensus Estimate of $68.05 billion. Per management, sales for the full year are expected to be hurt by management’s decision to temporarily halt shipments of Gardasil vaccines to China. The 2025 revenue guidance assumes less than $1 billion in revenues from Gardasil in China at the high end and no further shipments at the low end.The guidance includes a negative impact on sales from foreign exchange of approximately 2%.Excluding sales of Gardasil in China in both 2024 and 2025 and the negative impact of currency, revenues are expected to rise in the range of 7% to 9%. Medicare Part D redesign is expected to hurt sales by approximately $400 million, primarily affecting Winrevair and oncology products, including Welireg, Lynparza and Lenvima. Merck expects top-line growth to be driven by Keytruda, especially in early-stage cancers, new products, Welireg, Winrevair, Capvaxive and the Animal Health segment, which will be partially offset by declining sales of Gardasil in China. Also, the expiration of its agreement with J&J for Remicade and Simponi is expected to hurt the top line.In the first half, the company expects flat growth as higher sales of other products is expected to be offset by Gardasil headwinds in China. In the second half, the company expects to record strong year-over-year growth.Adjusted earnings per share are expected to be between $8.88 and $9.03. The Zacks Consensus Estimate is pegged at $9.18 per share. This guided range includes a one-time charge of $300 million (approximately 9 cents per share) payable as a milestone payment to China-based LaNova Medicines for in-licensing rights to the latter’s PD-1xVEGF targeting bispecific antibody candidate, MK-2010.The guidance includes a negative impact from foreign exchange of nearly 35 cents.The adjusted gross margin is expected to be around 82.5%.Adjusted operating costs are expected to be in the range of $25.4 to $26.4 billion. The adjusted tax rate is expected to be approximately 16% to 17%.Other expense is anticipated to be between $300 and $400 million.How Have Estimates Been Moving Since Then?It turns out, fresh estimates have trended downward during the past month.VGM ScoresAt this time, Merck has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.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.OutlookEstimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Merck has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.Performance of an Industry PlayerMerck is part of the Zacks Large Cap Pharmaceuticals industry. Over the past month, Roche Holding AG (RHHBY), a stock from the same industry, has gained 4.8%. The company reported its results for the quarter ended December 2024 more than a month ago.Roche Holding reported revenues of $1.73 billion in the last reported quarter, representing a year-over-year change ofOnly $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 256 positions with double- and triple-digit gains in 2024 alone.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Merck & Co., Inc. (MRK): Free Stock Analysis Report Roche Holding AG (RHHBY): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks