New Jersey-based drugmaker and Dow-30 component Merck (MRK – Free Merck Stock Report) has reported second-quarter GAAP earnings of $1.03 a share, versus $0.63 in the comparable period of 2018. The sharp year-over-year improvement was fueled by double-digit growth on the top line (more below) and reductions in restructuring (-74%) and R&D (-4%) expenses, partially offset by an uptick in SG&A costs (+8%) and higher taxes. Meantime, adjusted earnings, which exclude one-time gains, losses, and other nonrecurring items, and are more closely followed by Wall Street, came in at $1.30 a share, versus $1.06 in previous-year period. The adjusted tally soared past the consensus expectation of $1.16 a share on the strength of a roughly $800 million beat in revenues. Management responded by upping its full-year guidance for the second time in as many quarters. MRK shares are trading slightly higher on the release.
In the June period, worldwide revenues advanced 12% year over year, to $11.76 billion, marking the company's seventh-consecutive quarter of top-line growth. Performance continued to be driven by strong momentum for blockbuster immunotherapy drug KEYTRUDA, where sales surged 58% year over year, to $2.63 billion, and another impressive showing from the vaccines business, led by GARDASIL (sales up 46%). Comps received additional support from double-digit gains in other key assets, including PROQUAD (+58%), BRIDION (+16%), and ROTATEQ (+10%), helping to mitigate softness in the blockbuster JANUVIA/JANUME diabetes franchise (-6%) and lingering generic pressures on cholesterol-lowering drugs ZETIA/VYTORIN (-39%).
Altogether, Merck's second-quarter results were pretty solid across the board. Due to the better-than-expected performance on both lines, management now expects 2019 adjusted earnings in a range of $4.84-$4.94 a share (previously $4.67-$4.79), on revenues of $45.2 billion-$46.2 billion (previously $43.9 billion-$45.1 billion). In our view, the near- and long-term growth stories remain heavily centered around the continued success and development of KEYTRUDA, which has emerged as a clear favorite in the high-growth immuno-oncology space and has also established a dominant position in the most lucrative segment of the market, lung cancer. Peak annual sales estimates have been upped consistently over the past several years, with some projections now touting the drug as a $16 billion contributor by 2025.
All told, we continue to view Merck as an attractive option for investors seeking participation in the large pharma space. The stock pays an above-average dividend yield and scores well across all of our proprietary risk metrics. The company's Financial Strength grade is also top notch (A++).
About The Company: Merck & Co. is an international developer, manufacturer, and distributor of pharmaceuticals. Important product names include JANUVIA/JANUMET (type-2 diabetes);ZETIA/VYTORIN (hypercholesterolemia); GARDASIL (vaccine); KEYTRUDA (lung cancer); andREMICADE (arthritis). In 2014, the company made three significant acquisitions: Schering-Plough, Idenix Pharmaceuticals, and Cubist Pharmaceuticals.
– Michael Ratty
