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Merck & Co. Is Growing despite Its Revenue Falling in 3Q15

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Merck’s 3Q15 earnings

Merck & Co. (MRK) released its 3Q15 earnings on October 27, 2015. Its revenue fell ~4.5% to $10.1 billion in 3Q15 compared to $10.5 billion in 3Q14. However, the company reported growth of ~2% excluding the impact of foreign exchange. Merck reported an EPS (earnings per share) of $0.96. It was higher than Wall Street estimates of $0.92. Merck’s 3Q15 EPS was ~7% higher than its EPS of $0.90 in 3Q14.

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3Q15 earnings impact the stock price

Merck’s stock price improved by over 1% to the closing price of $53.47 after the earnings were released. However, the stock price fell over 2% YTD (year-to-date). During the same period, the VanEck Vectors Pharmaceutical ETF (PPH) returned ~3.8%. Other competitors like Pfizer (PFE), Sanofi (SNY), and GlaxoSmithKline (GSK) returned 16.7%, 15.4%, and 6.3%, respectively. Investors can also consider other ETFs like the Vanguard Healthcare ETF (VHT) to divest the risk.

Revenue

Merck’s revenue reported a fall of ~2% at $10.1 billion during 3Q15—compared to ~$10.5 billion in 3Q14. At constant exchange rates, the revenue rose by ~2%. Also, excluding the impact of acquisitions and divestitures, the revenue rose by ~4% during 3Q15. The revenue was mainly driven by Januvia, Janumet, Gardasil, and Cubicin. What do these drugs mean for Merck? We’ll discuss this throughout the series.

Merck also revised its financial guidance by increasing the midpoint and narrowing the range of total revenue to $39.2–$39.8 billion for 2015.

Profitability

Merck’s gross margin improved by ~0.8% to 75.1% during 3Q15. Its adjusted net income rose by ~4% from $2.6 billion in 3Q14 to $ 2.7 billion in 3Q15. The profit margins improved due to lower inventory write-offs, lower operating expenses, and lower marketing and administrative expenses. The margins were partially offset by a rise in R&D (research and development) expenses.

To learn more about the company, read Merck and Company – An American Pharmaceuticals Giant.

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