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Merck & Co.’s Profit Margins for 4Q16

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Feb. 24 2017, Updated 2:06 p.m. ET

Profit margins

Merck & Co.’s (MRK) revenues saw a 1% decline due to the negative impact of foreign exchange in 4Q16. However, for fiscal 2016, its revenues rose 1% compared to 2015, including 3% operational growth offset by 2% negative impact of foreign exchange. The adjusted net income decreased to ~$2.5 billion in 4Q16, compared to ~$2.6 billion in 4Q15.

The company has met analyst estimates for adjusted net income in the last few quarters. Its gross margin rose ~0.1% to 74.9% in 4Q16, compared to 74.8% for 4Q15, driven by a lower cost of sales due to net favorability from acquisitions and divestitures.

The company’s marketing and administrative expenses were nearly flat at ~$2.6 billion in 4Q16, compared to 4Q15. Also, its research and development expenses fell to ~$1.7 billion in 4Q16, compared to $1.8 billion in 4Q15.

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Fiscal 2016

In fiscal 2016, Merck & Co.’s revenues rose 1% to $39.8 billion, compared to $39.5 billion for 2015. The company’s gross margin rose 0.3% to 75.7% for 2016, while its net income margin improved to 26.5% at $10.5 billion for 2016, compared to 25.8% at $10.2 billion for 2015.

Financial guidance for 2017

Merck & Co. expects revenues between $38.6 billion–$40.1 billion and EPS between $3.72–$3.87 for fiscal 2017. Also, the company expects its operating expenses to increase by low single digits in 2017 compared to 2016.

To divest the risk, investors can consider ETFs like the Fidelity MSCI Health Care Index ETF (FHLC), which is focused on pharmaceuticals and healthcare companies. The Fidelity MSCI Healthcare Index ETF holds 5.3% of its total assets in Merck & Co. FHLC also holds 8.8% of its total assets in Johnson & Johnson (JNJ), 4.6% of its total assets in Gilead Sciences (GILD), and 2.9% of its total assets in Biogen (BIIB).

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