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Merck or AbbVie: Which Has More Robust Margins?

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Jan. 15 2019, Updated 9:00 a.m. ET

Margin guidance

On its third-quarter earnings conference call, Merck & Co. (MRK) forecast an expansion in its operating margin in the coming years, mainly driven by growth in its oncology business, a favorable product mix, and rapid revenue growth. The company also expects its effective tax rate for 2018 to fall in the range of 19%–20%. In its third-quarter earnings conference presentation, it also forecast a 1% YoY contraction in its product gross margin for 2018.

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According to its third-quarter earnings conference call, AbbVie (ABBV) expects its adjusted gross margin to be more than 80.5%, while its adjusted operating margin is expected to be close to 45%. The company also expects its operating margin to be close to 50% in 2020. AbbVie expects its gross margin to be 170–180 basis points higher YoY (year-over-year) in 2018 driven by the termination of certain Humira royalties paid by the company.

Margin projections

Wall Street analysts expect Merck & Co.’s gross margins to be 75.43%, 75.89%, and 76.39%, respectively, in 2018, 2019, and 2020. On the other hand, AbbVie is expected to report gross margins of 80.77%, 82.33%, and 81.70%, respectively, in 2018, 2019, and 2020.

Wall Street analysts also expect Merck & Co.’s adjusted net income margins to be 27.53%, 27.63%, and 28.54%, respectively, in 2018, 2019, and 2020. On the other hand, AbbVie is expected to report adjusted net income margins of 37.59%, 38.95%, and 40.04%, respectively, in the same years.

AbbVie is thus expected to report higher gross margins and net income margins than Merck & Co. in each year from 2018 to 2020.

In the next article, we’ll compare the cost structures of Merck & Co. and AbbVie in greater detail.

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