Merck KGaA Quarterly Profit Beats Estimates; Forecast Raised

Updated on
  • Profit from healthcare unit climbed 16 percent in quarter
  • Sales and earnings in 2016 may be higher than earlier forecast

Merck KGaA reported second-quarter profit that beat analysts’ estimates as the prescription-drug division’s earnings climbed, prompting the German company to raise its forecast for the full year.

Earnings before interest, taxes, depreciation and amortization, and excluding some costs, rose 29 percent to 1.16 billion euros ($1.29 billion) in the three-month period, boosted by the acquisition of Sigma-Aldrich in November, the Darmstadt, Germany-based drugs and chemicals maker said in a statement on Thursday. That’s higher than the 1.1 billion-euro average of analysts’ estimates compiled by Bloomberg.

The results may bolster Chief Executive Officer Stefan Oschmann’s efforts to pare the debt accrued from last year’s $17 billion acquisition of Sigma-Aldrich. Sales at the company’s biggest business, its pharmaceuticals unit, have been weighed down by the stronger U.S. dollar and rising competition for its top-selling medicine, Rebif.

“We expect interest in the Merck KGaA equity story to continue increasing,” Peter Verdult, an analyst at Citigroup Inc., said in a note to clients on Thursday. “Merck still offers a relatively attractive valuation, earnings momentum and scope for pipeline appreciation to further improve.”

Drought Ending

Merck’s shares fell 1.2 percent to 97.07 euros as of 9:11 a.m. in Frankfurt trading. The stock has climbed 9.6 percent this year.

The German company raised the range of its forecast for sales this year to 14.9 billion euros to 15.1 billion euros, from an earlier projection of 14.8 billion euros to 15 billion euros. Ebitda before special items will climb to 4.25 billion euros to 4.4 billion euros, instead of the earlier forecast of 4.1 billion euros to 4.3 billion euros.

Revenue from the healthcare unit declined by 2.7 percent in the quarter to 1.8 billion euros. But profit climbed by 16 percent to 557 million euros, partly because of the sale of a minority stake held by its venture fund.

Merck is looking to a $2 billion-collaboration pact with Pfizer Inc. for developing cancer therapies to start contributing to growth next year, when the first of the treatments is expected to reach patients, ending a 10-year drought in new medicines at the company. Multiple sclerosis drug Rebif, which faces competition from oral treatments, as well as cancer drug Erbitux and fertility treatment Gonal-f continued to account for the biggest share of prescription-drug sales in the most recent quarter.

The company’s net income in the second quarter was eroded by a “sharp increase” in variable-compensation costs because of the gains in the stock price, Merck said. Its net debt level declined to 12.5 billion euros from 12.7 billion euros at the end of December.

The performance of key drugs (in millions of euros):

  • Rebif 2Q sales of 441 v. estimated 433.8
  • Erbitux sales of 232 v. estimated 222.3