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Merck KGaA Misses 2013 Earnings & Rev Ests

Zacks Equity Research

Merck KGaA (MKGAF) reported 2013 earnings per American Depository Receipt (:ADR) of $11.70, up 19.2% year over year but below the Zacks Consensus Estimate of $11.99.

Revenues in 2013 were $14.7 billion, up 2.6% year over year and short of the Zacks Consensus Estimate of $15 billion.

In 2013, sales (total revenues less royalty, license and commission income) grew 4.2% organically due to strong performance in the emerging markets. Emerging markets grew organically by 9.3%, mainly driven by Merck Serono’s biopharmaceutical division. In 2013, the emerging markets region contributed 36% to group sales.

Fourth quarter 2013 earnings per ADR were $2.90, up 7.4% year over year and ahead of the Zacks Consensus Estimate of $2.35. Revenues for the reported quarter were $3.7 billion, up 1.5% year over year.

Segment Sales in Detail

The company operates under four divisions: Merck Serono, Consumer Health Care, Merck Millipore and Performance Materials.

Merck Serono’s revenues decreased 0.7% in 2013 due to currency headwinds of 4.6%. Rebif sales grew organically by 1.4% in 2013. Oncology drug Erbitux’ sales grew organically by 5.9% in 2013 due to its approval in the head and neck cancer indication in Japan as well as good demand in the emerging markets. Gonal-f sales fell organically by 0.7% in 2013 due to adverse foreign exchange impact of 3.5%.

The Consumer Health Care division’s revenues decreased 0.9% in 2013 due to a negative foreign exchange impact of 4.7%. Sales from this segment grew organically by 5.6% primarily driven by Europe and emerging markets.

The Merck Millipore division’s revenues edged up 1.1% in 2013. Segment sales grew 5.5% organically, which was offset by a negative currency headwind of 4.8%. Growth was driven by Lab Solutions and Process Solutions through price increases and higher sales volumes.

The Performance Materials division’s revenues declined 1.9% in 2013 due to currency headwinds of 4.9%.

In 2013, research and development (R&D) expenses were €1.5 billion, down 0.5%. In 2013, administration expenses were €562.4 million, up 1.8% and selling and marketing expenses were €2.3 billion, down 3.5%.


For 2014, Merck KGaA expects sales to grow slightly on an organic basis. The growth will however be impacted by negative foreign exchange effects. Thus, Merck KGaA expects steady sales in 2014. The company lacks pipeline launches in 2014. Merck KGaA expects high earnings in 2014.

Our Take

Weak cough and cold season in continental Europe was seen in the fourth quarter. But the emerging markets performance was strong. The year 2013 was pretty difficult due to stagnation in television shipments and negative currency impact. The company has decided to move into biosimilars market and it will focus on autoimmune diseases and oncology. This move will prove beneficial in the long run as biosimilars market will become an interesting market by 2020.

Merck KGaA carries a Zacks Rank #4 (Sell). Investors looking for better-ranked stocks in the pharma sector may consider companies like Forest Laboratories Inc. (FRX), Actavis plc (ACT) and Lannett Co., Inc. (LCI). Actavis and Forest Labs carry a Zacks Rank #2 (Buy) while Lannett has a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on FRX
Read the Full Research Report on MKGAF
Read the Full Research Report on LCI
Read the Full Research Report on ACT

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