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Merck KGaA Q2 Earnings Slip Y/Y, 2014 Sales View Confirmed

Zacks Equity Research

Merck KGaA (MKGAF), a global pharmaceutical and chemical enterprise, reported second-quarter 2014 results earlier this week and confirmed the full year sales guidance provided earlier.

The company’s second-quarter 2014 earnings per American Depositary Receipt (:ADR) came in at $1.52, down 1.8% from the year-ago quarter.

Revenues declined 0.9% year over year to $3.8 billion mainly due to lower royalty, license and commission income and unfavorable impact of currency fluctuation.

All growth rates mentioned below are on a year-over-year and local currency basis.

Segment Sales in Detail

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

In the reported quarter, Merck Serono’s revenues decreased 1.4% due to currency headwinds of 4.4%. Rebif sales declined 7% with a fall of 2.8% in organic sales, mainly due to competitive pressure in North America and Europe. However, oncology drug Erbitux’s sales increased 6.5% with organic growth of 11.3%. Gonal-f and thyroid disorder products sales increased during this quarter. This segment performed well in emerging markets with organic sales growth of 16.7%.

The Consumer Health Care division’s revenues increased 3.3%. Sales from this segment grew organically by 8.5% primarily driven by Neurobion, Floratil and Femibion as well as local brands in Germany. In emerging markets, the Consumer Health Care division grew 14.2% organically.

The Merck Millipore division’s sales grew 4% organically, which was offset by a negative currency headwind of 4.2%. Organic growth was driven by Process Solutions, Lab Solutions and Bioscience business.

The Performance Materials division’s revenues increased 17.3% mainly driven by the May 2014 acquisition of AZ Electronic Materials. This division grew organically by 1.8%.

2014 Outlook Maintained

Merck KGaA continues to expect sales to grow slightly on an organic basis in 2014. However, this growth will be offset by negative foreign exchange effects. Merck KGaA maintains sales guidance in the range of € 10.9 billion − € 11.1 billion for 2014. Merck KGaA expects earnings per share in the range of € 4.50 – € 4.75 based on the share split, effective since Jun 30, 2014.

The company expects slight organic growth at Merck Serono, moderate organic growth at Consumer Health, slight organic growth at Performance Materials and moderate organic growth at Merck Millipore.

Our Take

While all the four divisions of Merck KGaA performed satisfactorily in the quarter, we are particularly pleased with the performance of the Consumer Health Care division which reflected the highest percentage of growth organically. We are encouraged by Merck KGaA’s acquisition of AZ Electronic Materials and remain positive on its impact on the top-line for the coming quarters.

Investors looking for well-positioned stocks in the health care sector may consider Endo International plc (ENDP), United Therapeutics Corporation (UTHR) and Anacor Pharmaceuticals, Inc. (ANAC). While Endo and United Therapeutics carry a Zacks Rank #1 (Strong Buy), Anacor holds a Zacks Rank #2 (Buy).

Read the Full Research Report on UTHR
Read the Full Research Report on ENDP
Read the Full Research Report on MKGAF
Read the Full Research Report on ANAC

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