Merck’s (NYSE:MRK) Q4 Sales Top Estimates But Stock Drops
Global pharmaceutical company Merck (NYSE:MRK) reported Q4 CY2024 results beating Wall Street’s revenue expectations , with sales up 6.8% year on year to $15.62 billion. On the other hand, the company’s full-year revenue guidance of $64.85 billion at the midpoint came in 3.7% below analysts’ estimates. Its non-GAAP profit of $1.72 per share was 2.4% above analysts’ consensus estimates.
Revenue: $15.62 billion vs analyst estimates of $15.43 billion (6.8% year-on-year growth, 1.3% beat)
Adjusted EPS: $1.72 vs analyst estimates of $1.68 (2.4% beat)
Management’s revenue guidance for the upcoming financial year 2025 is $64.85 billion at the midpoint, missing analyst estimates by 3.7% and implying 1.1% growth (vs 6.8% in FY2024)
Adjusted EPS guidance for the upcoming financial year 2025 is $8.96 at the midpoint, missing analyst estimates by 3%
Operating Margin: 26.7%, up from -13.5% in the same quarter last year
Constant Currency Revenue rose 9% year on year (7% in the same quarter last year)
Market Capitalization: $252.4 billion
“We delivered strong growth in 2024, reflecting demand for our innovative portfolio, including for KEYTRUDA, which continues to benefit more patients with cancer globally, the successful launch of WINREVAIR and strong performance of our Animal Health business,” said Robert M. Davis, Chairman and CEO, Merck.
Company Overview
Founded in 1891, Merck (NYSE:MRK) is a global pharmaceutical company that develops prescription medicines, vaccines, biologic therapies, and animal health products.
Branded Pharmaceuticals
The branded pharmaceutical industry relies on a high-cost, high-reward business model, driven by substantial investments in research and development to create innovative, patent-protected drugs. Successful products can generate significant revenue streams over their patent life, and the larger a roster of drugs, the stronger a moat a company enjoys. However, the business model is inherently risky, with high failure rates during clinical trials, lengthy regulatory approval processes, and intense competition from generic and biosimilar manufacturers once patents expire. These challenges, combined with scrutiny over drug pricing, create a complex operating environment. Looking ahead, the industry is positioned for tailwinds from advancements in precision medicine, increasing adoption of AI to enhance drug development efficiency, and growing global demand for treatments addressing chronic and rare diseases. However, headwinds include heightened regulatory scrutiny, pricing pressures from governments and insurers, and the looming patent cliffs for key blockbuster drugs. Patent cliffs bring about competition from generics, forcing branded pharmaceutical companies back to the drawing board to find the next big thing.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Merck grew its sales at a mediocre 6.5% compounded annual growth rate. This fell short of our benchmark for the healthcare sector, but there are still things to like about Merck.
Merck Quarterly Revenue
We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Merck’s recent history shows its demand slowed as its annualized revenue growth of 4% over the last two years is below its five-year trend.
Merck Year-On-Year Revenue Growth
We can dig further into the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 7.1% year-on-year growth. Because this number is better than its normal revenue growth, we can see that foreign exchange rates have been a headwind for Merck.
Merck Constant Currency Revenue Growth
This quarter, Merck reported year-on-year revenue growth of 6.8%, and its $15.62 billion of revenue exceeded Wall Street’s estimates by 1.3%.
Looking ahead, sell-side analysts expect revenue to grow 4.6% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its newer products and services will not accelerate its top-line performance yet. At least the company is tracking well in other measures of financial health.
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Adjusted Operating Margin
Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.
Merck has been an efficient company over the last five years. It was one of the more profitable businesses in the healthcare sector, boasting an average adjusted operating margin of 28.3%.
Analyzing the trend in its profitability, Merck’s adjusted operating margin rose by 13.3 percentage points over the last five years. Zooming into its more recent performance, however, we can see the company’s margin has decreased by 1.5 percentage points on a two-year basis. We’re still optimistic that Merck can correct course and expand its profitability on a longer-term horizon.
in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Merck’s EPS grew at a solid 8.1% compounded annual growth rate over the last five years, higher than its 6.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
Merck Trailing 12-Month EPS (Non-GAAP)
We can take a deeper look into Merck’s earnings to better understand the drivers of its performance. As we mentioned earlier, Merck’s adjusted operating margin expanded by 13.3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
In Q4, Merck reported EPS at $1.72, up from $0.03 in the same quarter last year. This print beat analysts’ estimates by 2.4%. Over the next 12 months, Wall Street expects Merck’s full-year EPS of $7.65 to grow 16.3%.
Key Takeaways from Merck’s Q4 Results
We were impressed by how significantly Merck blew past analysts’ constant currency revenue expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, its full-year revenue and EPS guidance missed by a long shot. Overall, this was a softer quarter. The stock traded down 6.9% to $92.95 immediately after reporting.
