Merck Q1 Earnings & Sales Beat Estimates, '25 EPS Outlook Cut

Core Insights - Merck reported Q1 2025 adjusted EPS of $2.22, exceeding the Zacks Consensus Estimate of $2.15, with a year-over-year earnings increase of 7% on a reported basis and 12% excluding foreign exchange impacts [1][2] - Revenues declined 2% year-over-year to $15.53 billion, but still surpassed the Zacks Consensus Estimate of $15.39 billion [2] Sales Performance - Keytruda, Merck's flagship product, generated sales of $7.21 billion, a 6% increase, but missed the Zacks Consensus Estimate of $7.55 billion due to timing issues in wholesaler purchases [3] - Alliance revenues from Lynparza and Lenvima contributed positively, with Lynparza sales increasing 8% to $312 million and Lenvima revenues totaling $258 million, up 2% [4] - Welireg sales surged 63% to $137 million, driven by higher demand in the U.S. [5] Vaccine Sales - Sales of HPV vaccines Gardasil and Gardasil 9 fell 40% to $1.33 billion, primarily due to lower demand in China [6] - Combined sales of Proquad, M-M-R II, and Varivax vaccines decreased 5% to $539 million, while sales of the pneumococcal 15-valent conjugate vaccine Vaxneuvance rose 7% to $230 million [7][8] Diabetes and Other Products - Sales of the Januvia/Janumet franchise rose 21% year-over-year to $796 million, benefiting from higher net pricing in the U.S. [9] - New PAH drug Winrevair generated $280 million in sales, up from $200 million in the previous quarter [9] Animal Health Segment - The Animal Health segment generated revenues of $1.59 billion, up 5% year-over-year, driven by higher demand for livestock products [11] Cost and Margin Analysis - Adjusted gross margin was 82.2%, up 100 basis points year-over-year, while adjusted selling, general and administrative expenses rose 3% to $2.53 billion [12] - Adjusted R&D spending decreased 9% to $3.61 billion, attributed to lower business development charges [13] 2025 Guidance - Merck maintained its sales guidance for 2025, expecting revenues between $64.1 billion and $65.6 billion, with a revised negative impact from foreign exchange of around 1% [14] - Adjusted EPS guidance was revised to a range of $8.82 to $8.97, accounting for a one-time charge related to a licensing agreement [16] Market Reaction and Future Outlook - Shares of Merck traded higher in pre-market following the earnings report, despite a 21% year-to-date decline compared to a 3% fall in the industry [19] - The company is aware of its reliance on Keytruda and is taking steps to diversify its portfolio, with a late-stage pipeline that has nearly tripled over the past three years [21]