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Merck KGaA Q3 Earnings Rise Y/Y, 2014 View Upgraded

Merck KGaA (MKGAF) reported third-quarter 2014 earnings of $1.53 per American Depositary Receipt (:ADR), up 0.2% from the year-ago quarter. The company also increased the sales guidance for the full-year 2014.

In the reported quarter, revenues increased to $3.9 billion, up 6.9% year over year.

All growth rates mentioned below are on a 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 sales grew 3.7% year over year. Rebif sales increased 1.3% with an organic sales growth of 1.7%. Oncology drug, Erbitux’s sales increased 4% with organic growth of 6.5%. Gonal-f sales increased 7% (organically 7.5%) during this quarter. This segment performed well in emerging markets with organic sales growth of 14%.

The Consumer Health Care division’s revenues increased 1.5% year over year. Sales from this segment grew organically by 1.4% primarily driven by Neurobion, Femibion and Seven Seas along with local brands in Germany.

The Performance Materials division’s revenues increased 41.7% year over year, mainly due to the contribution from AZ Electronic Materials (acquired in May 2014). This division grew organically by 7% primarily driven by good performance by the Liquid Crystals business.

The Merck Millipore division’s sales increased 3.4% year over year. This division grew 4.5% organically, mainly driven by the good performance of Process Solutions, but offset by a fall in sales owing to the divestment of the Discovery and Development Solutions business in Mar 2014. While Process Solutions generated organic sales growth of 10.5%, Lab Solutions and Bioscience businesses sales were relatively flat year over year.

2014 Sales Guidance Upgraded

Merck KGaA continues to expect sales to grow slightly on an organic basis in 2014. The successful acquisition of AZ Electronic Materials is expected to boost sales. Thus, Merck KGaA increased its sales guidance to the range of €11.0 billion − €11.2 billion for 2014 (previous guidance: €10.9 billion − €11.1 billion). However, the company continues to expect earnings per share in the range of €4.50 – €4.75 based on the share split, approved on May 9, 2014.

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

We remain positive regarding the contribution of AZ Electronic Materials to the top-line.

Merck KGaA carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the health care sector are Alcobra Ltd. (ADHD), Lannett Company, Inc. (LCI) and Valeant Pharmaceuticals International, Inc. (VRX). All these stocks carry a Zacks Rank #1 (Strong Buy).

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