Merck KGaA (MKGAF) reported second quarter 2012 earnings per American Depository Receipt (ADR) of $2.47, well above the year-ago earnings of $2.30 per ADR.

Revenues for the reported quarter slipped 0.3% year over year to $3,665.3 million, primarily due to exchange rate fluctuation. However, in Euro terms, revenues climbed 11.6% yearly, riding on sales growth at the Merck Serono and Performance Materials divisions.

Quarterly Details

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

[All growth rates discussed below are in terms of Euro.]

Merck Serono’s revenues increased 11% during the quarter, driven by strong performance of Fertility and Endocrinology businesses and dollar appreciation against other currencies. Rebif (up 9.6%) and Erbitux (up 7.1%) also contributed to the segment’s growth.

The Consumer Health Care division’s revenues increased 2.9%, primarily due to increase in sales along with favorable changes in foreign exchange rates.

Merck Millipore division’s revenue went up 11% from the year-ago period, driven by robust growth in its Lab Solutions and Process Solutions business segments. Merck Millipore comprises three business wings – Bioscience, Lab Solutions and Process Solutions.

The Performance Materials division’s revenues jumped 14% during the quarter due to strong demand for larger televisions in the Liquid Crystals segment. However, sales continued to decline in the Pigments & Cosmetics segment due to a weak economic environment in the EU. The Performance Materials division consists of the Liquid Crystals and Pigments & Cosmetics businesses.

Revised Outlook for 2012

For 2012, Merck KGaA now expects revenues to be approximately EUR10.7 billion, slightly up from the earlier guidance of EUR10.5 billion.

Our Recommendation

Merck KGaA currently retains a Zacks #4 Rank (short-term ‘Sell’ rating).

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