Merck (MRK) recently provided guidance for the first quarter of 2012. The company said that it expects to earn 95-98 cents in the first quarter. Merck’s guidance lagged expectations with the first quarter Zacks Consensus Estimate currently standing at $1.01 per share (high estimate of $1.09 per share and low estimate of 95 cents).
Merck attributed unfavorable foreign exchange impact to the lower-than-expected first quarter guidance. With the first quarter Euro exchange rate being about $1.31/Euro, the company expects first quarter sales to be negatively impacted by about 1-2% due to unfavorable currency movement. The Zacks Consensus Revenue Estimate for the first quarter currently stands at $11.9 billion.
2012 Guidance Reiterated
While the company’s first quarter guidance lagged expectations, Merck maintained its guidance for 2012. The company continues to forecast earnings of $3.75 – $3.85 per share in 2012. Revenues are expected to be flat or close to 2011 revenues on a constant currency basis. The company estimates that revenues will be negatively impacted by about 2-3% at current exchange rates.
While the Zacks Consensus Revenue Estimate for 2012 is $47.2 billion, the Zacks Consensus Earnings Estimate stands at $3.82 per share.
Meanwhile, Merck maintained its R&D guidance, which is expected to remain at similar levels as in 2011. The company spent $7.7 billion on R&D in 2011.
Merck’s late-stage pipeline is advancing with five regulatory filings expected in 2012 and 2013. These include Bridion (a neuromuscular reversal agent), V503 (an investigational vaccine to help protect against certain HPV associated cancers), odanacatib (once-weekly oral treatment of osteoporosis), Tredaptive (atherosclerosis) and suvorexant (insomnia).
With the company guiding below expectations for the first quarter but maintaining its full year guidance, we expect analysts to adjust their quarterly estimates for 2012 so as to reflect the company’s guidance.
At the time of presenting fourth quarter results, Merck had said that it expects first half performance to be better than the second half. Merck will face a major patent cliff in the second half of 2012 following the patent expiration of Singulair in August.
The company recorded $5,479 million in revenues from Singulair, which accounted for approximately 11.4% of total revenues, in 2011. We expect the fourth quarter of 2012 to be the weakest due to the impact of the Singulair patent expiration.
Neutral on Merck
We currently have a Neutral recommendation on Merck, which carries a Zacks #3 Rank (short-term Hold rating). While headwinds remain in the form of the Singulair patent expiration, EU pricing pressure, US health care reform, the Remicade/Simponi transition and pipeline setbacks, some of the company’s recent launches should start contributing significantly to the top line in the forthcoming quarters.
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