Merck & Co. (MRK - Analyst Report) reported second quarter 2015 earnings of 86 cents per share, surpassing the Zacks Consensus Estimate of 80 cents and increasing 1.2% from the year-ago period.

Merck & Company Inc. - Earnings Surprise | FindTheBest

Revenues for the quarter declined 10.5% to $9.785 billion but were above the Zacks Consensus Estimate of $9.709 billion. While currency movement negatively impacted revenues by 7%, the divestiture of the Consumer Care business and other products impacted revenues by net 7%. This was partially offset by the Cubist acquisition.

The Quarter in Detail

Merck’s Pharmaceutical segment posted revenues of $8.6 billion, down 6%. Currency movement negatively impacted revenues by 9%. Products like Janumet, Januvia and Gardasil performed well. However, this was offset by lower revenues of Remicade (loss of exclusivity in Europe), Zetia/Vytorin (Zetia loss of exclusivity in Canada and lower volume for both products in the U.S.), and Isentress (timing of tender purchases in emerging markets and volume declines in the U.S.) among others.

New product, Keytruda, brought in sales of $110 million in the second quarter of 2015, up from $83 million in the first quarter of 2015. Cubicin sales came in at $293 million.

Merck’s animal health segment posted revenues of $840 million, down 4% including a 14% negative impact of currency movement.

Marketing and administrative expenses declined 14.7% to $2.5 billion in the second quarter of 2015. R&D spend decreased 2.3% to $1.6 billion in the second quarter of 2015.

Revises Outlook

Merck narrowed and raised its 2015 earnings guidance to $3.45 and $3.55 per share on revenues of $38.6 billion and $39.8 billion. Earlier at the time of presenting first quarter results, the company had guided towards earnings of $3.35 - $3.48 per share on revenues of $38.3 billion - $39.8 billion. In addition to the impact of currency movement, revenues will also be impacted by about $1 billion due to net lost sales from acquisitions and divestitures.

Meanwhile, Merck expects marketing and administrative spend to decline from 2014 levels. However, R&D spend is expected to be slightly above 2014 levels. The company spent $6.5 billion and $10.9 billion on R&D and marketing and administrative matters, respectively, in 2014.

Total operating expenses are expected to be about $200 million lower in the second half of 2015 compared to the year-ago period.

The Zacks Consensus Estimate for 2015 earnings and revenue is currently $3.44 per share and $39.5 billion, respectively.

Merck also announce its intention to acquire cCAM Biotherapeutics, a privately held biopharmaceutical company focused on the discovery and development of novel cancer immunotherapies. In addition to making an upfront payment of $95 million, Merck could make milestone payments of up to $510 million.

Our Take

Merck’s second quarter results were better-than-expected despite headwinds like generic competition and unfavorable currency movement. Moreover, the company narrowed and raised its outlook for 2015. Meanwhile, Merck continues to progress with its pipeline.

Merck is a Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the health care sector include Eli Lilly and Company (LLY - Analyst Report), Amgen (AMGN -Analyst Report) and Abbott Laboratories (ABT - Analyst Report). All three are Zacks Rank #2 (Buy) stocks.