A change in full-year guidance by management wasn’t particularly welcome.
On Tuesday, Merck (MRK -1.56%) wasn’t one of the better-performing pharmaceutical stocks. In contrast to certain peers, the company’s share price declined following the release of second-quarter results. Merck lost nearly 2% of its value, posting a steeper decrease than the 0.3% of the bellwether S&P 500 index.
Top- and bottom-line slides
The company released its latest set of figures well before market open, giving investors plenty of time to express their disappointment. For the quarter, total sales were $15.8 billion, representing a year-over-year decline of 2%. This despite the 9% improvement in sales of the company’s cancer drug Keytruda, while the take for its animal health portfolio was up a healthy 11%.
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Net income, on the basis of generally accepted accounting principles (GAAP) and a non-GAAP (adjusted) basis, fell more precipitously. Under the latter standard, it came in at almost $5.4 billion ($2.13 per share), 8% below the year-ago figure.
This meant a mixed quarter for Merck, as the average analyst estimate for revenue was nearly $15.9 billion. Those pundits underestimated adjusted profitability at only $2.03.
It also heralded a change in strategy, with CEO Robert Davis saying that the company is undergoing “a multiyear optimization initiative that will redirect investment and resources from more mature areas of our business to our burgeoning array of new growth drivers, further enable the transformation of our portfolio, and drive our next chapter of productive, innovation-driven growth.”
Narrowed guidance
It wasn’t only the mixed trailing results that dismayed investors; their negative reaction was also due to Merck narrowing the range of its full-year sales guidance. Total sales for the period are now anticipated to come in at $64.3 billion to $65.3 billion. Previously, it had anticipated potentially higher take ranging from $64.1 billion to $65.6 billion.
As for adjusted profitability, Merck is now modeling $8.87 to $8.97 per share for the year, a change from its preceding guidance of $8.82 to $8.97.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck. The Motley Fool has a disclosure policy.