EUR 850.00 For Business Accounts Only

Morningstar | Merck’s 2Q Results on Track as Firm Navigates Currency and Liquid Crystal Headwinds

We don’t anticipate a change to our fair value estimate for Merck KGaA following the company’s second-quarter results. As we mostly expected, currency headwinds and ongoing pricing pressure in the liquid crystals portion of the performance materials division led to a 13.7% decline in consolidated adjusted EBITDA. Overall, however, our forecast for EUR 14.3 billion in revenue and $3.85 billion in EBITDA for the year falls near the midpoint of management’s outlook. While we remain concerned about management’s ability to stem market share losses and margin erosion in the liquid crystals business, we think the company’s moat remains intact.

Most of Merck’s segments reported predictable results this quarter, given negative currency effects. The healthcare division continues to invest behind the promotion of immuno-oncology drug Bavencio and Mavenclad for multiple sclerosis as older products like Rebif and Erbitux maintain their slow decline. While we remain somewhat tepid on the outlook for Bavencio and Mavenclad relative to competing products at peers, both should help offset declines in Merck’s more mature products. Additionally, the U.S. Food and Drug Administration has accepted Merck’s application for Mavenclad, which could further boost the market opportunity of this product. The biopharma market is still an area of strength for the life sciences division, which posted impressive 7.7% organic growth led by a 12.5% increase in process solutions thanks to biopharma customer demand. Merck’s results in this division look ahead of competition, suggesting modest market share gains have persisted. Lastly, while growth of semiconductor and OLED technologies have helped uphold performance materials sales, the negative product mix from degradation of the higher-margin liquid crystal business led to another quarter of year-over-year and sequential profitability decline.