Wednesday, February 4, 2015

Q4 2014: Slight EPS Beat; Slight Sales Beat -- 2015 Sales Outlook Dampened By Continuing Strong Dollar (Down 8 Percent)

Nearly exactly as I guessed last week, the estimate out of Kenilworth for full year 2015 currencies-related down draft -- at the revenue line -- will be between 7 and 8 per cent. That is an effect not seen in this magnitude since the early part of the last decade. [Graphics momentarily.] And while Merck's very substantial foreign asset base footprint (a pin-cushion full of plants and facilities, dotted around the globe) provides a "natural hedge" of sorts, it is not remotely a tightly-matched hedge. It is fuzzy, and lumpy -- all over.

So, while Ketyruda®'s expanding fortunes are likely to be a particularly bright story in 2015 for Kenilworth (moderated by BMS's Opdivo® actually pulling into the market lead position here, in the latter part of 2015), the trick will be to protect as much of that currency affected sales line volume -- and drag the bulk of it to the GAAP EPS bottom line, unimpaired. Mr. Davis has his work cut out for him. Here then, is the salient part of the forward-looking statements in this morning's Q4 2014 earnings release:

. . . .Merck expects its full-year 2015 non-GAAP EPS range to be between $3.32 and $3.47, including a $0.27 negative impact from foreign exchange. The range excludes acquisition- and divestiture-related costs and costs related to restructuring programs. Merck expects its full-year 2015 GAAP EPS range to be between $1.62 and $1.91.

At mid-January 2015 exchange rates, Merck anticipates full-year 2015 revenues to be between $38.3 billion and $39.8 billion, including a $2.6 billion negative impact from foreign exchange and approximately $1 billion of net lost sales from acquisitions and divestitures.

In addition, the company expects full-year 2015 non-GAAP marketing and administrative expenses to be below 2014 levels and R&D expenses to be modestly above 2014 levels.

The company anticipates its full-year 2015 non-GAAP tax rate will be in the range of 22 to 23 percent, not including a 2015 R&D tax credit. . . .

The extremely strong US dollar should make things interesting in 2015. That -- along with diving crude oil prices, globally -- will make it difficult to effectively and economically hedge these exposures. Even so, I expect consumers to spend -- in a discretionary fashion -- much of the additional perhaps $40 a week they will now not be dumping into their gas tanks. That is cyclical spend, mostly -- but may benefit Merck -- as people choose to schedule doctor visits and well-care, and buy meds, more frequently.

Separately, Merck may face a renewed wave of criticism about all the cash it has parked abroad (over $50 billion) -- while roads and bridges crumble here, in the US. We shall see. There is a nice answer for that, as we discussed this past weekend. In short, Merck could advocate for that part of the Obama budget.

UPDATE: Apparently (FierceBiotech has it!) Merck's latest Hep C candidate is no longer a breathrough according to FDA -- due to other on market meds. Not material -- but I've never seen a "de-designation" personally, before.


Anonymous said...

I wanted to identify some inaccurate information on the Suvorexant post. Suvorexant is not a narcotic. Narcotics are typically opiates or opioids. Suvorexant is a Psychoactive drug. Just wanted to clarify that point.

Condor said...

Thank you so much!

Fixed it -- and do stop back!