Merck's (NYSE:MRK) Q3 Sales Top Estimates

Global pharmaceutical company Merck (NYSE:MRK) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 3.7% year on year to $17.28 billion. The company expects the full year’s revenue to be around $64.75 billion, close to analysts’ estimates. Its non-GAAP profit of $2.58 per share was 9.9% above analysts’ consensus estimates.

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“In the third quarter, we continued to execute on our strategy with important pipeline advancements, significant approvals and successful new product launches,” said Robert M. Davis, chairman and chief executive officer.

Company Overview

With roots dating back to 1891 and a portfolio that includes the blockbuster cancer immunotherapy Keytruda, Merck (NYSE:MRK) develops and sells prescription medicines, vaccines, and animal health products across oncology, infectious diseases, cardiovascular, and other therapeutic areas.

Revenue Growth

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Merck’s 7% annualized revenue growth over the last five years was mediocre. This wasn’t a great result compared to the rest of the healthcare sector, but there are still things to like about Merck.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Merck’s recent performance shows its demand has slowed as its annualized revenue growth of 4.1% over the last two years was below its five-year trend.

Merck also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 6.1% year-on-year growth. Because this number is better than its normal revenue growth, we can see that foreign exchange rates have been a headwind for Merck.

This quarter, Merck reported modest year-on-year revenue growth of 3.7% but beat Wall Street’s estimates by 1.7%.

Looking ahead, sell-side analysts expect revenue to grow 4.6% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and implies its newer products and services will not lead to better top-line performance yet. At least the company is tracking well in other measures of financial health.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Merck has been an efficient company over the last five years. It was one of the more profitable businesses in the healthcare sector, boasting an average operating margin of 23.6%.

Analyzing the trend in its profitability, Merck’s operating margin rose by 17.6 percentage points over the last five years, as its sales growth gave it operating leverage. This performance was mostly driven by its recent improvements as the company’s margin has increased by 21 percentage points on a two-year basis.

In Q3, Merck generated an operating margin profit margin of 39%, up 15.5 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Merck’s EPS grew at a spectacular 12.9% compounded annual growth rate over the last five years, higher than its 7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Merck’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Merck’s operating margin expanded by 17.6 percentage points over the last five years. On top of that, its share count shrank by 1.6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q3, Merck reported adjusted EPS of $2.58, up from $1.57 in the same quarter last year. This print beat analysts’ estimates by 9.9%. Over the next 12 months, Wall Street expects Merck’s full-year EPS of $8.65 to grow 4.9%.

Key Takeaways from Merck’s Q3 Results

We were impressed by how significantly Merck blew past analysts’ constant currency revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The market seemed to be hoping for more, and the stock traded down 2.3% to $84.53 immediately following the results.

Is Merck an attractive investment opportunity right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.