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For Thomas's preview heading into the Merck conference call, please click here.

Merck

(MRK) - Get Merck & Co., Inc. (MRK) Report

reported a nice quarter, and the earnings call had a positive tone to it. For the quarter just ended, the company posted adjusted EPS of $0.92 on revenue of $11.6 billion, both of which were comfortably ahead of expectations. Gross margin was 65%. Management also revised guidance for the full year and now expects 2011 EPS in the range of $3.66 to $3.76 vs. consensus of $3.69. Given that the company just beat by $0.06, management is essentially leaving guidance for the rest of the year unchanged. That seems pretty conservative to me, and I would guess that estimates will creep above the official guidance.

Key Products

  • Singulair revenue was up 14% year over year, to $1.3 billion (better than expected).
  • Remicare revenue was up 12% year over year, to $753 million (better than expected).
  • Januvia revenue was up 45% year over year, to $739 million (a little lighter than I was expecting).

TheStreet Recommends

The company is reducing R&D targets for the year to $8 billion to $8.4 billion. Management got a few questions about its willingness to spin out smaller, non-pharmaceutical businesses such as Animal Health and Consumer. And while the company is not ruling it out, it didn't sound like that was on the table. Five drugs are close to receiving full approval, including Victrelis (Hep C, just recently recommended by FDA panel) and Janumet (Type 2 diabetes, also under review). The company is committed to target of 25% of revenue from emerging markets by 2013, even despite the recent settlement with

Johnson & Johnson

(JNJ) - Get Johnson & Johnson (JNJ) Report

, which curtails this geographic focus.

It seemed like a decent quarter for the company. Given that there are certain challenges for a mega-cap pharma stock to sustain growth rates, the pipeline seems decent (not great but decent), and the ability to hit EPS estimates over the remainder of the year seems probable. Reducing R&D is not ideal, but $8 billion is not chump change. Overall, a decent value stock for folks but not the type of growth to which I am typically attracted.

At the time of publication, Thomas had no positions in the stocks mentioned, although holdings can change at any time without notice

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Ben Thomas, CFA, is the founder and managing principal of Waycross Partners. Waycross Partners is a long/short hedge fund that focuses on the technology and health care sectors. Before Waycross, Ben was a portfolio manager and senior equity analyst at INVESCO, where he was part of a team that managed over $20 billion in assets. While at INVESCO, he was the lead manager for the INVESCO Midcap Growth fund as well as the firm's senior equity analyst covering technology stocks.

Prior to INVESCO, Ben worked for Banc One Securities and Prudential Securities. He graduated from the University of Kentucky with a bachelor's degree in finance and went on to earn his MBA from Indiana University. Ben is a member of the CFA Institute and serves on the board of directors for the CFA Society of Louisville.