Merck Q1 Earnings Beat Expectations Despite Lowered 2025 Guidance Amid Tariff Concerns

Pharmaceutical giant Merck (NYSE: MRK) released its Merck Q1 earnings report on Thursday, revealing better-than-expected results despite challenges in international markets and growing tariff concerns. The company beat Wall Street expectations for both revenue and profit, but simultaneously lowered its full-year earnings guidance, citing approximately $200 million in estimated costs related to tariffs and a recent acquisition deal with Hengrui Pharma.

Merck Q1 Earnings: 2025 Guidance Revision and Tariff Impact

The Merck Q1 earnings announcement included a downward revision of the company’s full-year 2025 adjusted earnings outlook, now projected between $8.82 and $8.97 per share, compared to the previous guidance of $8.88 to $9.03. This adjustment primarily reflects the anticipated impact of international tariffs, particularly between the United States and China, with additional concerns about levies affecting trade with Canada and Mexico.

In a notable caveat to the Merck Q1 earnings guidance, the company specified that its revised outlook does not yet account for President Donald Trump’s proposed tariffs on pharmaceutical imports to the United States. These potential additional trade restrictions have prompted several pharmaceutical manufacturers, including Merck, to enhance their domestic manufacturing capabilities as a strategic response.

The guidance adjustment also incorporates a one-time charge of approximately 6 cents per share related to Merck’s recently announced licensing agreement with Hengrui Pharma. Despite these adjustments to profit expectations, Merck maintained its full-year sales forecast of between $64.1 billion and $65.6 billion in the Merck Q1 earnings report, signaling confidence in overall revenue stability.

Q1 Financial Performance and Revenue Highlights

The Merck Q1 earnings results revealed strong financial performance across key metrics. The company reported earnings per share of $2.22 adjusted, surpassing the $2.14 expected by analysts surveyed by LSEG. Revenue came in at $15.53 billion, exceeding the $15.31 billion analyst consensus, though this represents a 2% decline from the same quarter in the previous year.

Net income for the quarter reached $5.08 billion, or $2.01 per share, marking an improvement from the $4.76 billion, or $1.87 per share, recorded during the same period last year. This solid financial performance in the Merck Q1 earnings demonstrates the company’s ability to maintain profitability despite various market challenges.

Pharmaceutical Division Performance and Keytruda Growth

Merck’s pharmaceutical unit, which forms the core of the company’s operations, generated $13.64 billion in revenue during the first quarter as reported in the Merck Q1 earnings. This represents a 3% decrease compared to the same period in 2024. The flagship cancer immunotherapy drug Keytruda remained the company’s top revenue driver, recording $7.21 billion in sales during the quarter, a modest 4% increase year-over-year.

The Merck Q1 earnings report attributed Keytruda’s continued growth to higher adoption rates for earlier-stage cancer treatments and sustained demand for metastatic cancer applications. However, the quarterly sales figure fell short of analyst expectations of $7.43 billion according to StreetAccount estimates, highlighting competitive pressures in the oncology market.

A promising development in the Merck Q1 earnings was the mention of “increasingly meaningful” sales contributions from two recently launched products. Winrevair, a treatment for rare lung conditions, and Capvaxive, a vaccine designed to protect adults from pneumococcal bacteria, represent critical elements in Merck’s portfolio diversification strategy as Keytruda approaches patent expiration in 2028.

China Market Challenges and Gardasil Sales Decline

The Merck Q1 earnings report revealed ongoing challenges in the Chinese market, particularly affecting sales of Gardasil, the company’s HPV vaccine that prevents certain cancers. Gardasil generated $1.33 billion in sales during the quarter, representing a substantial 41% decline from the first quarter of 2024. This performance fell short of analyst expectations of $1.45 billion.

In February, Merck announced a decision to halt Gardasil shipments to China through at least mid-2025, a significant strategic move given that the Chinese market constitutes the majority of the vaccine’s international revenue. The Merck Q1 earnings discussion noted that China has instituted retaliatory tariffs of 125% on goods from the United States, potentially leading to increased prices or limited supply of Western medicines for Chinese patients.

Animal Health Division Growth and Future Outlook

A bright spot in the Merck Q1 earnings report came from the company’s animal health division, which develops vaccines and medicines for companion and livestock animals. This segment posted nearly $1.59 billion in sales, representing a 5% increase from the same period last year. The growth was primarily driven by higher demand for livestock products and contributions from Elanco’s aqua business, which Merck acquired in the previous year.

The positive performance of the animal health division in the Merck Q1 earnings highlights the value of Merck’s diversified business model, providing stability as the pharmaceutical segment navigates various challenges. This division’s consistent growth trajectory offers a partial counterbalance to pressures faced in other market segments.

US Manufacturing Strategy Amid Trade Tensions

During the Merck Q1 earnings call, CEO Rob Davis addressed the company’s strategy for navigating international trade tensions, particularly the threat of additional tariffs on pharmaceutical imports. Davis explained that Merck is “well positioned with inventory to be able to mitigate anything we could see in the short term” regarding potential supply chain disruptions.

Looking beyond immediate concerns, Davis outlined a medium to long-term approach centered on repositioning manufacturing operations. The Merck Q1 earnings discussion revealed that the company has begun identifying opportunities to either reprioritize existing manufacturing facilities or engage external manufacturing partners to “bridge gaps” while building additional internal production capacity.

“In many ways, we are aligned with what the administration is wanting to do, and feel that we’re in position to be able to do that quite effectively,” Davis stated during the Merck Q1 earnings call, emphasizing the company’s proactive approach to addressing potential trade policy changes.

Merck plans to invest an additional $9 billion in US manufacturing and R&D by 2028. (Photo: Getty Images)

Conclusion

The Merck Q1 earnings report presents a nuanced picture of a pharmaceutical giant navigating complex global market dynamics. Despite lowering its full-year guidance due to tariff concerns, Merck delivered stronger-than-expected quarterly results, underscoring the company’s operational resilience. The continued growth of Keytruda, emerging contributions from newly launched products, and solid performance in the animal health division provide balance against challenges in international markets, particularly China.

Looking ahead, Merck’s strategic investments in US manufacturing capacity appear well-aligned with shifting trade policies, potentially providing a competitive advantage as the industry adapts to new regulatory environments. As the company continues to diversify its product portfolio in preparation for Keytruda’s patent expiration in 2028, investors and industry analysts will closely monitor how effectively Merck balances short-term market challenges with long-term growth objectives.