Merck's Earnings Beat Leads the Dow's Bounce

IBM and Merck lift the Dow on a strong day around the market, while Sprint gains 10% after an earnings bounce that doesn't tell the whole story.

Apr 29, 2014 at 2:30PM
Daily Fool

The major U.S. stock indices are all seeing nice bounces as of 2:30 p.m. EDT, with the Dow Jones Industrial Average (DJINDICES:^DJI) gaining more than 96 points. Big Pharma's Merck (NYSE:MRK) has led the Dow's gain by a wide margin on an earnings report that buoyed shareholders' optimism. Meanwhile, IBM (NYSE:IBM) has risen 1.2% on good news of its own, while Sprint (NYSE:S) has jumped over 10% on its earnings so far today. Let's catch up on what you need to know.

Merck's earnings: Boom or bust?
Merck's stock has bounced by 3% even though its first-quarter report showed the company's revenue fell 4% year over year and missed analyst estimates. However, the company's cost reductions have come through this quarter, with Merck's adjusted earnings of $0.88 per share topping analyst projections by $0.09. Merck has pushed aggressive cuts to its significant research and development budget recently after investors pointed out that the operations were not reflected in the company's pipeline. Overall, R&D costs dropped by 17% in the most recent quarter.

But are Merck's earnings really all that strong in the long term? While it's good for investors and the company's bottom line that Merck is putting its costs in order, the company's powerhouse animal health segment saw sales fall 3.2% this quarter. However, Merck scored a major victory in the quarter as sales of diabetes drugs Januvia and Janumet combined ticked up by 3%. These two drugs made up around $6 billion in sales last year, and with the patent cliff still impacting older cash cows such as Singulair, Merck will need Januvia and Janumet to turn back to growth for the coming years as the company tries to bring forward a few pipeline hopefuls that could emerge as blockbuster drugs.

Ibm Logo

Around the Dow today, IBM delighted investors with a $0.15 dividend hike. The 16% increase comes as IBM struggles with profit growth: The company has posted eight-straight months of declining earnings, and sales fell to the lowest point in five years. IBM has turned from tech growth stock to a reliable cash cow with a strong dividend and a mere 26% dividend payout ratio, but it will need to drive growth from areas such as the Internet of Things and the cloud in order to keep earnings on the upswing. Still, IBM's dividend appears in no danger despite those earnings shortfalls.

Meanwhile, Sprint reported a net per-share loss of $0.04 for its most recent quarter, better than the $0.21 per-share loss it reported a year ago. Sprint also boosted its revenue slightly, in line with analyst projections. But despite the gains, all's not well for the third-largest wireless provider in the U.S. Sprint reported that it saw 383,000 net wireless customers abandon the company in the most recent quarter, though it added more than 500,000 tablet customers. Competitors have engaged in a fierce fight for customers in the hotly contested wireless market; while Sprint managing its losses looks fine for the short term, the company will need to do better than just tablet growth if it wants to keep its long-term projection rosy for investors.

Is IBM among the top dividend stocks for the next decade?
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Dan Carroll has no position in any stocks mentioned. The Motley Fool owns shares of International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers