It seems like an eternity since Merck & Co. (NYSE:MRK) last reported quarterly results. The big drugmaker's mixed results from its fourth-quarter update in early February have been largely forgotten in the massive market sell-off caused by the COVID-19 outbreak and the subsequent strong market rebound.

Merck announced its first-quarter results before the market opened on Tuesday. This time around, the company's results looked good, but investors were still disappointed. Here are the highlights from Merck's Q1 update.

A scientist works in a lab holding a pipette.

Image source: Getty Images.

By the numbers

Merck reported revenue of $12.1 billion, an 11% year-over-year jump. This result topped the average analysts' estimate of Q1 revenue of $11.46 billion.

The drugmaker announced first-quarter net income of $3.2 billion, or $1.26 per share, based on generally accepted accounting principles (GAAP). This reflected a solid increase from GAAP earnings of $2.9 billion, or $1.12 per share, reported in the same quarter in 2019.

Merck posted adjusted Q1 earnings of $3.8 billion, or $1.50 per share. The company recorded adjusted earnings of $3.2 billion, or $1.20 per share, in the prior-year period. The consensus Wall Street view was for Merck to report adjusted earnings of $1.34 per share in the first quarter.

Behind the numbers

It's no surprise that the biggest driver behind Merck's revenue growth was Keytruda. Sales for the cancer immunotherapy soared 45% year over year to $3.28 billion. 

Several of Merck's vaccines were also huge winners in the first quarter. Sales for Gardasil/Gardasil 9, ProQuad, M-M-R II, and Varivax jumped 31% year over year to $1.1 billion. Gardasil fueled this growth thanks largely to the timing of $120 million in shipments in China and $70 million in public sector purchases in the U.S.

Merck's Pneumovax 23 pneumococcal vaccine also generated sales of $256 million in the first quarter, up 39% year over year. The company attributed this strong growth to higher U.S. and European demand primarily due to the COVID-19 outbreak.

The company's animal health business also performed really well in the first quarter. Sales for the unit rose 18% year over year to $1.21 billion. Livestock product sales increased 21% to $739 million, driven mainly by the acquisition of Antelliq in the prior year and as customers made purchases in advance due to the COVID-19 crisis. Companion animal product sales rose 15% to $475 million, with much of this growth fueled by higher demand for the Bravecto products for parasite control. 

Looking ahead

Despite beating Wall Street estimates, Merck investors still walked away disappointed by the Q1 update. Why? It's primarily because of the company's outlook.

Merck lowered its full-year 2020 guidance due to the impact of COVID-19. The company now projects that revenue for the year will be between $46.1 billion and $48.1 billion. Its previous guidance called for full-year 2020 revenue between $48.8 billion and $50.3 billion. Full-year non-GAAP earnings per share are expected to be between $5.17 and $5.37, down from the previous guidance of between $5.62 and $5.77.

Part of the issue is that some of Merck's sales in Q1 were inflated by advance purchases as customers stocked up due to the COVID-19 outbreak. Merck also stated that sales for some of its products "are being impacted by social distancing measures, fewer well visits and delays in elective surgeries due to COVID-19."

But while the coronavirus could make the pharma stock more volatile than usual, Merck's underlying business remains strong. Merck thinks it will feel the brunt of the impact from COVID-19 in the second quarter of 2020 with business beginning to return to normal late in Q2 and "a full return to normal operations in the fourth quarter."