Merck off to a Good Start in Fiscal 2024
The positive development of Healthcare and Electronics largely compensated for the decline in Life Science
Merck has had a good start to fiscal 2024. The Healthcare business sector performed strongly. Electronics also delivered solid organic sales growth, mainly driven by Semiconductor Solutions. Life Science recorded sales and earnings declines compared with the particularly high base of the year-earlier quarter.
Merck KGaA
In the first quarter of 2024, thanks to the sound business performance and compared with the high base of the first quarter of 2023, Group sales decreased by only 3.3% (organically: ‑1.2%) to € 5,120 million. Foreign exchange effects, mainly from the Chinese renminbi, had a negative impact of 2.0% on the sales development. EBITDA pre fell by 8.4% (organically: ‑5.2%) to € 1,454 million. Negative foreign exchange effects impacted EBITDA pre by 3.2%. The EBITDA pre margin was 28.4% in the first quarter of 2024 and earnings per share pre were € 2.06.
“We had a good start to the year and gained initial momentum in the first quarter of 2024, once again benefiting from our diversified business model,” said Belén Garijo, Chair of the Executive Board and CEO of Merck. “We expect acceleration in the second half of the year, especially in Life Science, and thus a gradual return to organic growth for the Group in fiscal 2024.”
Life Science: Decline in first quarter against high comparables, in line with expectation of a softer first half of the year
Net sales of the Life Science business sector declined organically by 12.6% against the particularly high base of the first quarter of 2023. Foreign exchange had a negative impact of 1.2% on the sales development. Overall, sales of the business sector decreased by 13.8% to € 2,144 million in the first quarter of 2024. The main reason for this was the continued inventory destocking by customers of Process Solutions. Net sales of this business unit declined organically by 19.0%. As a positive signal, order income in Process Solutions increased sequentially as well as year-on-year. Merck expects customers to reach their target inventory levels by the end of the second quarter of 2024. However, due to the manufacturing and delivery times for products ordered by customers, this will significantly increase sales only in the second half of the year. In addition to inventory destocking, the phase-out of Covid-19-related demand was also a headwind for the business development of Life Science in the first quarter of 2024.
Compared with the high year-earlier figure, EBITDA pre of Life Science decreased organically by 30.3% and amounted to € 611 million. This was due, among other things, to the lower sales volume and the lower share of higher-margin products sold. The EBITDA pre margin of the business sector was 28.5%, a sequential increase against the 26.3% EBITDA pre margin in the fourth quarter of 2023.
Healthcare: Double-digit organic sales growth of “Wave 1” products, further supported by strong performance of established product portfolio
The Healthcare business sector performed strongly across all franchises in the first quarter of 2024 amid the market recovery in mainland China, where the year-earlier quarter had been adversely affected by the high rate of Covid‑19 infections.
Sales of Healthcare rose organically by 10.1%. Including negative foreign exchange effects of 2.6%, sales increased overall by 7.5% to € 2,048 million. The “Wave 1” products Bavencio (+14.2%) and Mavenclad (+12.2%) achieved double-digit organic sales increases. The oncology drug Erbitux delivered very strong organic sales growth of 19.3%, boosted by the softer year-earlier comparables in mainland China. Net sales of the Fertility (+7.7%) and Cardiovascular, Metabolism & Endocrinology (+4.2%) franchises also rose organically.
EBITDA pre of Healthcare went up organically by 28.3% to € 708 million, supported by the regaining of the exclusive worldwide rights to Bavencio and strong sales momentum. The EBITDA pre margin was 34.6%.
Electronics: Positive start to the year, full market inflection still expected in the second half of the year
Electronics delivered solid organic sales growth of 6.3%. This was particularly driven by Semiconductor Solutions, the sector’s largest business unit, which grew organically by 7.8%. The main reason for this was increased demand for certain semiconductor materials, for example materials used for leading-edge logic chips. However, Merck does not yet view this as a general inflection point, since demand in other end markets remained soft. The other two business units, Display Solutions (+4.2%) and Surface Solutions (+1.8%), also recorded organic sales increases. Amid negative foreign exchange effects of 3.2%, sales of the Electronics business sector rose overall by 3.1% to € 928 million.
EBITDA pre increased organically by 3.9% compared with the year-earlier quarter. Due to negative foreign exchange effects of 4.2%, the earnings development saw a slight decline by 0.3% to € 237 million overall. The EBITDA pre margin of Electronics was 25.5%.
Forecast for fiscal 2024: Qualitative guidance confirmed with Merck returning to organic growth
In fiscal 2024, Merck expects to return to organic sales and earnings growth for the Group. In particular, the company assumes the following development, in line with its qualitative guidance provided in March 2024:
- Net sales: in a range of € 20.6 billion to € 22.1 billion with organic growth of +1% to +5% and foreign exchange effects of ‑3% to 0%.
- EBITDA pre: in a range of € 5.7 billion to € 6.3 billion with organic growth of +1% to +7% and negative foreign exchange effects of ‑4% to ‑1%.
- EPS pre: € 8.05 to € 9.10.
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