Release Date: November 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Merck KGaA (MKGAF, Financial) achieved a strong Q3 with 4% organic growth at the group level, driven by all three sectors.
- Healthcare was the best-performing sector with 6% organic sales growth, supported by innovative franchises.
- Electronics showed organic sales growth of 2%, driven by semiconductor solutions with a 7% year-on-year growth.
- EBITDA pre increased by 12% to EUR1.618 billion, despite a 5 percentage point currency headwind.
- The company confirmed its 2024 sales and earnings target corridors, indicating confidence in future performance.
Negative Points
- Currency headwinds negatively impacted reported sales and EBITDA pre by 2% and 5%, respectively.
- Life Science Services experienced a 17% organic sales decline, impacted by high base comparisons.
- North America showed a slight organic sales decline of 0.6%, with life science sales slightly lower.
- The DS&S business in Electronics faced a decline due to project delays, impacting overall performance.
- Bavencio sales in Healthcare were slightly down due to increasing competition in the US market.
Q & A Highlights
Q: Can you provide insights on the life science margins and expectations for 2025?
A: Helene von Roeder, CFO, explained that pre-COVID margins were around 31%, and during COVID, they rose to 38%. The expectation is to return to somewhere within that range midterm. The more volume, the better the margins, and operational leverage should help improve margins. However, specific guidance for 2025 is not provided yet.
Q: What are the expectations for electronics sales growth in 2025?
A: Kai Beckmann, CEO of Electronics, stated that while specific 2025 guidance isn't available, the current trajectory suggests that electronics will be at the lower end of the new midterm guidance. The strong performance of semiconductor materials, driven by AI and advanced nodes, is expected to continue.
Q: How is the pharma R&D spending expected to evolve?
A: Peter Guenter, CEO of Healthcare, mentioned that R&D spending in Q4 will remain low due to the absence of major licensing deals. For 2025, a gradual recovery in R&D spending is expected, driven by internal pipeline developments in N&I and oncology, with external innovation potentially adding to this.
Q: Can you elaborate on the process solutions recovery by customer group?
A: Sebastian Arana, Head of Process Solutions, noted that CDMO and regional pharma accounts have recovered faster than originators. Emerging biotech has minimal impact due to low exposure. Overall, all major customer segments are showing positive order intake trends.
Q: What is the outlook for the semiconductor market recovery into 2025?
A: Kai Beckmann, CEO of Electronics, indicated that AI-related technologies will drive growth, with additional capacity and node transitions being key factors. A gradual recovery is expected in other areas like memory and analog, with AI continuing to be a significant growth driver.
Q: Why is there significant growth in process solutions in Europe compared to North America?
A: Sebastian Arana explained that Europe is leading the recovery due to earlier recovery in major customer segments. However, order intake is improving across all regions, and growth is expected to normalize in the coming quarters.
Q: What are your thoughts on the recent pimicotinib data and competitive dynamics?
A: Peter Guenter expressed satisfaction with the pimicotinib data, highlighting its differentiation in TGCT treatment. The competitive landscape includes pexidartinib, which has limitations, and pimicotinib shows superior potency and selectivity. The decision on exercising the option for global rights will be made in due course.
Q: How do you see the funding environment for science and lab solutions evolving?
A: Helene von Roeder noted that NIH funding is cautious but represents less than 10% of sales. The US pharma market shows temporary weakness, with more focus on development rather than research. The China market remains muted, impacting midterm growth expectations.
Q: What is the outlook for process solutions order progression into 2025?
A: Sebastian Arana stated that order intake is improving sequentially, and 2025 is expected to be a normal growth year for process solutions. The destocking effect is largely over, and order patterns are returning to normal, supporting confidence in 2025 growth.
Q: Can you comment on the stabilization timeline for the display business beyond 2025?
A: Kai Beckmann mentioned that from 2025 onwards, growth is expected to resume, driven by increased revenues from OLED and display patterning, offsetting the decline in liquid crystals. The recent acquisition of Unity-SC is not yet included in the guidance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
