(Bloomberg) -- Merck KGaA said it will probably only reach the lower half of its annual sales guidance range amid a delayed recovery in the wider semiconductor materials market.
While the German group confirmed its outlook for the year, it specified that annual sales are trending around the lower half of the range and adjusted earnings before interest and taxes around the mid-point, according to a statement Thursday.
Shares fell as much as 2.38% in Frankfurt, the most intra-day in nearly two months. The stock had gained 5.17% this year through Wednesday’s close.
The drug-to-semiconductor company targets a return to growth this year after suffering a post-pandemic slowdown. At the core of this is a recovery for its life science unit, which dipped last year as its boom from components for Covid tests and vaccines ended. Now that most customers emptied their excess inventories, Merck expects demand for drug delivery compounds to pick up again.
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Merck said sales in its life science division returned to organic growth for the first time since the beginning of 2023, reflecting a gradual improvement in order intakes. But the results for the unit missed the average analysts’ estimate for both sales and adjusted earnings before interest and taxes.
Similarly, Merck’s electronics business posted another quarter of profitable growth, driven by strong demand for semiconductor materials for AI applications and advanced nodes. However, the wider market has yet to see a recovery, the company said, disappointing analysts who anticipated a stronger boost this quarter.
“The strong demand for semiconductor materials for AI applications and advanced nodes did not fully compensate for the sluggish recovery of the rest of the semiconductor material market and customer projects delayed,” Morgan Stanley analysts led by Thibault Boutherin said in a note.
Its health care business stood out with a jump in earnings, thanks to multiple sclerosis medicine Mavenclad and cancer drug Erbitux, as well as lower research and development expenses. But the company is under pressure to find new growth drivers after some recent high-profile drug failures and rising competition for its cancer treatment Bavencio in North America.
Overall, third-quarter adjusted earnings before interest and taxes reached €1.62 billion ($1.7 billion), exceeding analyst expectations.
Merck is based in Darmstadt, Germany, and is unaffiliated with the US-based Merck & Co.
--With assistance from Lisa Pham.
(Updates with more details, and market reaction in the third paragraph.)
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