Merck & Co., Inc. Q2 FY26 Earnings Analysis

- Process Solutions expects normalized underlying growth around 10% post exceptional Q1 effects; some stocking effects may persist into Q2 but will lessen in H2 2026 (Page 7, 10, 14). - Healthcare R&D spend targets gradually increasing from ~21% to around 25%, supporting midterm growth beyond 2030 (Page 10). - Fertility business aims for mid-single-digit growth midterm, with stabilization and improved momentum expected from Q2 2026 onward after previous pricing headwinds (Page 13). - CME franchise targets mid-single-digit organic growth in 2026, with stronger performance anticipated in H2 (Page 13). - Life Sciences & Electronics expected to be well on track with midterm guidance; growth acceleration visibility improving for 2027 and beyond (Page 9, 10). - Strategic M&A focused on early- and mid-stage pipeline strengthening to sustain growth (Page 7, 9). - Midterm guidance and growth ambitions remain unchanged with confidence in solid order books and healthy customer demand (Page 7, 14).

- Merck expects underlying growth for Process Solutions to normalize around 10% midterm (Page 7, 10). - Healthcare aims to increase R&D spend from ~21% to around 25% gradually, maintaining EBITDA pre-margin above 30% (Page 7). - Midterm guidance for CME (part of Healthcare) anticipates mid-single-digit organic growth from 2026 onward, with second half 2026 expected to improve (Page 13). - Fertility segment targets mid-single-digit growth midterm, with stabilization and improved momentum expected for Gonal F post-Q2 2026 price cut annualization (Page 13). - The company remains confident in midterm growth targets, with guidance raised after a strong Q1 2026 performance and more visibility on macro trends (Page 1, 6). - EBITDA pre margin for Q1 was high at 35%, but expected to be lower for the rest of 2026 due to launch investments and U.S. margin pressures (Page 3).

- Merck is strategically focusing on building platform capabilities to enhance collaboration across businesses, which supports scalability and speed in implementation. - The company is increasing R&D investments, particularly in ramping up extensive Phase III programs, aiming for an R&D-to-sales ratio approaching 25% in the midterm while maintaining EBITDA margin above 30%. - M&A and in-licensing are key growth levers across all businesses, with a broadened scope targeted at strengthening product offerings and accelerating integrated solutions, especially in early to mid-stage healthcare pipeline development. - Investments are planned to shift product portfolios towards integrated workflow solutions, expanding beyond stand-alone products to end-to-end integrated offerings in areas like bioprocessing and advanced electronics. - The strategy includes disciplined portfolio management and sourcing of innovation to unlock growth and value creation progressively, supporting midterm guidance while preparing for longer-term impact. - No specific capital expenditure figures disclosed; however, the emphasis is on targeted strategic and innovation-driven investments.

- The transcript does not explicitly mention any current or planned new fundraising through debt or equity. - There is no direct reference to issuing new shares or raising debt in the Q&A or management commentary. - The balance sheet update on page 3 notes an increase in net equity driven by profit and other comprehensive income, but this reflects operational performance, not new equity issuance. - Cash flow statements show increased operating cash flow and higher investing cash flow, with no mention of financing activities related to new fundraising. - Management discusses strategic investments, M&A, and pipeline investments funded through existing resources while maintaining EBITDA margins above 30%, implying internally funded growth rather than external fundraising. - Any future fundraising plans are not disclosed and might be communicated in upcoming updates or dedicated events next year.

- The order book for Process Solutions is described as very solid and strong. - The book-to-bill ratio is noted to be far above 1, indicating more orders pending than shipped. - There is strong visibility into the order book through detailed reports that slice by customer, region, product type, and order timing (0-1 month, 1-3 months, etc.). - Exceptional factors influenced Q1 orders, such as operational efficiency, new customer projects, and stocking by APAC customers. - Some exceptional effects may persist in Q2 but will lessen in the second half of the year. - The normalized underlying growth rate is expected to return to around 10%. - Overall confidence remains high for the full-year and medium-term outlook, with no indication of a sudden drop in order book strength.