UPDATE 2-Merck 1st-quarter profit tops estimate, but revenue misses

Tue Apr 29, 2014 2:38pm EDT

(Adds analyst comment, details on lower costs, shares)

April 29 (Reuters) - Merck & Co Inc reported better-than-expected quarterly earnings, helped by sharply lower research spending and asset sales, but revenue came in slightly below expectations.

The No. 2 U.S. drugmaker, whose shares rose 3 percent, said on Tuesday it earned $1.70 billion, or 57 cents per share, in the first quarter. That compared with $1.59 billion, or 52 cents, in the year-earlier period.

Excluding special items, Merck earned 88 cents per share, well above the average analyst estimate of 79 cents compiled by Thomson Reuters I/B/E/S.

Merck's global revenue fell 4 percent to $10.26 billion, hurt by generic competition for its Singulair treatment for allergy and asthma. Wall Street expected $10.44 billion.

Merck said it slashed its research spending by 20 percent in the quarter to $1.5 billion, as it scrapped work on experimental medicines no longer part of its main research focus or deemed to have limited commercial potential.

Marketing and administrative expenses fell 8.5 percent to $2.73 billion, also bolstering results.

"Although the revenues were lighter than expected, Merck continues to impress with prudent expense management, particularly in research and development," said BMO Capital Markets analyst Alex Arfaei.

Arfaei said it remains to be seen, however, how the cuts will ultimately affect the pace of drug development.

Merck is expected to soon announce the sale of its consumer healthcare products unit. Its sales fell 4 percent to $546 million in the quarter, hurt by a shortened allergy season in North America.

Merck reaffirmed it expects earnings this year of $3.35 to $3.53 per share, excluding special items. (Reporting by Ransdell Pierson; Editing by Jeffrey Benkoe and Chizu Nomiyama)