Merck & Co. Inc. (Merck (MRK)) shares ticked up on Tuesday, and if you're scratching your head about why a company that just gutted its profit outlook would see its stock rise, you're not alone. The answer lies in the details of its second-quarter report, which showed the drugmaker beating expectations on revenue and posting a smaller-than-expected loss, all while absorbing a massive charge tied to a recent acquisition.

The company reported an adjusted loss of 13 cents per share, which sounds bad until you realize analysts were bracing for a loss of 27 cents. That narrower loss came despite a $2.31-per-share charge related to the Terns acquisition. Revenue climbed 5% year over year to $16.61 billion, edging past the consensus estimate of $16.36 billion.

"We continued to make substantial progress across our business this quarter, driven by strong execution and growing contributions from new product launches," Chairman and CEO Robert Davis said in a statement.

Key Drugs Drive Pharmaceutical Growth

The pharmaceutical segment brought in $14.76 billion in revenue, up 5% from a year earlier, fueled by growth in oncology and cardiometabolic and respiratory products, though weaker diabetes sales partially offset those gains.

Keytruda, the company's blockbuster cancer immunotherapy, generated $8.37 billion in global sales, up 5% year over year. Keytruda Qlex added another $463 million to the tally.

Animal Health revenue rose 8% to $1.77 billion, driven by growth across its Livestock and Companion Animal portfolios. HPV vaccines Gardasil and Gardasil 9 saw sales climb 4% to $1.17 billion, supported by stronger demand in Asia-Pacific and Europe and favorable tender timing in Europe, though softer demand in some international markets tempered the gains.

Winrevair, Merck's treatment for pulmonary arterial hypertension, posted sales of $588 million, a 75% jump from a year earlier.

Merck Raises Revenue Outlook, Cuts EPS Guidance

Here's where things get interesting. Merck lowered its fiscal 2026 adjusted earnings guidance to $2.66 to $2.76 per share, down from $5.04 to $5.16. The analyst consensus was $2.76 per share, so the midpoint lands right in line. The outlook includes charges of $2.43 per share related to the Terns acquisition, consisting of a one-time charge of $2.31 per share and roughly 12 cents per share in financing costs to complete the deal and advance MK-4208.

Meanwhile, the company raised its fiscal 2026 revenue outlook to $66.3 billion to $67.3 billion, up from $65.8 billion to $67.0 billion, versus the consensus estimate of $66.802 billion.

So why did the stock rise? Investors seem to be focusing on the revenue beat and the raised sales guidance, viewing the EPS cut as a one-time accounting hit rather than a sign of underlying weakness. The market often looks past non-recurring charges to the core business, and Merck's numbers suggest the core is holding up well.

At the time of publication on Tuesday, Merck shares were up 0.95% at $128.97.