Merck & Co reported higher-than-expected first-quarter earnings, fueled by cost cutting and strong sales of its drugs for diabetes, asthma and rheumatoid arthritis.

The second-largest U.S. drugmaker said on Friday it earned $1.04 billion, or 34 cents per share. That compared with $299 million, or 9 cents per share, a year earlier, when it took a number of big charges and a tax expense related to U.S. healthcare reform.

Excluding special items, Merck earned 92 cents per share. Analysts on average expected 84 cents, according to Thomson Reuters I/B/E/S.

Merck said operating expenses were $350 million lower in the quarter, bolstering results, including $200 million less spending for research and development.

Overall, we are pleased with today's results, particularly coming off a difficult fourth quarter when the company withdrew its long-term guidance, JP Morgan analyst Chris Schott said.

Merck in February yanked its 2009 to 2013 profit forecast, rather than chop research and development spending to meet its longtime goal of high-single-digit annual growth over the period.

But on Friday, Merck slightly trimmed its full-year R&D forecast to between $8 billion and $8.4 billion, from its earlier view of $8.1 billion to $8.5 billion.

Even so, Merck is taking only a fingernail clipper to its research budget compared with the ax being wielded by rival U.S. drugmaker Pfizer, which is slashing its R&D budget by up to $2 billion to meet its 2012 profit forecast.

Merck's quarterly global sales of $11.58 billion topped the analysts' average forecast of $11.37 billion.

Its shares were up 0.8 percent at $36.05 in trading before the market opened.

The company expects earnings this year of $3.66 to $3.76 per share, excluding special items -- nudging up by 2 cents the lower end of its earlier estimate. That would reflect profit growth of 7 percent to 10 percent from 2010.

(Reporting by Ransdell Pierson; Editing by Lisa Von Ahn and Derek Caney)

Merck & Co.