Merck Posts Flat Earnings, to Cut 4,400 Jobs

October 22, 2003
By Jed Seltzer

NEW YORK, Oct 22 (Reuters) - Drugmaker Merck & Co. Inc. on Wednesday posted roughly flat third-quarter earnings, falling short of expectations, and said it would cut 4,400 jobs to reduce costs.

Merck also announced a new drug distribution plan and said that the new plan and the cost of the job cuts would cause its full-year earnings to fall short of Wall Street estimates.

Merck, a component of the Dow Jones industrial average, is on track to post its second year of no earnings growth, as its research labs fail to produce major new drugs to offset slowing sales growth of its existing medicines, due in part to stiff generic competition.

Shares of Merck fell nearly 4 percent in electronic trading before the market opened.

Quarterly sales rose just 6 percent to $5.76 billion in the quarter, shy of the average forecast of $5.87 billion among analysts polled by Reuters Research, a unit of Reuters Group Plc.

In a move to reduce costs, Merck said plans to cut about 3,200 positions, or about 5 percent of its full-time work force, as well as 1,200 contract or temporary employees. The move comes as economic analysts are examining whether employers will hire more workers as part of an economic recovery that has so far lacked significant job growth.

The job cuts will generate about $250 million to $300 million of annual savings in payroll and benefits costs.

Merck also said it plans to implement a new drug distribution program to get a better handle on drug inventories by limiting the amount of medicines wholesalers can buy. The move will hurt revenues by about $650 million to $750 million in the fourth quarter and reduce earnings per share from continuing operations by about 18 cents to 21 cents per share in the period.

"Our sales going forward will more accurately match the actual demand," said a Merck spokesman.
The company warned the job cuts and the new sales method will result in 2003 earnings of $2.90 to $2.95 per share. The current estimate is $3.25 per share, according to Reuters Research.
In the 2002 full year, Merck reported net income of $3.14 a share.

The company, based in Whitehouse Station, New Jersey, reported third-quarter earnings of $1.86 billion, or 83 cents per share, compared with $1.88 billion, or 83 cents per share, a year ago. Excluding the operations of Medco Health SolutionsInc., which Merck spun off this summer, profit rose nearly 6 percent.

Analysts on average expected the company to earn 85 cents per share, according to Reuters Research, a unit of Reuters Group Plc.

Sales of arthritis medication Vioxx, originally meant to salvage the company after several older drugs lost patent protection, fell 32 percent in the period to $510 million.

Sales of cholesterol medicine Zocor, Merck's top-selling drug, slipped 2 percent to $1.41 billion. That stands in stark contrast to Pfizer Inc.'s (nyse: PFE - news - people) rival cholesterol drug Lipitor, which saw sales rise 22 percent in the quarter.

Copyright 2003, Reuters News Service

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