Earnings Preview: Merck & Co. to report 1Q results
Merck & Co., a Dow component and the world's second-biggest drugmaker, reports its first-quarter results before the stock market opens Tuesday.
WHAT TO WATCH FOR: Progress in integrating longtime partner Schering-Plough Corp., which Merck bought in November for $41 billion, likely will top the agenda, after the financial results are discussed and executives provide an eagerly awaited profit forecast for this year.
The megadeal brought needed depth to Merck's weak pipeline of future drugs, a profitable consumer health business and a biologic drugs unit, among other benefits. The combination also allows the company to slash costs, including closing some plants and cutting more than 15,000 jobs. The two New Jersey companies had a total of about 106,000 employees a year ago and the combined company was down to about 100,000 in December.
Whitehouse Station-based Merck may give an update on four drugs — three developed by Schering — awaiting regulatory approval, for asthma, schizophrenia, contraception and irregular heartbeat. It may give information on the success of its recent European launch of Elonva, a fertility treatment given in weekly rather than daily shots. But executives won't discuss the 43 experimental drugs in mid-or late-stage testing in depth because they've scheduled a full-day briefing with analysts for May 11.
Analysts likely will ask for more details on the impact of the U.S. health care overhaul. On April 23, Merck said the overhaul will reduce its revenue by about $170 million this year and roughly double that amount next year — less than the impact some rivals have reported.
Analysts also are likely to question company executives about the potential financial impact of an April 27 Supreme Court ruling allowing many Merck investors to sue together in a class-action over the company's withdrawal of Vioxx. Shareholders lost a combined $28 billion when Merck stock plunged overnight after the company pulled the painkiller from the market on Sept. 30, 2004, because it doubled the risk of heart attacks, strokes and death. Lawyers for investors claim Merck concealed the pill's risks.
In March, a New Jersey judge approved and Merck entered a settlement to end another group of shareholder lawsuits, brought against executives and board members, by agreeing to make multiple governance changes, including appointing two committees and a chief medical officer to monitor drug safety and keep the company honest.
During the second quarter, Merck is expected to make final payouts to former Vioxx users or their survivors under the $4.85 billion settlement to end roughly 50,000 personal injury lawsuits.
WHY IT MATTERS: Investors will want to see what the Schering-Plough deal has brought them, making details on integration of the two companies and the first profit forecast for 2010 key pieces of information.
The first-quarter results likely will set a floor for the rest of the year, as Merck and the Schering-Plough unit both market products that traditionally sell better in the later quarters, including allergy and other respiratory medicines and kids' vaccines recommended or required for school attendance.
WHAT'S EXPECTED: Analysts surveyed by Thomson Reuters expect, on average, earnings per-share of 75 cents and revenue of $11.18 billion.
LAST YEAR'S QUARTER: Merck reported profit of 67 cents per share on revenue of $5.4 billion.