Merck Profits Drop, Fall in Line With Analysts' Forecasts
Merck said fourth-quarter profit fell despite higher revenues as the drugmaker booked charges for restructuring, a large acquisition and increased legal reserves for painkiller Vioxx and osteoporosis drug Fosamax.
The stock traded lower Tuesday.
The Whitehouse Station, N.J. company reported earnings of 22 cents a share; income included charges of 7 cents a share for its ongoing restructuring plan and 21 cents a share for the December acquisition of Sirna Therapeutics.
Excluding charges, Merck posted income of 50 cents a share on sales of $6.04 billion. Analysts, on average, expected earnings of 50 cents a share on sales of $5.37 billion. In the year-ago period, the company reported earnings of 64 cents a share.
Deutsche Bank Securities analyst Barbara Ryan said Merck saw strong sales of key products and new drugs.
"In 2006, Merck raised guidance three times, and has handsomely executed on a strategy to, in our opinion, understate and overperform," she wrote in a research report Tuesday. "We expect the same for 2007, driven by cost cutting and continued strong sales of new products, namely Gardasil, and Januvia."
For 2007, Merck forecast adjusted earnings per share of $2.51 to $2.59 compared with analysts' consensus forecast of $2.60. The company said it remains on track to see annual earnings growth in the double digits over the next three years.
On the legal front, Merck said it currently faces about 27,400 lawsuits related to Vioxx. The company said it added $75 million to its Vioxx legal defense fund in the quarter, and $295 million for the year. The company pulled Vioxx from the market in 2004 on safety concerns.
Merck also said it allocated another $48 million to start a legal defense reserve for lawsuits alleging that Fosamax destroys bone in the jaw.
Deutsche Bank's Ryan said Merck looks well prepared to deal with its legal issues.
"While the uncertainty of the Vioxx litigation remains, we continue to believe that the costs will be paid out beginning several years from now, and that they will be at a level which is entirely manageable for Merck," she said.