Merck to cut 7,000 jobs, slash costs
Each time I see stories like this I wonder where those job gains are coming from. Are they really equal jobs or just a bunch of minimum wage jobs in a fast food place. I mean I've found 123,150 lost jobs and I'm not even looking that hard. I could probably double it if I use Google Alerts or spent some time looking.
Namaste,
Brian
iWon Money & Investing
Monday November 28, 2:42 PM EST
By Edward Tobin and Ransdell Pierson
NEW YORK (Reuters) - Merck & Co. Inc. on Monday said it will cut 7,000 jobs and close five plants to save up to $4 billion in costs by 2010, but shares fell on disappointment at the scope of the measures and their limited ability to help earnings next year.
Merck said its profit next year will fall at least 4.4 percent, hurt by the mid-year patent expiration in the United States on its Zocor cholesterol fighter.
Shares of Merck were down over 4 percent in afternoon trading.
Zocor had third-quarter U.S. sales of $770 million, but they are expected to tumble once generic forms of the drug become available, hurting overall company profit margins.
Still, Merck said the first steps of its restructuring would help restore current profit margins by 2008.
Merck said it expects the initial phase of the cost- reduction program to yield cumulative pretax savings of $3.5 billion to $4 billion from 2006 through 2010.
The company's new chief executive officer, Richard Clark, gave fewer details about the restructuring on a conference call than some analysts wanted, including whether most of the job cuts would come from its manufacturing work force or the research staff.
Deutsche Bank analyst Barbara Ryan said the cost savings were somewhat less impressive than the $4 billion-a-year in savings Pfizer Inc. hopes to achieve by 2008 to revive its own sluggish earnings.
By contrast, she speculated that Merck, which is half Pfizer's size, could attain annual cost savings of perhaps $1.5 billion by 2010 through the initiatives.
"The restructuring is not heroic by any stretch of the imagination," Ryan said.
Asked about the negative Wall Street reaction to his initiatives, Clark said: "I can tell you that reducing the work force by 11 percent, removing $4 billion of ongoing costs from the system and coming up with a new business model to me seems pretty competitive."
Clark declined to predict when Merck would again post its traditional robust annual earnings growth, which has ranged in the high-single-digit and double-digit percentage range.
Tony Butler, an analyst with Lehman Brothers, said he expects the restructuring to be followed by broader Merck initiatives, including a possible narrowing of the company's research focus from dozens of diseases to perhaps as few as 12.
Merck, which has already struggled with patent expirations of other key drugs and ongoing litigation over the withdrawal last year of its Vioxx pain medicine, said the job cuts would reduce its work force 11 percent globally by 2008.
The moves are among the first by Clark, who took the helm of the Whitehouse Station, New Jersey-based company in May and pledged to increase cost-cutting efforts at Merck.
"It certainly looks like Clark is willing to make tough decisions," said A.G. Edwards analyst Albert Rauch. "I think eliminating 11 percent of the company is a big, major step for them. It will be really hard to maintain the corporate culture with so many positions being eliminated."
Merck saw $25 billion in market capitalization wiped away last year when it withdrew Vioxx from the market after determining long-term use of the drug increased the risk of heart attack and stroke.
The withdrawal of $2.5 billion-a-year Vioxx sparked thousands of lawsuits, increasing company costs at a time when Merck was facing stiff competition for its key medicines from cheaper generics.
About $2 billion of cost savings from the restructuring will result from a new supply strategy at its manufacturing division.
Merck sees about half of its planned job cuts in the United States and said it will also close one basic research site and two preclinical development sites by the end of 2008, subject to compliance with legal obligations.
The pretax costs of the restructuring are expected to be $350 million to $400 million in 2005 and $800 million to $1 billion in 2006.
The company forecast full-year 2005 earnings per share in a range of $2.47 to $2.51 excluding charges, and net earnings of between $2.04 and $2.10.
For 2006, Merck forecast a profit per share of $2.28 to $2.36, including about a 7 cent-per-share impact from stock option expensing but excluding restructuring charges. On a net basis, it sees a profit per share of $1.98 to $2.12.
Before the announcement, analysts, on average, were expecting the company to earn $2.50 per share in 2005 and $2.38 per share in 2006, excluding special items, according to Reuters Estimates.
Shares of Merck fell $1.39 to $29.59 on the New York Stock Exchange.
?2005 Reuters Limited.
Namaste,
Brian
iWon Money & Investing
Monday November 28, 2:42 PM EST
By Edward Tobin and Ransdell Pierson
NEW YORK (Reuters) - Merck & Co. Inc. on Monday said it will cut 7,000 jobs and close five plants to save up to $4 billion in costs by 2010, but shares fell on disappointment at the scope of the measures and their limited ability to help earnings next year.
Merck said its profit next year will fall at least 4.4 percent, hurt by the mid-year patent expiration in the United States on its Zocor cholesterol fighter.
Shares of Merck were down over 4 percent in afternoon trading.
Zocor had third-quarter U.S. sales of $770 million, but they are expected to tumble once generic forms of the drug become available, hurting overall company profit margins.
Still, Merck said the first steps of its restructuring would help restore current profit margins by 2008.
Merck said it expects the initial phase of the cost- reduction program to yield cumulative pretax savings of $3.5 billion to $4 billion from 2006 through 2010.
The company's new chief executive officer, Richard Clark, gave fewer details about the restructuring on a conference call than some analysts wanted, including whether most of the job cuts would come from its manufacturing work force or the research staff.
Deutsche Bank analyst Barbara Ryan said the cost savings were somewhat less impressive than the $4 billion-a-year in savings Pfizer Inc. hopes to achieve by 2008 to revive its own sluggish earnings.
By contrast, she speculated that Merck, which is half Pfizer's size, could attain annual cost savings of perhaps $1.5 billion by 2010 through the initiatives.
"The restructuring is not heroic by any stretch of the imagination," Ryan said.
Asked about the negative Wall Street reaction to his initiatives, Clark said: "I can tell you that reducing the work force by 11 percent, removing $4 billion of ongoing costs from the system and coming up with a new business model to me seems pretty competitive."
Clark declined to predict when Merck would again post its traditional robust annual earnings growth, which has ranged in the high-single-digit and double-digit percentage range.
Tony Butler, an analyst with Lehman Brothers, said he expects the restructuring to be followed by broader Merck initiatives, including a possible narrowing of the company's research focus from dozens of diseases to perhaps as few as 12.
Merck, which has already struggled with patent expirations of other key drugs and ongoing litigation over the withdrawal last year of its Vioxx pain medicine, said the job cuts would reduce its work force 11 percent globally by 2008.
The moves are among the first by Clark, who took the helm of the Whitehouse Station, New Jersey-based company in May and pledged to increase cost-cutting efforts at Merck.
"It certainly looks like Clark is willing to make tough decisions," said A.G. Edwards analyst Albert Rauch. "I think eliminating 11 percent of the company is a big, major step for them. It will be really hard to maintain the corporate culture with so many positions being eliminated."
Merck saw $25 billion in market capitalization wiped away last year when it withdrew Vioxx from the market after determining long-term use of the drug increased the risk of heart attack and stroke.
The withdrawal of $2.5 billion-a-year Vioxx sparked thousands of lawsuits, increasing company costs at a time when Merck was facing stiff competition for its key medicines from cheaper generics.
About $2 billion of cost savings from the restructuring will result from a new supply strategy at its manufacturing division.
Merck sees about half of its planned job cuts in the United States and said it will also close one basic research site and two preclinical development sites by the end of 2008, subject to compliance with legal obligations.
The pretax costs of the restructuring are expected to be $350 million to $400 million in 2005 and $800 million to $1 billion in 2006.
The company forecast full-year 2005 earnings per share in a range of $2.47 to $2.51 excluding charges, and net earnings of between $2.04 and $2.10.
For 2006, Merck forecast a profit per share of $2.28 to $2.36, including about a 7 cent-per-share impact from stock option expensing but excluding restructuring charges. On a net basis, it sees a profit per share of $1.98 to $2.12.
Before the announcement, analysts, on average, were expecting the company to earn $2.50 per share in 2005 and $2.38 per share in 2006, excluding special items, according to Reuters Estimates.
Shares of Merck fell $1.39 to $29.59 on the New York Stock Exchange.
?2005 Reuters Limited.
posted by Brian | 3:08 PM
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