Bloomberg News

Merck KGaA Profit Beats Analyst Estimates on Cost Cuts

March 07, 2013

Merck KGaA (MRK) shares rose to a record after the German maker of cancer drug Erbitux forecast higher profit in 2013 and 2014 as accelerated cost cuts helped fourth- quarter profit beat analysts’ estimates.

Earnings before interest, taxes, depreciation and amortization excluding one-time items gained 16 percent to 789.8 million euros ($1 billion), the Darmstadt-based company said today in a statement. Analysts had predicted 768.9 million euros, the average of nine estimates.

Merck, which isn’t related to U.S. drugmaker Merck & Co., is cutting jobs and closing facilities following setbacks for some key medicines and declining sales of Erbitux. The company has a target to save 300 million euros by 2014 as it expands outside Europe, particularly in the U.S., Japan and China.

“We strengthened the quality of our operations across all divisions,” Chief Executive Officer Karl-Ludwig Kley said during an analyst call today. “2013 will be the year we will see most of our transformational changes bearing more fruit.”

The company now expects to save 385 million euros a year by 2018, compared with a previous forecast of 365 million euros due to a reorganization that has already begun in its pigments business. Merck said savings from the restructuring contributed 115 million euros in 2012, more than the 55 million euros the company had forecast. About two-thirds of the restructuring costs of 504 million euros were in the Merck Serono drug division.

Shares Gain

Merck rose 2.9 percent to close at 112.20 euros in Frankfurt, the highest price since the company’s 1995 initial stock sale. That gives the company a market value of 24.3 billion euros.

Merck said it expects Ebitda growth to outpace sales in 2013 and 2014 and forecast a “significant” rise in net income in both years. Sales excluding currency swings should grow at a moderate pace this year and next and the company doesn’t expect to start selling any new major products or technologies in its drug or chemicals businesses before 2015.

Full-year Ebitda of 2.96 billion euros beat the company’s forecast for 2.9 billion euros to 2.95 billion euros. Total revenue of 11.2 billion euros exceeded Merck’s goal of about 10.9 billion euros to 11 billion euros for the figure, which includes sales of 10.7 billion euros and royalties.

Higher Profit

Net income for the quarter more than doubled to 271.8 million euros from 132.9 million euros a year earlier due to one-time income tax effects and improvements from the restructuring.

“Merck reported an excellent set of figures above expectations, despite higher than expected one-offs,” Peter Spengler, an analyst with DZ Bank AG, wrote in a note to investors.

Total revenue for the quarter rose 8 percent to 2.83 billion euros, beating the 2.78 billion-euro average analyst estimate.

Revenue at Merck Serono rose 6.1 percent to 1.64 billion euros. Consumer health sales declined 5 percent to 121 million euros because of lower demand in Europe, the division’s biggest market. The company is reorganizing the unit and will close some sites.

Sales at the Merck Millipore equipment, ingredient and services division increased 8.1 percent to 653 million euros. The performance-materials unit, the world’s biggest maker of liquid crystals for flat-screen televisions and electronics, reported a sales increase of 21 percent to 416 million euros, benefiting from the stronger U.S. dollar.

Merck is closing the Geneva headquarters of its Merck Serono drug unit and transferring 750 employees elsewhere after halting work on its multiple sclerosis treatment cladribine. The company will also eliminate 1,100 positions in Germany by the end of 2015.

To contact the reporter on this story: Allison Connolly in Frankfurt at aconnolly4@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net


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