Merck Moves Fall Flat
Risks still "outweigh solid prospects," leading Scala to predict that Merck's stock will be weak for the next 12 to 18 months. His report says Scala or members of his research team or members of their households own Merck shares. His firm doesn't issue stock ratings, but it does and seeks to do business with companies covered in its research reports.
About half of the 7,000 job cuts will be in the U.S. In addition to shedding five factories, Merck will reduce operations at other facilities, close a basic research site, and shutter two preclinical development sites. The sites will be closed by the end of 2008.
Clark declined to say how many job cuts would come from manufacturing and how many would come from other divisions. He said the restructuring "does not indicate a decline in commitment to research."
Clark said the restructuring was a response to increased competition, cost containment pressures and a desire to "enhance our competitiveness over the long-term." He was joined in a telephone conference call by Judy C. Lewent, the chief financial officer, and Willie A. Deese, president of Merck's manufacturing division. Clark was the manufacturing chief prior to being named CEO.Deese didn't immediately identify the facilities that would be closed or subject to reduced activity. He said executives will spend the next two days talking to employees at the affected plants. Lewent reiterated that the dividend is secure, even with the restructuring. "Cash flow production remains strong," and it "supports maintenance of the dividend at current levels," she said. Merck maintained its previous forecast for 2005 earnings of $2.47 to $2.51 a share, excluding the latest restructuring and other charges. Analysts surveyed by Thomson First Call were expecting an EPS of $2.50. The Whitehouse Station, N.J., drugmaker says its estimates exclude the establishment of any reserves for potential liabilities stemming from Vioxx lawsuits. The company previously set aside $675 million to cover the cost of litigation for the arthritis treatment and pain reliever that Merck pulled from the market in September 2004 amid concerns about cardiovascular risks.
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