Watson Pharmaceuticals


shares dropped Monday after the company warned that earnings and revenue will miss analysts' expectations, while announcing an extensive restructuring to get its business back on track.

Watson warned Monday morning that earnings and revenue will come in below second-quarter estimates due to lower-than-expected sales of oral contraceptives. As a result, Watson said that second-quarter earnings would come in between 39 and 41 cents a share, well below the current Wall Street estimate of 51 cents a share, on approximately $400 million in revenue, also lower than the $414.4 million expected by analysts.

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The company's shares tanked before the open Monday, falling $2.79, or 8.6%, to $29.50.

On a net basis, Watson's second quarter will be even worse than expected. Including $13 million in charges related to debt repayments and milestone payments, the company said it would earn between 31 and 33 cents a share. This would be the second straight year of falling net EPS. In 2003, the company had second-quarter net income of 47 cents a share and earnings of 56 cents a share in the same period of 2002.

For the fiscal year, Watson said that it would earn between $1.85 and $1.90, excluding charges, on $1.6 billion in revenue, which is also well below the Wall Street estimate of earnings of $2.14 a share on $1.7 billion in revenue. On a net basis, the company said it would earn between $1.69 and $1.74 a share.

To combat the earnings slide, Watson plans to extensively restructure and refocus the company, concentrating on urology, nephrology and generics. By focusing on the three areas and eliminating noncore products, streamlining operations and shuttering manufacturing plants, the company said it can cut costs between $80 million and $90 million annually.

"We remain confident in our current and long-term opportunities," said Allen Chao, chairman and CEO of the company. "We will continue to invest in our future, increasing research and development approximately 30% in 2004 as compared to 2003."

One of the losers in Watson's planned restructuring will be

Ventiv Health


, which had been contracted to sell some of Watson's products in primary care markets. With sales of Watson's Oxytrol bladder-control treatment starting to dip, the company terminated its contract with Ventiv.

Ventiv shares were also lower before the bell, dropping 37 cents, or 2.2%, to $16.70.