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Weak Outlook From Watson

Fourth-quarter earnings miss analysts' estimates.

Watson Pharmaceuticals


on Tuesday offered 2007 revenue and earnings predictions that fell below Wall Street's expectations.

The Corona, Calif.-based company issued this year's guidance as it reported fourth-quarter results, in which earnings missed analysts' estimates. Sales beat the consensus view.

Despite analysts' predictions, Allen Chao, the chairman and CEO, said Watson is a "much stronger company than a year ago," thanks primarily to the

acquisition of generic-drugmaker Andrx late last year.

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For the three months ended Dec. 31, Watson earned 25 cents a share, excluding one-time items, on revenue of $621.2 million. Analysts polled by Thomson First Call expected a profit of 28 cents and revenue of $599 million.

The Andrx acquisition brought along big one-time charges, and that's why Watson reported a fourth-quarter GAAP loss of $489 million, or $4.80 a share. For the same period in 2005, Watson earned $20.1 million, or 19 cents a share, on revenue of $418.8 million.

Andrx-related charges amounted to $510 million, and there were $13.6 million in other one-time charges.

For this year, Watson predicted earnings of $1.20 to $1.30 per share, excluding special items. The consensus is $1.40. Watson said sales would be $2.5 billion to $2.6 billion, below the analyst target of $2.81 billion.

Although Watson specializes in generic drugs, it also derives revenue from brand-name products and, thanks to Andrx, the distribution of drugs. Last year, generic drugs contributed $1.52 billion, up from $1.25 billion in 2005. Brand-name drugs produced $369.5 million, down from $399.3 million in 2005. Distributed products added $93 million in sales last year.

For the upcoming year, Watson predicted generic-drug sales of $1.5 billion to $1.63 billion, brand-name sales of $380 million to $400 million and distributed-product sales of $575 million to $615 million.

Watson announced its financial results after markets had closed. In regular trading, the stock ended at $28.07, down 34 cents, or 1.4%.