Merck profits drop less than analysts’ expectations after job cuts savings

MERCK, set to buy rival Schering-Plough, said profit dropped less than analysts expected on savings from job cuts, boosting the shares in before-market trading.

Second-quarter net income fell 12% to $1.59 billion (€2bn), or 74 cents a share, New Jersey-based Merck said. Excluding items, the company said it earned 83 cents a share, exceeding the 77-cent estimate of 12 analysts surveyed by Bloomberg.

Revenue dropped 2% to $5.9bn, the company said. Chief executive Richard T Clark aims to reverse the sales decline partly by spending about $44bn to buy Schering-Plough for its experimental treatments.

Clark also is in the process of firing more than 7,000 workers to reduce costs. Merck is looking to spur sales of its vaccines, which suffered in previous quarters from manufacturing interruptions and weakness in Gardasil demand.

“The benefits of their restructuring programs are significant contributors,” said Barbara Ryan, an analyst with Deutsche Bank, in a telephone interview. “They’ve been doing a lot of restructuring so their gross profits were better than we’d forecast, though notdramatically so.”

And Schering-Plough, which agreed in March to be bought by Merck, said net income increased 45% on sales of the Nasonex nasal allergy inhaler and the Remicade rheumatoid arthritis treatment.

Net income in the second quarter rose to $671m (€472m), or 38 cents a share, from $462m, or 26 cents, a year earlier, Schering-Plough said. Excluding certain items, Schering-Plough’s earnings per share were 46 cents, beating the 45 cents average estimate of 12 analysts surveyed by Bloomberg.

Schering-Plough’s revenue fell 5.6% to $4.65 bn because of the increasing value of the dollar oversees.

“About 70% of Schering-Plough’s revenue resides outside of the US and consequently is heavily influenced by the negative impact of foreign exchange,” said Tony Butler, an analyst with Barclays Capital in New York in a report before the release of earnings.

Revenue was reduced 10 percentage points because the rising US dollar cut the value of foreign sales, the company said.

Nasonex sales increased 3.2% to $321m. Sales of Remicade increased 1.4% to $565m in the quarter.

Sales of cholesterol products, including Vytorin and Zetia, fell 8% to $1.1bn. Vytorin combines Zetia with Merck’s Zocor in one pill. Schering-Plough shares revenue of both pills with Merck.