Investor Alert

Oct. 24, 2007, 5:23 a.m. EDT

Merck KGaA third-quarter net falls on Serono costs

Watchlist Relevance

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

or Cancel Already have a watchlist? Log In

By Julia Mengewein

(Adds detail and analyst comment.)

FRANKFURT (MarketWatch) -- German pharmaceuticals and chemicals company Merck KGaA (MRK.XE) Wednesday reported a 75% fall in third-quarter net profit, due to costs related to the acquisition last year of Swiss biotech company Serono.

Net profit, including continued and discontinued operations, reached EUR36.2 million, down from EUR144.3 million a year earlier when the figures included generics - sold this month to Mylan Laboratories Inc. for EUR4.9 billion - but not Serono.

However, the figure was well above analysts' expectations of EUR11 million.

Still, at 0740 GMT, Merck shares were trading down 1.2%, or EUR1.10, at EUR87.90, underperforming a slightly weaker overall market.

Merck Finck & Co. analyst Carsten Kunold said the figures were largely in line with his estimates.

"Restructuring costs came in a tad below expectations, which led to a higher-than expected net profit," he said. However, sales fell a little short of his estimate. He added he sees no reason to change his buy reccommendation or EUR110 price target.

Sales for the July-through-September period rose to EUR1.67 billion, from EUR1.08 billion a year earlier, mainly helped by the consolidation of Serono and strong sales growth for Rebif - its best-selling drug - and Erbitux.

Merck said it will book proceeds from the sale of its generics unit in the fourth quarter.

Merck's return on sales, a key indicator for the company's financial performance, came in at 16.7% versus 17.3% in the year-earlier quarter.

Darmstadt-based Merck said it booked EUR36 million in restructuring costs in the third quarter and EUR140 million for the amortization of intangible assets, which will continue to weigh on operating profit for several years. Operating profit still rose 56% to EUR291.5 million, the company said.

Earnings before interest and taxes slipped 29% to EUR108.2 million due to EUR183 million in charges, mainly stemming from further purchase price allocations related to Serono inventories. A purchase price allocation of a similar amount will be booked for the last time in the forth quarter.

Both generics and Serono were excluded from the year-earlier figures Merck provided for sales, EBIT and operating profit.

Sales of the company's Liquid Crystals operations rose 15% to EUR238 million, but was seriously impacted by negative currency effects, Merck said.

Return on sales of the highly profitable liquid crystals operations was 50.1% compared 50.3% a year ago.

Sales for multiple sclerosis treatment Rebif - part of the Serono pipeline - increased 4.1% to EUR306 million, while Erbitux' sales were boosted by 36% to EUR118 million in the third quarter.

The company specified its sales guidance and now sees organic sales growing between 7% and 9% on a currency neutral basis and including pro forma Serono sales. However, the company also said that currency effects are having a major impact on 2007 earnings. Including currency effects, Merck expects full-year sales to grow by 4% to 6%.

Merck said it still expects 2007 operating profit to increase by more than 20%.

The company said its research and development pipeline will now focus on oncology, neurodegenerative diseases, autoimmune and inflammatory diseases, fertility and certain areas in the development of endocrinology. It said it is considering dropping investment in diabetes R&D, but is looking into partnerships for existing projects in this field.

-Contact: 201-938-5400

This Story has 0 Comments
Be the first to comment
More News In

Story Conversation

Commenting FAQs »

Partner Center

World News from MarketWatch

Link to MarketWatch's Slice.