Merck profit drops 28%; to cut 7,200 jobs
TRENTON, N.J. -- Drugmaker Merck & Co. said Wednesday it will slash 7,200 jobs as part of a new restructuring program that comes as its third-quarter profit plunged 28 percent, due to a hefty restructuring charge and flat sales.
The maker of allergy and asthma treatment Singulair and cervical cancer vaccine Gardasil said it will cut nearly 13 percent of its work force, including many executives, to lower overhead and become more competitive, in its second major restructuring in less than three years.
"It's not a reaction to our performance in 2008 or the economy," Chief Executive Richard Clark said in an interview. "I think it's a competitive advantage" to make the company leaner and more flexible.
Clark said 60 percent of the job cuts will come overseas -- a higher rate than in the December 2005 restructuring just wrapping up -- and cuts will affect workers in sales and marketing, manufacturing, administration and even research. He said spending on research, the company's future, won't be cut, but more will be shifted to basic-research collaborations at small companies and universities.
Three basic research centers will be closed -- in Seattle, Japan and Italy -- and the company is still evaluating which manufacturing plants will be closed in a few years as it outsources more "non-core manufacturing."
In afternoon trading, Merck shares were down $1.08, or 3.6 percent, at $28.89.
Whitehouse Station, N.J.-based Merck & Co. took a $612 million charge for restructuring, reducing net income for its third quarter to $1.09 billion, or 51 cents per share. That's down from $1.53 billion, or 70 cents per share, a year earlier.
The after-tax charge includes a $720 million pretax charge for the new restructuring program, much of it for severance costs, plus $127 million for the prior restructuring.
Excluding the $612 million charge, equal to 29 cents per share, earnings per share would have been 80 cents, 1 cent better than Wall Street expected.
"I don't think it's a stunner. I think it's more of what you'll see from all of these (pharmaceutical) companies," David Heupel, pharmaceuticals portfolio manager at Thrivent Large Cap Growth Fund, said of the new restructuring. "They're all looking for ways to grow their top line again but it certainly isn't as easy as cutting costs."
The company narrowed its 2008 earnings forecast, to $3.28 to $3.32 per share excluding one-time items, from April's forecast of $3.28 to $3.38.
