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Merck meets 1Q forecast
April 20, 2001: 11:51 a.m. ET

Drugmaker's 28% sales rise lifts profit; 2001 earnings forecast affirmed
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NEW YORK (CNNfn) - Merck & Co. posted improved first-quarter earnings Friday on strong sales of its most popular drugs, meeting Wall Street expectations, and saying it remains comfortable with analysts' estimates for the full year.

The nation's No. 2 drugmaker, based in Whitehouse Station, N.J., earned $1.7 billion, or 71 cents a diluted share, in line with forecasts of analysts surveyed by earnings tracker First Call. The company earned $1.5 billion, or 63 cents a share, in the year-earlier period.

Sales rose 28 percent to $11.3 billion from $8.9 billion a year earlier.

The company also said it is comfortable with its full-year earnings per share guidance of $3.15 to $3.25. First Call's forecast calls for $3.21 in full-year EPS.

Yet the Dow component's shares fell nearly 5 percent in early trading after Merrill Lynch downgraded the stock to "Neutral" from "Accumulate," saying it sees strong future growth, but nothing to suggest it will outperform expectations. However, Merrill said its long-term rating on the company remains "Accumulate."

"The overall thesis for our downgrade is that this is a market environment in which defensive growth names like Merck need either strong pipeline catalysts to help drive news flow, or an accelerating earnings growth pattern going forward," Merrill Lynch Analysts Steve Tighe said in a research note Friday. "At this time Merck is in a bit of a lull with respect to both and expects earnings growth rates for the quarters remaining this year to be lower than that delivered this quarter."

Another analyst expressed concerns that its managed care prescription drug business, Merck-Medco, could prove a drag on future profit.

"Basically, Medco continues to trash Merck's margin. There was massive decline in Merck's gross margin in the first quarter," Mike Krensavage, a senior analysts with Raymond James, told Reuters news service Friday. "It's just the way it goes if you're adding lower margin Medco sales at a faster rate. It deteriorates your total gross margin."

Sales of Merck's core human health drugs were the main driver of sales in the quarter, rising 8 percent from a year earlier, the company said, combined with strong sales in the Merck-Medco business. However, as analysts pointed out, margins at Merck-Medco, the amount of profit made from each individual sale, were lower.

Sales of the cholesterol drug Zocor, logged $1.5 billion in sales in the first quarter while sales of arthritis drug Vioxx, grew to $485 million. Sales of its popular asthma drug, Singulair, grew to $300 million in the quarter. graphic

-- from staff and wire reports