Merck reiterates flat 2006 earnings guidance

NEW YORK (Reuters/CNNMoney.com) -- Merck & Co. on Wednesday stood by its forecast of flat earnings for 2006 and projected slightly higher 2007 results, in line with Wall Street expectations, as the drugmaker grapples with generic competition for a number of its medicines.

Merck (down $0.70 to $44.31, Charts), scheduled to meet with analysts on Dec. 12 to review its pipeline of experimental medicines, said it expects 2007 earnings per share of $2.51 to $2.59, excluding restructuring charges related to site closures and job cuts. Merck has laid off 3,900 employees, and expects to eliminate 7,000 jobs by 2008.

Analysts polled by Reuters Estimates, on average, forecast $2.56 per share.

Merck, whose prospects have improved with an aggressive cost-cutting program and recent launches of three strong-selling vaccines and its promising new Januvia treatment for diabetes, previously forecast 2006 earnings per share of $2.48 to $2.52, excluding special items. That compares with a 2005 profit of $2.51 per share.

Some analysts were more bullish in their projections than Merck. Les Funtleyder, analyst for Miller Tabak, and Barbara Ryan, analyst for Deutsche Bank North America, both forecast $2.70 EPS for full-year 2007.

"We think some will be disappointed that they did not raise guidance given some of the strength in its recently launched products," wrote Funtleyder, in a published note. "It is our view that they are being conservative and that potential for higher guidance exists in [the second half of 2007.]"

Ryan wrote, in a published note, that Merck raised guidance three times in 2005 and "has handsomely executed on a strategy to, in our opinion, understate and overperform. We expect the same this year, driven by cost cutting via the company's restructuring, and strong sales of new products, namely Gardasil and Januvia, both of which have $2 billion peak annual sales potential on our estimates."

Merck's 2006 and 2007 projections do not reflect reserves for potential liability to tens of thousands of people that have filed lawsuits alleging harm from the company's Vioxx arthritis drug, which was withdrawn in 2004 after being linked to heart attacks.

Chief Executive Officer Richard Clark said investors can expect Merck to return to compound annual "double-digit" earnings growth in 2010, as sales of new drugs expand and job cuts and other restructuring moves produce cumulative cost savings of $4.5 billion to $5 billion from 2006 to 2010.

"Beyond 2010 we expect to deliver sustained revenue and earnings growth fueled by our growing pipeline" of experimental medicines, Clark said in a release.

Clark, the former head of manufacturing at Merck, took charge of the company in May 2005 at a time when its sales and profits were reeling from the loss of Vioxx, which had boasted annual revenue of $2.5 billion.

"We expect bottom-line earnings growth to begin in 2007," excluding special items, Chief Financial Officer Judy Lewent said.

Merck expects compound annual profit growth of 4 percent to 6 percent from 2005 to 2010, and aims to modestly boost its annual research spending over the period, Lewent said. But she said Merck will hold the line on marketing and administrative expenses, keeping them flat in 2010 with 2006 levels.

Merck shares dipped 1 percent in morning trading.

Merck is the fourth-largest drugmaker in the U.S., behind Pfizer (up $0.00 to $24.82, Charts), Johnson & Johnson (down $0.08 to $66.09, Charts) and Abbott Laboratories (down $0.23 to $48.06, Charts).

The analysts quoted here do not own shares of Merck stock, though Deutsche Bank North America seeks to do business with the company.

CNNMoney.com staff reporter Aaron Smith contributed to this story.

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