Pfizer to cut 10,000 jobs, shut 5 plants

No. 1 drugmaker unveils an additional $1 billion in restructuring moves; net income surges on sale of consumer health care business.

By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Pfizer announced Monday that it will cut 10,000 jobs and close five plants, including three R&D sites and two factories, by the end of 2008, and said its quarterly earnings grew but sales were little changed.

In revealing an additional $1 billion in restructuring moves, Pfizer also said it does not expect sales to grow in 2007 and 2008, and that it might purchase up to $10 billion of its own stock.

"There are no sacred cows" said Jeffrey Kindler, Pfizer's chief executive, at an analysts' meeting in New York to unveil the latest moves, which bring the company's total cost-saving effort to $5 billion.

The world's biggest drug maker in terms of sales said the job cuts represent 10 percent of its worldwide work force. The cuts include the recently announced termination of 2,200 sales representatives in the U.S., meaning the number of new cuts is 7,800.

The company said it plans to close three research sites in Michigan, including two facilities in Ann Arbor, and one in Kalamazoo. The company also plans to close manufacturing sites in Brooklyn, N.Y., and Omaha, Neb.

The announcement was part of Pfizer's five-year plan to reduce its manufacturing plants from 93 to 48 by the end of 2008.

Pfizer said it is also considering the closure of research sites in Japan and France, and it is also considering selling a factory in Germany, but all this is yet to be decided. The company plans to invest $3 billion of the money it saves in cost cuts in new products and business development through the end of 2008.

"We fully understand that we cannot cost cut our way to long-term success," Kindler said.

He said he hopes to triple the size of his late-stage pipeline by 2009, and for the company to generate four of its own new products per year beginning in 2011.

Earnings gain from sale

Pfizer (down $0.23 to $26.99, Charts) reported that fourth-quarter sales were "substantially unchanged" at $12.6 billion, while net income - including the sale of its consumer healthcare business - surged 257 percent.

Operating earnings, which did not include the sale, fell 12 percent to 43 cents per diluted share from 49 cents the previous year, the company said.

Wall Street analysts had estimated a 10 percent drop in fourth-quarter sales and a 17 percent plunge in EPS, according to a consensus of projections provided by Thomson Financial.

The company also reported full-year 2006 sales edged up 2 percent to $48.4 billion. The New York-based drugmaker said nine products - including incontinence treatment Detrol and nerve painkiller Lyrica - exceeded the $1 billion blockbuster mark for sales.

The cholesterol-cutting drug Lipitor totaled $12.9 billion in 2006 sales, a 6 percent increase from the prior year, said Pfizer. Lipitor broke its own record as the world's top-selling drug, but it just fell short of the company's $13 billion goal for the year.

Pfizer reported that net earnings per diluted share, including last year's sale of its consumer healthcare business to Johnson & Johnson (down $0.51 to $67.25, Charts) for $16.6 billion, surged 144 percent to $2.66. Operating earnings, which excluded the unit sale, grew 6 percent to $2.06.

Wall Street had projected that Pfizer's annual sales at $48.2 billion and operating earnings per share at $2.06.

"I think it's safe to say that Pfizer is turning around, but slowly," said Les Funtleyder, analyst for Miller Tabak. "They've got to prove themselves."

Analysts were watching CEO Kindler closely at the Monday afternoon meeting where the layoffs and factory closings were announced. Cost-cutting would help to grow earnings, said Funtleyder prior to the announcement, though growing sales will take longer.

"Improving the top line is going to take a few quarters," said Funtleyder. "I don't think that's something that can be done tonight."

Kindler said, in a statement, that Pfizer had "delivered solid performance despite challenges," including the patent expiration in June of the antidepressant Zoloft, which exposes it to competition from generic drugmakers. Zoloft sales plunged 35 percent in 2006 to $2.1 billion from $3.3 billion the prior year.

The company's best hopes for growing sales took a blow in December, when studies of the experimental cholesterol drug torcetrapib were discontinued because of a high death rate and heart problems among patients.

The decision to discontinue torcetrapib was "disappointing and brought into sharper focus the need to transform Pfizer over time to succeed in a dynamic healthcare marketplace," said Kindler in the statement. "We are reviewing every aspect of our business, and I look forward to discussing our priorities when we meet with analysts in New York."

In addition to projecting flat sales growth for 2007 and 2008, Pfizer projected net income of $1.45 to $1.55 a share and operating income of $2.18 to $2.25 a share.

For 2008, the company projected net income of $1.75 to $1.93 a share, and operating income of $2.31 to $2.45 a share.

In 2007, Pfizer plans to expand its marketing of the inhalable insulin product Exubera. So far, Exubera has only been made available in very restricted quantities. But Ian Read, head of worldwide pharmaceutical operations, said there will be a "full-court press" roll-out of Exubera and direct-to-consumer advertising will begin in the second half of the year.

Behind Pfizer, Johnson & Johnson is the second largest drugmaker in the U.S., followed by Abbott Laboratories (down $0.21 to $53.31, Charts), Merck (down $0.27 to $45.33, Charts), Bristol-Myers Squibb (down $0.12 to $26.51, Charts) and Wyeth (Charts).

Funtleyder does not own shares of Pfizer stock and Miller Tabak does not conduct investment banking business with the company.

Correction: An earlier version of this story reported that Pfizer was considering purchasing a factory in Germany, but the company is actually considering the sale of the facility. CNNMoney.com regrets the error. (Return to story)

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.