Merck KGaA Jumps After Beating Analyst Expectations on Profit, Forecast

Merck KGaA rose the most in seven months in Frankfurt trading after beating analyst estimates for fourth-quarter profit and forecasting faster growth this year than investors anticipated.

Core earnings, excluding costs such as writedowns and merger expenses, were 1.78 euros a share, the drug and chemical maker said in a statement today, beating the average estimate of 1.49 euros from 16 analysts surveyed within the past 28 days by Bloomberg. Net income decreased 18 percent to 46.5 million euros ($63.6 million) from 56.7 million euros a year earlier because of costs from last year’s acquisition of Millipore Corp.

Merck, based in Darmstadt, Germany, bought U.S. biotechnology equipment supplier Millipore to diversify as it struggles to win approval for new drugs. The company’s forecast for the first full year after the deal surpassed expectations, said Jack Scannell, a London-based analyst for Sanford C. Bernstein Ltd.

“The guidance looks pretty punchy,” Scannell, who rates the shares “market perform,” said in a telephone interview today. “This is a good set of numbers.”

Merck rose 2.8 euros, or 4.5 percent, to 65.5 euros, the biggest jump since July 29.

Forecast

Sales will increase 13 percent to 18 percent in 2011 and will rise again in 2012, Merck said. The company said it expects a 35 percent to 45 percent increase in operating result this year. The forecast assumes U.S. approval for the multiple sclerosis pill cladribine. Without cladribine, the company expects sales to climb 10 percent to 15 percent, Chief Executive Officer Karl-Ludwig Kley said in a press conference in Darmstadt today.

Photographer: Hannelore Foerster/Bloomberg

Merck KGaA Chief Executive Officer Karl-Ludwig Kley pauses during a news conference in Darmstadt. Close

Merck KGaA Chief Executive Officer Karl-Ludwig Kley pauses during a news conference in Darmstadt.

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Photographer: Hannelore Foerster/Bloomberg

Merck KGaA Chief Executive Officer Karl-Ludwig Kley pauses during a news conference in Darmstadt.

Revenue in the Merck Serono drug division is expected to rise 5 percent to 10 percent this year if the MS pill is approved, compared with an increase of 1 percent to 6 percent if it is rejected, the company said. Merck expects a Food and Drug Administration decision by Feb. 28.

“With cladribine unlikely to be approved in the U.S. in our view, the 2011 guidance is not quite as strong as it first appears, but is still ahead of current expectations,” Jeffrey Holford, an analyst at Jefferies International Ltd. in London, wrote in a note to investors today.

Merck withdrew its application to sell the MS pill in the EU last week. European regulators rejected the drug in September.

Rebif Sales

U.S. sales of Rebif, Merck’s existing injected MS drug, will be hurt by competition from the Novartis AG pill Gilenya, Cornelia Thomas, a London-based analyst for WestLB AG, wrote in a note before the results.

Gilenya won backing from U.S. regulators last year, making it the first oral medicine in the U.S. to treat the debilitating neurological disease. Novartis said last month the pill’s sales are above expectations.

Sales of Rebif rose 7.3 percent to 430 million euros. Revenue from Erbitux, sold to treat advanced colon cancer and head and neck tumors, increased 13 percent to 210.9 million euros in the fourth quarter. Sales in the Merck Serono drug unit rose 7.9 percent to 1.5 billion euros.

Merck doesn’t have immediate plans to sell its consumer- health business, Kley said at the press conference, where the company distributed bottles of the unit’s Bion food supplements. The Financial Times last month quoted the executive as saying he would never “exclude any option that makes economic sense,” when asked whether he would consider the sale.

“It’s a business we know well,” Kley said today. “It fits beautifully in our portfolio. We have critical mass in a number of countries, but not globally.” Merck may build the unit through partnerships, product and marketing swaps and targeted acquisitions in individual markets, he said.

Consumer-Health Sales

Consumer health sales will likely climb 7 percent to 12 percent this year after dropping 5.2 percent to 126 million euros in the fourth quarter, Merck said.

Total revenue rose 26 percent to 2.55 billion euros. Analysts predicted 2.48 billion euros, the average of 17 estimates. Sales of the liquid crystals Merck makes for flat- panel electronics rose 17 percent to 235 million euros. Return on sales for the unit was 52 percent last year.

Merck will pay a dividend of 1.25 euros a share, up from 1 euro a year earlier. The company last year slashed the payout by 33 percent after setbacks in drug development.

To contact the reporter on this story: Naomi Kresge in Berlin at nkresge@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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