April 27, 2009 / 5:40 AM / 10 years ago

UPDATE 2-Merck KGaA sees end to liquid crystals slump

* Liquid crystals margin sinks but co says worst over

* Q1 oper profit down 45 pct, missing forecasts

* Sees 0-5 pct sales growth in 2009

* Forecasts core earnings margin 15-20 pct in 2009

* Shares rise 2.4 percent

(Adds more details, background, executives’ quotes)

FRANKFURT, April 27 (Reuters) - Merck KGaA (MRCG.DE) said the market for the liquid crystals used in display screens hit its lowest point in the first quarter, signalling a gradual return to healthier profits for the German drugs-to-chemicals hybrid.

“(The LC unit) should emerge from (the crisis) much in the way it was before: with growth, high returns and market leadership,” finance chief Michael Becker said on Monday, after a slump at the business marred the company’s first-quarter results.

He cautioned that the recovery would be slow, but said customers appeared to have depleted feedstock — inventories of unfinished products — and looked set to increase orders.

LG Display (034220.KS) and Sharp (6753.T), ranked second and third among the world’s flat-screen TV makers, recently raised prospects of an improvement in their TV business later in the year. [ID:nSEO308771] [ID:nT268030]

Merck, which is the world’s largest supplier of the key chemicals used in television and computer screens, posted an EBIT margin of 10 percent in the first quarter after margins close to 50 percent for much of 2008.

Operating profit from liquid crystals plummeted almost 90 percent to 13 million euros, as the global economic downturn put consumers off big-ticket purchases such as TVs and computers.

“We are convinced we reached the bottom in the first quarter” for the business, said Chief Executive Officer Karl-Ludwig Kley.


“We are encouraged by signs of LC(‘s) re-acceleration,” Morgan Stanley analyst Andrew Baum said in a research note, adding that he believed the market was underestimating the value of the LC business.

At 1143 GMT the shares were up 2.4 percent at 67.94 euros while the European DJ Stoxx Chemicals Index .SX4P slid 1.2 percent.

Merck’s first quarter group earnings before interest, tax (EBIT) and special items fell 45 percent to 198 million euros ($308 million), missing the average forecast of 219 million from analysts in a Reuters poll.

In its first outlook for 2009, the group said it expected sales would grow between 0 and 5 percent. It predicted a core profit margin of 15-20 percent, compared with 18.5 percent in the first quarter.

Sales of Erbitux, Merck’s most promising drug, rose 11 percent to 162 million euros, as a genetic test needed to discern bowel cancer patients that are most likely to benefit from the treatment became widely available.

The company’s shares trade at 10.8 times estimated 12-months forward earnings, in line with global drugs peers, according to StarMine, which weights estimates according to analysts’ track record.

Reporting by Ludwig Burger; editing by John Stonestreet

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