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Merck KGaA profit down on liquid crystal rivalry
May 15, 2012 / 9:31 AM / 6 years ago

Merck KGaA profit down on liquid crystal rivalry

FRANKFURT (Reuters) - German drugmaker Merck KGaA’s (MRCG.DE) reported worse than expected first-quarter earnings hurt by fiercer competition for liquid crystals for flat screens, its main cash generator, and restructuring charges.

Earnings per share, adjusted for one-off items, fell 12.6 percent to 1.67 euros ($2.14), less than the 1.75 euros expected on average in a Reuters poll of analysts.

A year ago, Merck was the only supplier of a new type of liquid crystal that allows for more energy efficient TVs with sharper images. Now its rivals, Japan’s Chisso Corp. and DIC Corp (4631.T), are catching up.

In addition, tablet computers, which are flying off shelves across the globe, require conventional liquid crystals, meaning these lower-margin products are still accounting for a lot of Merck’s liquid crystal sales.

RESTRUCTURING COSTS

Merck said it expects adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) this year to edge higher to 2.8-2.9 billion euros ($3.6-$3.7 billion) from 2.73 billion in 2011, helped by prescription drug sales and growth of liquid crystals demand.

“In general, the guidance for the group reflects the modest recovery rate of the global economy,” said Chief Executive Karl-Ludwig Kley.

His focus, however, would remain on cost cuts following a number of setbacks in drug development. Merck last month said that it would move the headquarters of its prescription drugs unit from Geneva to its German group base and that more measures would follow.

Merck on Tuesday specified the targets of its ongoing restructuring program, saying it is aiming for 300 million euros in annual cost cuts at its prescription drugs unit by 2014 - incurring 600 million euros in one-off charges.

“The shortfall in profitability shows that Merck remains a restructuring case with plenty of work ahead,” said Silvia Quandt Research analyst Stefan Muehlbauer.

Merck shares dropped 2.6 percent at 0817 while Germany's blue chip index .GDAXI advanced 0.2 percent.

“Our focus during 2012 will be to deliver a solid operational performance while bringing our cost structure more in line with our competitors and peers,” CEO Kley said Tuesday. ($1 = 0.7789 euros)

Reporting by Ludwig Burger; Editing by Elaine Hardcastle

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