Merck Posts In-Line 4th Quarter

Merck & Co. (MRK - Analyst Report) reported 4th quarter 2008 financial results today and reaffirmed previously issued guidance for 2009. Fourth quarter revenue of $6,032 million was inline with our expectations of $6,039 and down 3% from the fourth quarter of 2007.

Foreign exchange negatively affected revenue in the quarter by 3%. Sales of Singulair and Gardasil continue to show significant softening, and Cozaar/Hyzaar sales in the most recent quarter were significantly weaker than expected. This was offset by stronger than expected sales of Isentress and other smaller products.

EPS, adjusted for charges related to the restructuring program, was $0.87 in the 4th quarter 2008. EPS increased 8% from the $0.81 posted in the 4th quarter 2007 and was significantly ahead of our forecast of $0.78. Fourth quarter 2008 EPS benefited from lower-than-expected SG&A and R&D expenses, as well as a significantly lower-than-forecast tax rate, partially offset by a lower than expected gross margin.

Operating expenses continue to benefit from the restructuring program and the tax rate in the quarter benefited from a foreign exchange effect as well as the full benefit from the re-enacted R&D tax credit. EPS also benefited from higher equity income from affiliates as a result of additional contributions from AstraZeneca (AZN - Analyst Report).

Management reaffirmed previously issued financial guidance for 2009. Merck expects revenue in the range of $23.7 billion to $24.2 billion, representing growth of 0% to 2% over 2008 results. EPS is expected to be in the range of $3.15 to $3.30, representing negative growth of between 8% and 4%.

Brian Marckx, CFA contributed to this report.

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