Merck Earnings Beats Street Forecast With Help of Cost Cuts

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Earns Merck
Matt Rourke/AP
By Ransdell Pierson

Merck & Co. (MRK) reported lower than expected third quarter revenue, hurt by sharply lower sales of its Gardasil vaccine against cervical cancer, but cost cuts enabled the company to beat earnings forecasts.

The No. 2 U.S. drugmaker Monday said it earned $895 million, or 31 cents a share, in the third quarter. That compared with $1.12 billion, or 38 cents a share, in the year-earlier period.

Excluding special items, Merck earned 90 cents a share, topping the average analyst forecast of 88 cents a share, according to Thomson Reuters I/B/E/S.

Company sales fell 4 percent to $10.56 billion, below Wall Street expectations of $10.67 billion. Gardasil sales fell 11 percent to $590 million due to lower purchases by U.S. government programs.

However, Sanford Bernstein analyst Tim Anderson said company expenses came in about 6 percent below his expectations, with substantial cuts in sales, general and administrative expenses and in research and development spending.

Early this month, Merck sold its consumer care business to Germany's Bayer for $14.2 billion.

Some analysts have called for Merck to sell off other businesses, including older drugs that have lost U.S. patent protection that are sold in emerging markets.

But company Chief Executive Officer Kenneth Frazier, on a conference call with analysts Monday, said the products generate substantial cash flow that can be invested in experimental drugs, and the company wouldn't part with them without careful consideration.

"We will continue to evaluate opportunities as appropriate," he said, referring to potential divestitures.

Merck, whose shares were little changed in premarket trading, said the U.S. Food and Drug Administration had designated its Keytruda (pembrolizumab) immuno-oncology drug as a potential "breakthrough therapy" for advanced non-small-cell lung cancer, the most common form of lung cancer.

The "breakthrough" designation, given by the FDA to medicines deemed likely to demonstrate "substantial improvement" over existing drugs, assures fast track review by the agency.

Keytruda, approved last month for advanced melanoma, is one of Merck's most promising future engines of earnings growth. It has produced encouraging results in early and mid-stage tests against a variety of cancers, including those of the lung, bladder and stomach.

It is the first member of a new class of drugs that unleash the immune system to fight cancer by blocking a protein known as Programmed Death receptor (PD-1), or a related target PD-L1.

Merck, Bristol-Myers Squibb (BMY), Roche and AstraZeneca (AZN) are leaders research into PD-1 inhibitors. Analysts say the new class could generate more than $30 billion in annual sales by 2025.

Merck narrowed its full-year 2014 profit forecast to between $3.46 and $3.50 a share, from its earlier view of $3.43 to $3.53 a share.

7 Best Things to Buy in October
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Merck Earnings Beats Street Forecast With Help of Cost Cuts

Sure, plenty of Halloween costumes are at their most expensive now, but you can still find affordable options if you know where to look. "Shop last year's inventory to get the lowest prices. Most stores have a clearly marked clearance section in store and online," notes Howard Shaffer, vice president of, on Kiplinger. "You can also save 30 to 40 percent off this year's costumes if you wait to shop a day or two before Halloween. The selection will be gone, but the deals will be there. And, you can always shop online. Coupon codes will allow you to save even more on sale items and stack your savings."

"There are a lot of great deals on camping equipment in October," Shaffer says. "It's the end of camping season, and clearance sales are offering 60 to 70 percent off tents, summer hiking gear and fishing gear." It figures that camping essentials are cheaper just when you've wrapped up your outdoor shenanigans. That's often the nature of retail, though, and you can use it to your advantage. If your current camping supplies are looking a little rough, don't wait until the peak buying season to buy. Instead, purchase discounted goods now and put them in storage for next year.

Denim continues to be a hot buy this month, especially now that the back to school flurry of sales has died down and retailers are eager to keep sales up between now and the holidays. Denim is typically discounted by stores as a "get you in the door" maneuver in hopes that you'll stick around and buy more stuff. In addition to finding sales in stores, look for online promotions.

As car dealerships anticipate the new year, many are eager to sell both current and earlier models. "The clock is ticking on 2014, and dealers want to get rid of their new summer inventory," reports Apartment Therapy. "Now that it's October, the end of the year is in sight, and they are starting feeling the pressure." If you can, wait to the end of the month -- or the end of a promotion -- to take advantage of car salesmen who are especially eager to make that sale.

There are several jewelry buying lulls in the year. One of those is in early fall while everyone's preoccupied with Halloween and back-to-school shopping, just before the major holiday push.

New home appliances are released during the fall, which has retailers eager to move the old stuff off the showroom floor. Promotional sales are common, and you have more legroom to negotiate.

Gardening and outdoor necessities are on sale for the same reason camping gear is discounted: they're out of season. Head to any retailer that sells grills, plants, gardening supplies, lawn equipment, patio furniture and the like, and you're likely to find sweet deals.
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