Novice Investing - Merck Cut, Stock Hurt

Date: Monday 01st 2008f December 2008 05:41:15 PM

Merck Cut, Stock Hurt - 11/28/2005

By: Novice Investing Staff

Merck Co & Inc. (MRK) unveiled its restructuring plan on Monday by cutting 7000 jobs and closing five plants. Share price fell 4 % on the announcement. The goal is to save $ 4 Billion by 2010. Will it be attainable? On the surface, it looks hard to achieve. Half of the job cut will be at the United States. Assuming a salary of $ 30,000 for each laid-off workers, the move is equivalent to saving $ 210 Million annually from payroll. Merck tries to save $ 1 Billion annually from the move. So, perhaps, closing five plants will save more dollars than the persons operating the plant itself. We don't know. Only time will tell.

While controlling cost is important, it is more important to think ahead of Merck's future. Will this helps Merck current patent expiration and Vioxx problem? So far, the company announced that this cut is aimed towards a more efficient manufacturing process rather than Research & Development (R & D) cut. When a company that is depending on research cut its R& D budget, it is time to head for the exit.

Merck Co & Inc. is one of our portfolio recommendation. Therefore, we are watching very closely at this job cut. Our newest estimate is for Merck to earn $ 2.99 which is not what the company predicts. We will see. Whatever it is, Merck's share price movement is very dependent on the outcome on Vioxx product liability trial. Meanwhile, if you think that Merck can survive this current problem, you can wait while getting a 5.0 % dividend holding the common stock.


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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Merck Co & Inc. (MRK) or any other securities.

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