Merck & Co. says its first-quarter profit more than tripled despite only slightly higher sales because of much lower restructuring and merger costs.
The results beat Wall Street expectations. Merck’s stock rose 61 cents in premarket trading to $36.38.
The maker of Singulair for asthma and allergies and Januvia for diabetes says net income was $1.04 billion, or 34 cents per share, up from $299 million, or 9 cents a share, in 2010’s first quarter.
Revenue edged up 1 percent to $11.58 billion. That includes several billion dollars from products acquired when Merck bought Schering-Plough Corp. in November 2009 for $49 billion.
Excluding numerous one-time items, net income was $2.86 billion, or 92 cents per share.
Analysts forecast earnings per share of 84 cents and revenue of $11.38 billion. Analysts typically exclude one-time items in their estimates.
The $1.82 billion in net charges included $1.58 billion in merger-related writedowns on the value of assets and research, $126 million in restructuring costs and a $500 million payment to settle arbitration with Johnson & Johnson over rights to two drugs.
Merck raised the bottom end of its 2011 adjusted profit forecast by 2 cents, predicting $3.66 to $3.76 per share.
“It is clear that Merck’s business momentum is building, and we continue to demonstrate the ongoing value of the merger,” Chief Executive Kenneth Frazier said in a statement.
Sales were driven by strong performance from Singulair, Januvia, Remicade for immune disorders and other key drugs. Their growth was partly offset by lower sales of former blockbuster heart drugs Cozaar and Hyzaar, which got generic competition last year.
CUPERTINO, CALIF.
Markets in Asia were mostly higher Monday, as quake-devastated Japan began turning its attention to reconstruction.
Japan’s Nikkei 225 index was up 0.3 percent to 9,710.11, with shares rising of companies expected to play a major role in the country’s reconstruction following the devastating March 11 earthquake.
Japan’s government last Friday proposed a special $50 billion (4 trillion yen) budget to help finance reconstruction efforts and plans to build 100,000 temporary homes for survivors of the earthquake and tsunami, which all but destroyed the country’s northeastern coast and killed 27,000 people.
Mitsubishi Heavy Industries Ltd. and Nishimatsu Construction Co. Inc. both rose 1.6 percent. Komatsu Ltd., one of the world’s leading equipment makers, was 0.7 percent higher. Kobe Steel Ltd. was up 0.5 percent.
South Korea’s Kospi rose 0.1 percent to 2,200.84, with airline shares like Korean Air Lines Co. Ltd. making big gains. Korean Air was up 3.7 percent, and Asiana Airline Inc. jumped 4 percent.
Mainland China’s Shanghai Composite Index slid 1.1 percent to 2,976.45. Benchmark indexes in Singapore and Indonesia were also lower cash advance now.
Some investors stayed on the sidelines in anticipation of several key events later this week, including earnings reports of some major Japanese companies and the Federal Reserve meeting on April 26-27.
Benchmark crude for June delivery rose 66 cents to $112.95.
The dollar strengthened against the yen to 82.38 in Asia on Monday from 81.90 late Friday in New York.
The euro slipped to $1.4544 from $1.4550. It had risen to a 16-month high of $1.4648 during Thursday’s trading.
Investors have turned away from the dollar this year because they expect the Federal Reserve to keep U.S. interest rates near zero even as other central banks around the world raise interest rates to counteract rising food and energy prices. Higher rates tend to support a currency’s value.
Stock, bond and commodities markets were closed in the U.S. and many markets are also shut in Europe and Asia on Good Friday. Markets in Australia, New Zealand and Hong Kong remained closed Monday.
Japanese Trade Minister Banri Kaieda said he asked China and South Korea to rely on scientific evidence in deciding whether to ban Japanese goods over concern they may be contaminated with radiation.
Chinese Commerce Minister Chen Deming and South Korean Trade Minister Kim Jong Hoon both agreed that will be the criteria for any import restrictions, Kaieda told reporters after meeting his counterparts in Tokyo today. Chen and Kim also said safety is their priority, Kaieda added.
Trading partners worldwide are testing Japanese products for radiation following leaks at the crippled Fukushima Dai-Ichi plant, the world’s worst nuclear disaster since Chernobyl.
China, Japan’s largest export market, earlier this month expanded a ban on imports of food and agricultural produce, threatening to exacerbate an export slump in the world’s third- largest economy after a record earthquake disrupted supply chains.
South Korea, Singapore and the U.S. have also halted imports of some products on concern that produce grown around the stricken nuclear station has been contaminated.
Japan, South Korea and China agreed on the need to accelerate negotiations to form a free-trade agreement among them, and to “resist protectionism in all forms,” according to a joint statement released after the discussions today.
Clayco Inc. appointed Melissa Hughes as vice president of talent management.
She will provide overall strategic leadership on all elements of the talent management function, including management of policy and procedures while focusing on executive search and hire, training and development and succession planning.
Hughes has more than 20 years of experience in human resources. Most recently she was vice president of Human Resources for KV Pharmaceutical.
She has a bachelor’s degree in human resource management and a master’s degree in business administration, both from Lindenwood University. She also holds an advanced human resource executive certification from the University of Michigan.
Upbeat U.S. earnings buoyed stock markets around the world Thursday ahead of another round of company reports, while the euro neared a one-and-a-half year high against the dollar as investors were willing to take on more risky trades
Following a long period when investors have been focusing on other issues, such as Japan’s earthquake and tsunami, Europe’s debt crisis and the unrest in the Arab world, earnings have returned to prominence.
So far, the latest corporate results season has been generally positive, with a number of companies announcing forecast-busting earnings in another sign that the U.S. economy, the world’s largest, is performing strongly.
Particularly encouraging was Wednesday’s after-hourse statement from Apple Inc. that its hit iPhone helped earnings nearly double. Apple’s technology peer Intel Corp. also beat expectations, helping to buoy sentiment toward the technology sector. General Electric Co. then kicked off a slew of results Thursday on a positive note.
Others reporting Thursday include McDonald’s Corp. and Morgan Stanley & Co.
“In the past couple of days, the U.S. earnings season has enabled investors shrug off the euro woes and budget deficit concerns that dogged the early part of the week,” said Yusuf Heusen, senior sales trader at IG Index.
“Intel’s strong figures yesterday, followed closely by Apple’s blockbusting results, seem to have ignited risk appetite once more and investors will be looking for more of the same before the Easter break,” Heusen added.
In Europe, the FTSE 100 index of leading British shares was up 0.1 percent at 6,028 while Germany’s DAX rose 0.7 percent to 7,298. The CAC-40 in France was 0.4 percent higher at 4,021.
Wall Street was poised for a third day of gains following Monday’s retreat when investors were spooked by Standard & Poor’s warning that the U.S. faces a one-in-three chance of having its triple A credit rating downgraded. Dow futures were up 0.4 percent at 12,447 while the broader Standard & Poor’s 500 futures rose 0.5 percent to 1,335.
Buoyant stock markets are an indication of heightened investor appetite for risk. That affects other markets too and in the currency markets the euro and the Australian dollar were the big gainers as investors looked for better interest rate returns instead.
“Monday is a distant memory and markets have shifted from shunning risk into the upcoming holiday period to assuming as much of it as they can,” said Robert Ryan, a foreign exchange strategist at BNP Paribas.
The euro was up another 0.9 percent at $1.4633 by late morning London time, a little shy of its earlier high of $1.4648, which is its strongest level since December 2009.
Despite occasional bouts of weakness, such as on Monday when the dollar _ perhaps surprisingly _ gained support from its widely-perceived status as a safe haven asset, the euro has been strong all year as it benefits from expectations that the European Central Bank will follow up this month’s first interest rate rise in nearly three years with more increases in the months ahead.
The Australian dollar was also in the spotlight, as it surged as investors flocked to so-called high yielding currencies.
Australia’s benchmark interest rate is much higher than the U.S., giving investors better returns, and it is likely to be increased further if world growth gains momentum.
At one point Thursday, the Australian dollar surged to $1.0741 on Thursday _ its highest level since it was floated in December 1983.
“There’s been a general rise in risk appetite, reflected not only in equities but in Asian currencies, which have strengthened as well,” said David Cohen , economist at Action Economics in Singapore.
Earlier in Asia, Japan’s Nikkei 225 index closed up 0.8 percent to 9,685.77 while South Korea’s Kospi index rose 1.3 percent to 2,198.54. Hong Kong’s Hang Seng ended 1 percent higher to 24,138.31, and mainland China’s Shanghai Composite Index rose 0.7 percent to 3,026.67.
In the oil markets, the focus remained on the fighting in Libya. Oil prices have increased 20 percent since the beginning of the year as investors anticipated rising global demand while unrest in North Africa and the Middle East threatened oil fields and shipping lanes vital to world supply.
Benchmark crude for June delivery rose 62 cents to $112.07 a barrel on the New York Mercantile Exchange. The contract rose $3.17 to settle at $111.45 on the Nymex on Wednesday.
The longest rally in developing- nation stocks since 1997 may be ending as higher interest rates in Brazil, Russia, India and China curb earnings growth.
For the first time in two years, emerging-market analysts are cutting profit estimates more than they’re raising them, consumer stocks are trailing energy producers and shares of smaller companies are losing to larger equities, data compiled by Bloomberg and Morgan Stanley show. The same reversals foreshadowed the end of the emerging-market rally in 2008.
While the benchmark MSCI Emerging Markets Index has gained 0.9 percent this year and mutual fund investors are buying developing-nation equities at the fastest pace in five months, the gauge is valued at about 2.1 times net assets, 11 percent higher than the 15-year average. Societe Generale SA and Barclays Wealth are advising clients to reduce emerging markets investments as inflation erodes record-high profit margins.
“Inflation risk is much more visible” in emerging markets than the developed world, said Kevin Gardiner, the global head of investment strategy at London-based Barclays Wealth, which oversees about $266 billion. “Growth is beginning to slow. Meanwhile, valuations look full.”
The MSCI emerging-market index retreated 1.7 percent yesterday after Standard & Poor’s cut its credit outlook on the U.S., the world’s biggest economy, to negative from stable. The gauge slipped 0.1 percent to 1,160.56 at 8:50 a.m. in London.
Margin Squeeze
Inflation in China and India accelerated by more than economists predicted in March as rising commodities and inflows of capital into the fastest-growing major economies thwarted policy makers’ efforts to contain prices, government reports showed last week. Consumer prices in Brazil rose at the fastest pace in more than two years last month, while Russia’s inflation rate is 0.1 percentage point below the highest level since October 2009.
China has increased borrowing costs four times since October, while India raised rates eight times since March 2010 and Brazil boosted its rate five times. Russia lifted its main rate in February. China’s benchmark one-year lending rate is 6.31 percent, while India’s repurchase rate is 6.75 percent and Brazil’s Selic rate is 11.75 percent. Russia’s refinancing rate is 8 percent.
‘Party Is Over’
Rising costs and interest rates are starting to take a toll on company profits. Gross margin, or the percentage of sales remaining after product expenses, has slipped to an average 31 percent for companies in the MSCI emerging-market index, from 33 percent last year, the highest level since Bloomberg began tracking the annual data in 1996.
Rising commodity prices are “triggering second-round effects via higher wages,” Alain Bokobza, the head of asset allocation strategy at Paris-based SocGen, wrote in an April 11 report titled “The EM Party Is Over.” He recommends switching to developed-nation equities from emerging markets.
Infosys was the seventh-biggest contributor to the MSCI index’s 2 percent retreat last week. The gauge’s decline yesterday pared the gain from its March 2009 low to 145 percent. The 21-country index has rallied for 777 calendar days without a drop of at least 20 percent, the longest stretch since July 1997, according to data compiled by Westport, Connecticut-based research firm Birinyi Associates Inc. and Bloomberg.
Goldman Turns Bullish
The emerging-market gauge’s 0.9 percent advance this year through yesterday compares with a 2.9 percent gain in the MSCI World Index of advanced-country shares and 3.8 percent for the S&P 500.
Goldman Sachs Group Inc. has turned bullish on emerging- market stocks, saying that central banks will slow the pace of monetary tightening as inflation eases. A United Nations gauge of world food prices fell in March for the first time in nine months, while the S&P GSCI Index of commodities has slipped 3.7 percent from this year’s high on April 8.
China said on April 15 its economy expanded at a faster- than-estimated 9.7 percent rate in the first quarter, a sign that demand is weathering tighter monetary policy.
“The balance of risks is shifting,” wrote Noah Weisberger, a New York-based analyst at Goldman Sachs. The bank expects emerging-market stocks to rally about 12 percent, according to an e-mailed note yesterday.
Fund Flows
Mutual-fund investors are also reviving bets on a rally. They poured about $10 billion into developing-nation stock funds during the past three weeks, the most in five months, data compiled by Cambridge, Massachusetts-based research firm EPFR Global show. That compares with $28 billion of outflows in the previous nine weeks, EPFR data show.
Analysts are cutting more profit forecasts than they’re raising them for seven of 10 industry groups in the MSCI emerging-market gauge, with the biggest reductions on health care, telecommunications and technology companies, according to Morgan Stanley. Energy companies are getting the biggest estimate upgrades after oil prices surged 17 percent this year to near the highest levels since 2008.
Consumer stocks in the MSCI emerging-market index trailed energy companies by 10 percentage points in the first quarter, the most since the second quarter of 2008, when emerging-market equities began tumbling amid the global financial crisis. Small- cap companies, which have market values of less than $2 billion and get a higher proportion of their revenue from consumers, trailed the biggest emerging-market stocks by 5.5 percentage points last quarter, also the most since 2008.
‘Important Moment’
“It’s quite difficult for equity markets to rally if you have negative revisions to the earnings outlook,” Jonathan Garner, the chief Asia and emerging-market strategist at Morgan Stanley in Hong Kong, said in an interview. “This is quite an important moment and we don’t think the situation will improve in the coming months.”
Garner’s 1,290 year-end price estimate for the MSCI emerging-market index is about 10 percent below the 1,428 average of five strategist forecasts compiled by Bloomberg.
China International Capital Corp., the country’s biggest investment bank, predicts slowing economic and earnings growth will limit equity gains in the biggest emerging stock market. The top-ranked provider of China research in Asiamoney’s survey recommends “defensive” Chinese companies including drugmakers and consumer-staples producers.
Infosys, Televisa
China bulls expecting a rally in stocks as the central banks nears the end of its monetary policy tightening may be disappointed, Hao Hong, the global equity strategist at CICC, said in an April 10 report.
The Hang Seng China Enterprises Index of Chinese shares listed in Hong Kong dropped 23 percent in the six months after the central bank stopped raising rates in 2007, underperforming the MSCI emerging-market index by 14 percentage points. In 2004, the H-share gauge rose about 3 percent after rate increases ended, trailing the MSCI index by 8 percentage points.
Infosys has tumbled 12 percent in Mumbai trading since the company reported results on April 15. Credit Suisse Group AG downgraded the stock to “neutral” from “outperform,” citing the company’s “poor” outlook for profit margins. The shares are valued at about 24 times earnings, compared with the five- year average of 27 times, data compiled by Bloomberg show.
Grupo Televisa SA, the world’s largest Spanish-language broadcaster, sank to a six-month low in Mexico City trading last week after first-quarter profit fell 18 percent. JPMorgan Chase & Co. analysts cut their 2011 earnings estimate for Televisa yesterday, saying that rising costs and “weak” revenue are eroding profits.
“In most emerging markets, you do have these margin pressures building,” Michael Shaoul, the chairman of Marketfield Asset Management in New York, who has been shifting investments to the U.S. from emerging markets, said in an interview. “We’re fairly convinced that this monetary cycle will end in some distress.”
Nuclear safety officials say the first radiation measurements taken inside two reactor buildings at Japan’s crisis-stricken nuclear plant show a harsh environment but not one that will be impossible for humans to work in.
Nuclear safety agency official Hidehiko Nishiyama said Monday the measurements taken by two robots sent in to units 1 and 3 of the tsunami-wrecked Fukushima Dai-ichi nuclear plant mean that workers trying to restore plant systems will only be able to stay for short intervals inside the reactor buildings.
He said the radiation would not delay progress toward achieving a cold shutdown of the plant within nine months.
China’s statistics bureau said it “condemns” leaks of economic data and those responsible will be punished, after the office released economic indicators that matched rumors circulating in the market and online yesterday.
“We believe any illegal behavior will be punished by law,” Sheng Laiyun, a spokesman for the department, told a briefing in Beijing today. “Those spreading state secrets on the Internet or other public information networks should be held accountable.”
China’s first-quarter growth figure and other monthly economic data including the inflation rate were leaked yesterday ahead of the official release. Phoenix Satellite Television Holdings Ltd. reported 10 economic indicators on its website yesterday morning, citing an unidentified source. Figures released later yesterday by China’s central bank and today by the National Bureau of Statistics matched 9 of the numbers. Phoenix TV didn’t immediately respond to questions from Bloomberg News.
“Key data are widely circulated in the Chinese bureaucracy prior to their release,” said Brian Jackson, an emerging markets strategist at Royal Bank of Canada in Hong Kong. “The recent accuracy of market rumors must raise concerns about the integrity of the process.”
China’s economy, the world’s second-biggest, grew a more- than-estimated 9.7 percent in the first quarter and consumer prices rose 5.4 percent in March from a year earlier, the fastest pace since 2008.
Improving the System
Government departments, institutions and individuals have a responsibility to keep state secrets, Sheng said at the briefing. The bureau has narrowed the personnel who have “dealings with relevant information,” he said.
The bureau is studying ways to improve the system, including shortening the time-frame between production of the information and its release so as to reduce risks, Sheng said.
The Phoenix TV site said March consumer prices would rise 5.3 percent to 5.4 percent, while rumors circulating on China’s microblogs by yesterday afternoon had a consensus on 5 payday advance online.4, which also matched the official release today.
Jiang Guangce, a Shanghai-based partner and fund manager at Congrong Investment Management Co., got the correct numbers for China’s gross domestic product and consumer price index from a Hong Kong fund management company yesterday.
‘Normal in China’
“It’s normal in China, there are always channels for this sort of information,” Jiang said in a phone interview today, “The short side and the futures market in Hong Kong are always a step ahead. This is a result of China’s power structure.”
It was the fifth time in six months that an accurate consumer price index number was accurately circulated in the market and press reports before release. It’s become one of the most sought-after numbers because of China’s battle to curb inflation, which jumped to a 32-month high in March.
Early disclosure happens because too many government offices see data before they’re made public, He Keng, a former deputy head of the department and now a member of its consulting committee, said in an interview last month.
“A new set of procedures just has to be developed,” said David Cohen, a Singapore-based economist at Action Economics. “They’ll have to give more authority to the people in charge of data collecting and dissemination, and make clear to people, such as those in the central bank, not to talk about it.”
Any unauthorized release violates the Statistics Law and is punishable by a warning, demotion or firing, according to a rule issued by the government in March 2009.
A legal “loophole” means China’s laws don’t count profiting on leaked economic indicators as insider trading, according to Yan Yiming, a Shanghai-based securities lawyer.
–Kevin Hamlin, Fan Wenxin. With assistance by Zheng Lifei in Beijing and Sophie Leung in Hong Kong.
Canadians still haven
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