Whitehouse Station Can’t Save Its Way To Greatness

An anonymous commenter just relayed this, after this morning’s earnings announcement:

. . . .Anonymous said…

The lead story on our [Merck’s] intranet site is how office trash pickup is going to two days a week. The cost cutting has gotten to absolute absurdity but I suppose it’s one way to beat the street. . . .

February 2, 2012 12:53 PM . . .

Anonymous [also] said…

After speaking to coworkers in other sites (West Point, PA buildings) it turns out this has been the norm for them for at least two years! Further, their desk side trash is collected during office hours so they are treated to the rumbling of a large dumpster through the cube farm while on teleconferences or in meetings.

They have self-regulated to throw wet trash such as lunch leftovers into the break area bins but say it is not uncommon for empty drink containers to pile high in cube cans which are left outside the cube doorways because of an alleged rule about contractors entering cube or office spaces. I bet the bouquet near those break areas isn’t very pleasant, either.

It is incredible.

February 2, 2012 2:00 PM. . . .

Oh. My. Goodness.

While it may seem small — this sort of “nickel & diming” should be of concern to Wall Street.

I’d note that Merck is showing a 47 percent down-bubble in R&D spending in the fourth quarter of 2011. One other way to look at that, is to notice that corporate overhead was rising more than anticipated, in the same period — so Merck delayed or deferred some R&D project expenditures (some of which are truly “mission critical“). Not really a great approach. More importantly, it simply will not be sustainable — at least not in order to beat Street expectations at the EPS line, longer term.

Some have written about the “lightness” of Q4 2011 global consolidated sales revenue. Although not fully-determinable until the SEC Form 10-K files, it would appear that a large portion of the smaller Q4 sales revenue is actually the result of a strengthening US dollar. Jami Rubin, of Goldman Sachs (at about 38:20 in the webcast) asked pointedly about this — and mostly got a dodge, from CFO Peter Kellogg. She went so far as to suggest that if the euro stays where it is today, the revenue and EPS would come in at the lower end of the range for 2012. CFO Kellogg did not disagree with this.

In fact, with about 60 percent of all of Merck’s sales revenue (post the Schering-Plough bust-up) now coming from outside the US, the stronger dollar would have chewed away about half of the expected consensus sales growth, by my back-of-the-envelope estimate, in fourth quarter 2011. So, Peter Kellogg is no longer offering a currency-adjusted forward view on the sales-line, for 2012.

Interestingly, Pfizer reported much the same, just a few days ago. Peter Kellogg did say on the call that if currencies remain where they are, there will be a 2 percent headwind at the revenue line (and that, too, tracks the rough estimates Pfizer made, just a few days ago).

Finally, on the webcast, management mentioned that Merck expects pricing pressures to drive a negative mid-single digit percentage effect at the sales line in 2012. That, with 2012 patent expiries on Singulair, currency headwinds and the ongoing decline of Vytorin sales in the US, it is easy to understand why Wall Street is taking some of the recent run up in the shares back. Merck is now off about 1 percent — near $38.15 on the NYSE, on pretty heavy volume.

[Post Scriptum: While essentially dodging the issue, management didn’t offer a whole lot of uspside certainty, even if IMPROVE-IT were to show a strong benefit in outcomes. No surprise, but that affirms Jami Rubin’s comment on January 7, 2012 — that a good outcome won’t help much, but a bad one. . . will hurt more.] Ouch.


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