Schering-Plough Misses On Forex

This morning Schering-Plough Corp. (SGP) reported financial results for the period ending March 31, 2009. Revenue of $4.4 billion was down 6% from the first quarter 2008, and 5% below our estimate of $4.6 billion. The impact from foreign exchange of 10% was higher than our forecast. Operational revenue growth was 4% in the quarter.

Operational sales growth of all major products were in-line with our expectations. However, foreign exchange had greater-than-anticipated impact and negatively affected reported results of a number of products.

Remicade operational growth of 22% was offset by a 20% impact from foreign exchange. Sales of Temodar, Nasonex and several contraceptive products were also significantly negatively affected by foreign exchange.

The cholesterol franchise delivered sales of $973 million in the quarter, down 21% year-over-year. Sales in the U.S. continue to suffer and were down 30% in the most recent period while international sales continue to perform well, up 11% operationally.

Sales of OTC products, bolstered by strong growth of MiraLAX, increased 11% in the quarter and continue to perform well despite the weak economy. Animal health sales fell 13% but were flat from the same period in 2008, excluding the impact from foreign exchange.

EPS came in at $0.48 on a GAAP basis and was $0.56, adjusted for one-time items including merger and integration expenses. Adjusted-EPS was significantly ahead of our and the Street’s estimates of $0.47 and $0.48, respectively. EPS benefitted from a stronger-than-anticipated gross margin and lower operating expenses as a result of the significant foreign exchange affect in the quarter.

Gross margin was 71%, up from 68.9% in the first quarter 2008, and ahead of our estimate of 68.8%. SG&A and R&D expenses fell 11% and 9% from the same period in 2008 and were also below our estimates. Operating expenses also benefitted from the ongoing productivity transformation initiatives.

Schering-Plough gave a limited update on the expected merger with Merck & Co. (MRK), noting that pre-integration teams have been established at both companies and merger planning remains on-track.

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