Merck & Co. Announces $1.2-Billion Restructuring Plan

By Patricia Van Arnum - DCAT Editorial Director

May 2, 2019

Merck & Co. has approved a new global restructuring program, at a cost of $800 million to $1.2 billion, as part of a global initiative focused primarily on further optimizing the company’s manufacturing and supply network as well as reducing its global real estate footprint. The company reported the restructuring in a filing with US Securities and Exchange Commission following its first-quarter earnings release.

The company did not provide details in terms of specific facility closures but said that the program is a continuation of the company’s plant rationalization and builds on prior restructuring programs. The company said it will continue to evaluate its global footprint and overall operating model, which could result in the identification of additional actions over time.

The actions contemplated under the 2019 restructuring rrogram are expected to be substantially completed by the end of 2023, with the cumulative pretax costs estimated to be approximately $800 million to $1.2 billion. The company estimates that approximately 55% of the cumulative pretax costs will result in cash outlays, primarily related to employee separation expense and facility shut-down costs. Approximately 45% of the cumulative pretax costs will be non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested.

Merck says it expects to record GAAP (Generally Accepted Accounting Principles) charges of approximately $500 million related to the 2019 restructuring program this year, including $187 million in the first quarter.

Merck reported the restructuring program following positive results from its first-quarter financial results. Worldwide sales were $10.8 billion for the first quarter of 2019, an increase of 8% compared with the first quarter of 2018; excluding the negative impact from foreign exchange, worldwide sales grew 11%. The key product performer was Keytruda (pembrolizumab), Merck’s immunotherapy, which posted first-quarter 2019 sales of $2.27 billion, a 55% increase compared to the year-ago period.

International sales represented 58% of total sales in the quarter. Performance in international markets was led by China, which had sales growth of 58% compared with the first quarter of 2018, driven by vaccines and oncology. Excluding the unfavorable effect of foreign exchange, sales in China grew by 67%.

Source: Merck & Co. (restructuring notice) and Merck & Co. (first-quarter results)