Shares of Kenilworth, N.J.-based Schering-Plough (SGP:
news,
chart)
plunged lately by $1.74, or 10.6 percent, to $14.74 on volume
of 20.1 million. Earlier, the shares sank as low as $14.16,
their lowest level since September 1996.
The pharmaceutical company said late Thursday that it expects
second-half earnings per share to be lower than the first
half of 2003. It also expects 2004 earnings to be lower than
the level of earnings anticipated for this year.
Schering-Plough has been beset with numerous problems, including
punishing generic competition for its flagship drug, the Claritin
allergy medication. Schering-Plough's marketing practices
have also come under the scrutiny of federal prosecutors.
Last week, the company cautioned that it's suffering from
insufficient cash flow.
Following the announcement, brokers slashed their earnings
estimates and voiced hard-hitting criticisms of management.
"Schering-Plough's update to the investment community
provided some important information... but was clearly lacking
in answers and direction for shareholders," Goldman Sachs
said.
Goldman lowered its 2003 earnings-per-share estimates to
42 cents from 48 cents and slashed 2004 projections.
Goldman noted that Chief Executive Fred Hassan didn't take
part in the company's conference call held late Thursday,
calling this "surprising, given the gravity of the message."
Dresdner Kleinwort Wasserstein cut its rating to "hold,"
telling clients the dividend cut was not entirely unexpected.
But the brokerage characterized the company's new outlook
for 2004 earnings per share as "shocking... the market
had been expecting 28 percent growth."
Serious measures
Schering-Plough's cost-cutting moves come on the heels of
a company review overseen by Hassan, who took over as CEO
three months ago. The board of directors, according to the
company, requested the review upon Hassan's hiring.
Schering-Plough said it was reducing its quarterly dividend,
to 5.5 cents a share from 17 cents, in a move that it expects
to implement as of the fourth quarter. The 17-cent third-quarter
dividend will be paid next Tuesday, as planned, according
to company executives who answered questions on the conference
call.
"The previous dividend level is not realistic given
the company's reduced revenues, the need to conserve cash
for inherited regulatory and legal issues, and the need to
invest for future growth," said Hassan in a company statement.
The company is also eliminating standard bonuses for 2003,
freezing most of its employment merit increases and ceasing
payouts of its profit-sharing program.
And, Schering-Plough said it plans to launch a voluntary
retirement program, through which is expects to cut staff
by about 1,000 or more.
The company will take a pre-tax charge of about $150 million
in the fourth quarter related to the program. Executives said
during the call that the company expects other cost-cutting
charges to be recorded as well.
Finally, Schering-Plough said it will pare down executive
privileges, closing its executive dining room and selling
the company executive jet.
Carolyn Pritchard is a reporter for CBS.MarketWatch.com
in San Francisco.
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