Merck KGaA shares slip after group warns of decline in 2023 profit

By Scott Kanowsky 

Investing.com -- Shares in Merck KGaA (ETR:MRCG) fell on Thursday after the German science and technology group warned that core profit will fall in 2023 due to challenges from cost pressures and flagging COVID-19 demand for lab supplies from drug and vaccine makers.

Earnings before interest, taxes, depreciation and amortization pre-items is expected to decline moderately during the current annual period to "an about stable development organically," according to a statement from the company on Thursday. Negative foreign exchange effects would also weigh on both income and net sales by about -1% to 4%, it added.

"The slowing semiconductor market, decreasing Covid-19-related demand and persistently high inflation will contribute to this," the Darmstadt-based firm said.

Nevertheless, Merck KGaA predicted that it would report slight to solid organic growth in net sales this year, boosted by contributions in particular from its drug processing solutions unit and new healthcare products.

Merck KGaA's peers, including pharmaceutical giants Roche (SIX:RO) and Pfizer (NYSE:PFE), have recently flagged that performance could be hit this year by waning sales of pandemic-related products.

Despite these headwinds, Chief Executive Officer Belén Garijo still backed the business' mid-term financial target of €25 billion (€1 = $1.0629) in net sales by 2025.

Garijo later told Bloomberg Television that Merck KGaA is exploring a potentially "transformative" series of smaller acquisitions in a bid to boost growth. However, even without these deals, she still estimates that the 2025 sales target will be met.

In the fourth quarter of 2022, adjusted core profit came in at €1.63B, below estimates of €1.69B.

Analysts at Credit Suisse noted that the miss stemmed from underperformance at Merck KGaA's life science and pharma divisions, adding that the 2023 income guidance was "light."