Merck, Germany, predicts bigger decline in earnings.
Merck, Germany, predicts bigger decline in earnings.
Germany’s Merck KGaA Warns of Steeper Earnings Decline
Frankfurt, Aug 3 (ANBLE) – Germany’s Merck KGaA (MRCG.DE) recently issued a warning about a steeper decline in their earnings. The company cited the slump in demand for materials used in the production of pharmaceuticals and semiconductors. This announcement has raised concerns as it signals the entry of high-tech niche markets into a wider economic downturn.
Merck KGaA explained the contributing factors behind this decline in a statement. The persistently high inventory levels of their Life Science customers, the delayed recovery of the semiconductor materials market, increased costs due to inflation, and negative foreign exchange impacts have all played a role in this downturn.
The company now predicts that earnings before interest, taxes, depreciation, and amortization (EBITDA) will fall between 3% and 9% when adjusted for currency fluctuations. Additionally, the negative foreign exchange effects are expected to cause an additional drag of between 3% and 6%.
It is noteworthy that Merck KGaA had previously forecasted a smaller decline in adjusted EBITDA for 2023, ranging from 0% to 5%, with an additional negative foreign exchange effect of 2% to 5%. This revision in their projections highlights the extent of the challenges they are facing.
One of the key areas affected by this decline is Merck KGaA’s specialty chemicals business that serves the microchip production industry. Although it was initially expected to recover during the second half of the year, the latest projections suggest that it will only stabilize at a low level for the remainder of 2023.
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Another sector hit by the current economic situation is the Life Science unit of Merck KGaA. The slump in demand for lab gear due to the decrease in COVID-19-related activities and drug manufacturers using up their excess inventory levels, instead of ordering Merck’s materials, have adversely impacted this business division.
Industry analysts have also attributed the dampened investor appetite in risky biotech drug development ventures to higher interest rates. Such ventures often require a long period to turn a profit, making them less attractive to investors at this time.
Merck KGaA’s competitor, Sartorius (SATG.DE), a producer of gear and substances for drug production, had also projected a bigger sales decline than previously anticipated. Like Merck KGaA, Sartorius experienced a decrease in demand as drug manufacturers relied on existing production capacity rather than investing in new capacity.
In the second quarter, Merck KGaA reported a 12.8% decline in adjusted EBITDA to 1.55 billion euros ($1.69 billion). Though slightly above the average estimate of 1.5 billion euros from an analyst poll on the company’s website, this decline indicates the ongoing challenges faced by the company.
Overall, Merck KGaA’s warning about a steeper decline in earnings reflects the broader impact of economic downturns on high-tech niche markets. The effects of persistently high inventory levels, delayed market recoveries, increased costs, and foreign exchange volatility have all contributed to these challenges. Additionally, the decrease in demand for lab gear and the cautious approach of drug manufacturers have further exacerbated the company’s situation.
It is essential for Merck KGaA and similar companies to closely monitor market conditions, reassess strategies, and adapt to the changing dynamics to navigate through this downturn successfully. Only then will they be able to regain stability and growth in their respective sectors.