Germany’s Merck Predicts Reduced Impact From Coronavirus

(Bloomberg) --

Merck KGaA surged after saying the impact of the coronavirus on its business will probably subside in the second quarter, shaving only 1% from revenue, and predicting strong profit growth for the year.

The assessment is based on Merck's experience in China, where many of the company's 4,000 employees are returning to work, and the fact that its industries -- including pharmaceuticals and laboratory supplies -- aren't typically sensitive to consumers' whims.

Merck's relative optimism about the trajectory of the virus comes amid gloomy pronouncements from public health officials in the U.S. and Europe, who have been warning about the spread of the illness. Some other companies, including French luxury-goods maker Hermes International and coffee chain Starbucks Corp., have been reopening stores in China, reporting signs of light at the end of the tunnel in that crucial market.

Merck's outlook doesn't factor in the potential for economic fallout outside of China, Chief Executive Officer Stefan Oschmann said in a Bloomberg Television interview. But the company has also developed scenarios internally for that possibility.

“This is what we can quantify at this stage,” Oschmann said. “The situation is evolving very fast.”

Merck shares surged as much as 6.1% in Frankfurt trading, the biggest gain in more than a year and a half.

Given Merck's exposure to China, investors were bracing for bad news on the coronavirus situation -- and the outlook is probably better than many feared, Wimal Kapadia, an analyst at Sanford C. Bernstein, wrote in a note.

Merck did acknowledge that the crisis could also trigger a global recession. If that happens, the impact will probably vary on Merck's various businesses, according to CEO Oschmann.

The ones most likely to suffer are liquid crystals and semiconductor components if consumers cut back on purchases of goods like televisions and computers, he said.

Merck plans to offer an updated forecast with numbers when releasing first-quarter results on May 14. Adjusted earnings rose 15% to 4.39 billion euros ($4.9 billion) last year, just exceeding analysts' estimates.

To contact the reporter on this story: Tim Loh in Munich at tloh16@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Marthe Fourcade

©2020 Bloomberg L.P.