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April 18, 2008, 3:58 pm
Merck Vytorin Woes, McDonald’s Sales Highlight Earnings

DRUGS, FLIGHTS TAKE OVER FOR FINANCIALS NEXT WEEK
The texture of the earnings season, dominated thus far by financials, is slated to take a dramatic turn when next week’s reports hit the tape. Instead of the focus on write-down, it’s going to be about drug development. Rather than capital-raising, it’s going to focus on plane launches and jet fuel. That’s as drug makers and air names - manufacturers and carriers alike - take their turn in the spotlight, along with a sprinkling of other blue-chip names.

Merck (MRK) is scheduled to make its appearance Monday, and it doesn’t figure to be a comfortable performance for the drug maker’s management. Challenges to its Vytorin cholesterol franchise, raised by a study that showed the expensive cholesterol-lowering combination wasn’t necessarily any more effective than a single-formulation generic product. There are questions about management’s role in taking two years to release the results of the study. And there have been some threats to another key product, the allergy treatment Singular. Merck is expected to post 68 cents on $6.7 billion in sales, but analysts worried that the risks here are to the downside.

McDonald’s (MCD) is slated to turn up Tuesday. The earnings could be over-shadowed by the same-day release of March sales trends. There have been worries that the burger chain won’t be able to maintain the torrid pace of sales it posted the first two months this year. An independent survey of franchisees, which is admittedly wrong about a third of the time, sees restrained sales, with same-store growth coming in below one percent. It also faces tough comparisons with year-earlier results, when McDonald’s grew sales six percent. The earnings are expected at 70 cents a share on $5.4 billion in sales. McDonald’s has weathered the fallout from economic weakness better than most of its peers, so analysts are willing to give the operation the benefit of the doubt.

AT&T (T) also has got some expsoure to the economy. Recall that, earlier this year, company executives sparked a sharp selloff in AT&T shares after remarking that the company had seen an increase in the number of customers it was cutting off. Much of the worry about that trend has eased in the ensuing months, but expect to hear questions about the pace of disconnects on the conference call. As well as questions about the quality of new wireless subscriber additions, as signing up new customers has become increasingly ticklish. Earnings are expected to rise about 14% year over year to 74 cents.

Boeing (BA) has had a pretty dismal go of it the first few months of 2008, as the company suffered setbacks in its construction of the next-generation 787 air carrier, and shares slumped last month to a mult-year low. Since bottoming out in March, however, a measure of optimism has been restored to Boeing’s outlook: there have been eight instances of analysts raising profit projections for the company. Earnings are expected to reach $1.35 a share when the company reports Wednesday. Meanwhile, the two parties to the big airline merger - Delta Air Lines (DAL) and Northwest Airlines (NWA) - pump out their respective quarters.

Apple (AAPL) has known what it is to be both embraced and shunned - and in nearly equal measure - all in the span of the same quarter. The electronics wizard stunned Wall Street with a surprisingly downbeat first-quarter forecast back in January. Shares slid as much as 40%. But since bottoming out in March, the stock has climbed 30%. Analysts are looking for $1.06 - a little ahead of the guidance of 94 cents that Apple gave at the start of the year - and the anticipation is that the risks are to the upside.