Roche Holdings Ltd. (RHHBY) recently announced plans under its Operational Excellence Program. The program is aimed at increasing the company’s productivity and efficiency along with trimming costs in order to adapt to an increasingly challenging environment.
The Operational Excellence Program was first announced in September in response to the growing healthcare cost pressures in the US and Europe. We note that several other companies like Biogen Idec Inc. (BIIB) and Genzyme Corp. (GENZ) have also implemented restructuring initiatives in order to drive growth.
As a part of the program, Roche plans to trim 4,800 positions worldwide or about 6% of its workforce. In addition to the job cuts, the company plans to make 800 internal transfers and 700 to third parties.
Roche anticipates the Operational Excellence Program to generate 1.8 billion Swiss francs worth of savings in 2011 and 2.4 billion Swiss francs annually from 2012 onward. During the course of the implementation of the program (2010 to 2012), the company expects to incur restructuring costs of 2.7 billion Swiss francs, which includes cash-related costs worth 1.5 billion Swiss francs.
Outlook Reaffirmed
The company reaffirmed its 2010 guidance of mid single-digit sales growth in local currencies for the Group and the Pharmaceuticals Division. The Diagnostics Division is expected to see sales growth significantly ahead of the market. Further, core earnings per share are expected to increase in the double digits at constant exchange rates.
Our View
The company currently has a Zacks #2 Rank (short-term Buy rating). We believe that the Operational Excellence Program will help improve Roche’s efficiency and will allow the company to refocus its investments in research and development. This should help drive growth.
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