Drugs and chemicals maker Merck KGaA slashed its profit outlook on sluggish demand for liquid crystals and took hefty one-off charges for a fresh start under its new finance chief.

The world's largest maker of liquid crystals for display screens said it now expects an operating result of about 1 billion euros ($1.5 billion) in 2011, equivalent to 1.4 billion excluding one-off items.

Merck had initially aimed for a rise of between 35 and 45 percent in operating profit in 2011 from last year's 1.1 billion euros and analysts had on average predicted an operating result of 1.48 billion.

Its shares dropped 4.5 percent to 74.02 euros by 0734 GMT, while the STOXX Europe 600 Health Care <.SXDP> was unchanged.

Merck also posted a second-quarter net loss of 85.9 million euros where analysts had expected a profit of 236 million, due to one-offs including writedowns on inventory and on the value of U.S. lab equipment maker Millipore which it bought for $6 billion.

This will give us a healthy basis on which our new management team can build, said Chief Executive Karl-Ludwig Kley.

Analyst Martin Possienke at brokerage Equinet said the figures at first glance looked like a disaster. Maybe the new management is trying to create upside potential, he said.

BIGGEST BLOWS

After a number of setbacks in drug approvals that left it without a major drug candidate in late-stage development, Merck replaced the head of its pharmaceuticals unit.

It also hired Matthias Zachert, finance chief of German specialty chemicals group Lanxess AG , to take the chief financial officer role from the retiring Michael Becker.

Among the biggest blows was regulators' rejection of multiple sclerosis pill cladribine, which prompted Merck to pull the plug on the product.

Improvements are still needed, especially with respect to the quality of the pharmaceutical pipeline, CEO Kley said, adding he was looking into cost cuts.

Analyst Stefan Muehlbauer at Silvia Quandt Research said: This set of results puts the pressure on the new CFO ... to push forward cost cutting and restructuring initiatives.

The operating margin at the liquid crystals unit dropped to 34 percent, below the 51 percent expected, hurt by a lull in the overall TV market, recently highlighted by Samsung Electronics <005930.KS> which said second-quarter profit fell by a quarter amid a bleak outlook for computers and TVs.

Another one of Merck's key customers, Japan's Sharp Corp <6753.T>, suspended production at two plants from mid-March until early May after slumping domestic demand for TVs and a shortage of a gas used in panel production.

(Editing by David Cowell and David Holmes)

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