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Johnson & Johnson 3Q profit rises, tops views
2008-10-14
Health care giant Johnson & Johnson on Tuesday posted a 30 percent jump in third-quarter profit and beat Wall Street expectations, mainly because the year-ago results were weighed down by a $745 million restructuring charge. Higher sales of consumer products and medical devices, boosted overseas by the weak dollar, also helped the New Brunswick, N.J.-based maker of contraceptives, baby care items, medical devices and prescription drugs. It Reported net income of $3.31 billion, or $1.17 per share, up from $2.55 billion, or 88 cents per share, in the year-ago period. Revenue climbed 6.3 percent, to $15.9 billion from $14.97 billion, but was boosted 3.1 percent by favorable currency exchange rates. Analysts surveyed by Thomson Reuters expected earnings per share of $1.11 and revenue of $15.69 billion. Prescription drug sales were flat at $6.1 billion and would have been down 2.5 percent if not for favorable exchange rates. They were hurt by generic competition for pain patch Duragesic and the pill version of Risperdal, whose sales were down 63 percent. The long-acting injected version of the schizophrenia drug, Risperdal Consta, still has patent protection and its sales increased 10 percent to $338 million. Three other drug franchises out of the 11 J&J reports saw sales decline: antibiotic Levaquin, heartburn treatment Aciphex and anemia drug Procrit. Epilepsy drug Topamax, Remicade for arthritis and other immune disorders, attention deficit disorder pill Concerta and cancer drug Velcade all saw double-digit sales increases. "Now's a very difficult time for J&J," although it has robust cash flow, said Krensavage Partners money manager Mike Krensavage, who owns J&J shares. "It's facing some significant headwinds" from looming generic competition, he said, but could resume growth of drugs in spring of 2010. Company executives attempted to reassure investors with a detailed update on J&J's drug pipeline, saying it is the most robust in company history and that J&J is on track to seek approval for seven to 10 new drugs from 2008 through 2010. "I don't see any blockbusters" in the pipeline, said analyst Steve Brozak of WBB Securities. "The pharmaceuticals sales are the leading indicator that we are in a full-blown recession," and other drugmakers are likely to have similarly disappointing results for prescription drugs, he said. "Thank God for their consumer business." Consumer product sales jumped 13 percent to $4.1 billion. They were driven by the successful January launch of a nonprescription version of allergy drug Zyrtec, which already has about one-quarter of the market, plus women's health and skin-care products, including a moisturizer line from a Chinese company acquired this year. Revenue from medical devices and diagnostics increased 8.8 percent to $5.7 billion, on higher sales of Acuvue contact lenses, products for obesity surgery, joint replacement parts and the One-Touch Ultra diabetes testing system. Most of the segment is strong and J&J "is spread out well," said medical device analyst Venkat Rajan at consultants Frost & Sullivan. He said the Cordis cardiac device business has been slowed by what he sees as a temporary decrease in the market for artery-opening stents, but when growth resumes, Cordis will be at a disadvantage to competitors with newer products than its Cypher stent. The company's chief financial officer, Dominic Caruso, told analysts that recent difficult economic conditions have only affected small pockets of J&J's broad-based business, such as sales of devices used in elective surgery. He said J&J has had no exposure to the subprime market or financial companies that have collapsed, still has ready access to short-term loans at "very attractive rates," and recently renewed lines of credit, although it has not had to use them as cash flow remains strong. Caruso warned the strengthening dollar could reduce fourth-quarter revenue and said J&J raised its full-year profit forecast mainly due to the federal government reinstating a tax credit for research and development. For all of 2008, J&J now expects earnings of $4.50 to $4.53 per share, excluding one-time items, up from $4.45 to $4.50 a share last quarter. For the first nine months, net income jumped 25 percent, to $10.24 billion, or $3.60 per share, up from $8.2 billion, or $2.81 per share. Revenue was up 7.6 percent, to $48.57 billion from $45.14 billion. In afternoon trading, J&J shares were up $1.71, or 2.57 percent, at $64.39.
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