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Dow 30 Earnings: Johnson & Johnson - Second Quarter 2011
Johnson & Johnson (JNJ - Free J&J Stock Report), the world's largest healthcare company, has reported second-quarter results. Revenues were $16.6 billion, 8% ahead of the year-earlier figure and 2% above our estimate. Share earnings were just $1.00 before backing out a succession of one-time items related to litigation, a product recall, and a mark-to-market currency transaction. Adjusted profits were $1.28 a share, which was $0.07 better than the tally notched a year ago, and a nickel ahead of our estimate.
Worldwide Consumer sales increased 4%, to $3.8 billion, despite the ongoing drags associated with recent recalls and the suspension of manufacturing at a Pennsylvania-based facility. Upon closer inspection, however, the gain was derived from favorable currency translation and not from internal growth. Indeed, domestic sales fell 9%; international sales rose 12%, reflecting an operational increase of 3% and foreign exchange gains of 10% (does not total due to rounding). On a much brighter note, global Pharmaceutical revenues were up 12%, to $6.2 billion, thanks to internal growth of 7% and positive currency effects of 5%. Results were buoyed by the strong performances of recently launched products, such as STELARA, ZYTIGA (which was just approved by the FDA), and INVEGA SUSTENNA. Other, more mature, offerings also contributed to the segment's success. Finally, worldwide Medical Devices & Diagnostics sales were $6.6 billion, up 7% from the year-earlier period. The operational increase was merely 1%, however, with the balance made up of favorable foreign exchange movements. J&J has a very strong pipeline in the arena, though, so the business should get back on track quickly. Moreover, it is in the process of buying Synthes, a global orthopedic device maker, with more than $21 billion in annual sales, which further augments this group's potential.
There was not much reaction on Wall Street, as JNJ shares fell modestly in early trading, as most investors seemed unmoved by the unexciting results. As for us, we are holding steady, too, and keeping our full-year bottom-line target unchanged at $4.95 a share. This figure, which excludes the likelihood of more one-time items, is in the middle of management's guidance range. We did add about $400 million to our top-line call, but this is mostly to account for the favorable currency swings. (We will include the acquisition of Synthes in our presentation once the deal has been completed.)
This blue chip remains an excellent buy-and-hold candidate in our view. J&J is a world leader in the expanding broader healthcare industry and has the finances to continue investing in its core business or making acquisitions. So growth should continue at a nice pace. The stock's long-term total-return potential is very good and well-defined.
About The Company: Johnson & Johnson manufactures and sells health care products. Its major lines consist of numerous household products. The company operates in a diverse number segments, including Consumer (baby care, nonprescription drugs, sanitary protection, and skin care), Medical Device & Diagnostics (wound closures, minimally invasive surgical instruments, diagnostics, orthopedics, and contact lenses), and Pharmaceutical (contraceptives, psychiatric, anti-infective, and dermatological drugs).
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.