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Dow 30 Earnings: Johnson & Johnson - Third Quarter 2011
Johnson & Johnson (JNJ - Free Johnson & Johnson Stock Report), the world's largest healthcare company, has reported third-quarter results. Sales were $16.0 billion, 7% ahead of the year-earlier figure and in line with our target. Management said that operations contributed about three percentage points of the gain, and currency tailwinds accounted for the remainder. Share earnings, excluding a mark-to-market adjustment to the value of the currency option associated with the planned acquisition of Synthes, were $1.24. The result was a penny better than both the 2010 number and our estimate.
Worldwide Consumer sales came in at $3.7 billion, representing an increase of 5%. Almost all of the advance was attributable to favorable exchange rates, though. Furthermore, domestic revenues fell 5%, as sales in U.S. over-the-counter medicines continue to be hurt by the suspension of manufacturing at the McNeil facility in Pennsylvania, as well as the impact on production volumes related to ongoing quality-enhancement initiatives. On the bright side, international revenues were up 10%, which enabled J&J to offset the weakness it experienced on the home front. Global Pharmaceutical sales jumped 9%, to $6.0 billion, and slightly more than half of the gain was credited to internal growth. Once again, the company's strong showing overseas enabled it to offset domestic softness. Indeed, sales in the United States were hurt by generic competition for LEVAQUIN, partially offset by the strong performance of recently launched products. Finally, worldwide Medical Devices & Diagnostics sales rose 6%, to $6.3 billion. Once again, strong international growth mitigated a weak domestic showing, while favorable currency translation accounted for almost three-quarters of the advance.
Not surprisingly, there was little reaction on Wall Street, as JNJ shares were essentially flat in a generally down market following the unexciting earnings announcement. We are sitting tight, too, keeping our 2011 estimates largely unchanged. We continue to expect share earnings of $4.95, which is at the low end of management's revised guidance ($4.95-$5.00). Our top-line call also remains the same, at $65.4 billion. (We will update our presentation to include Synthes when the planned acquisition has been completed.)
Investors should note that this blue chip is still an excellent buy-and-hold candidate. As far as earnings go, J&J is the world leader in the broader healthcare sector, with the financial prowess to continue investing in R&D and making acquisitions. This ought to enable the company to stay ahead of the curve and continue growing at a nice pace moving forward. As far as the income component in concerned, this Dow-30 stock has a solid dividend yield, which is currently about 3.5%. All in all, JNJ shares' long-term total-return potential is worthwhile and very 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 of 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.