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Dow-30 Earnings: Johnson & Johnson - First Quarter 2013
Revenues were $17.5 billion, up 8.5% from a year earlier. This figure was $95 million shy of our target, but was $65 million ahead of consensus. Domestic sales rose 11.2%; international sales increased 6.3%, reflecting operational growth of 8.7% and negative currency translation effects of 2.4%. Finally, the top line included benefits from last year's acquisition of Synthes, net of the divestiture of the DePuy trauma business, which was responsible for just under three-fifths of worldwide operational sales growth of 9.8%.
GAAP profits and share earnings for the period were $3.5 billion and $1.22, respectively. Net income included after-tax items of $610 million, related to litigation expenses as well as integration and transaction costs associated with the purchase of Synthes. Excluding these nonrecurring items, profits for the quarter were $4.1 billion or $1.44 a share, representing increases of 8.0% and 5.1%, respectively. Both Value Line and Wall Street analysts, on average, were looking for share earnings of $1.40.
Worldwide Medical Devices & Diagnostics sales in the opening stanza of 2013 were very healthy, at $7.1 billion, representing an overall increase of 10.2%. This improvement consisted of operational growth of 11.9% and a negative foreign exchange of 1.7%. The acquisition of Synthes was responsible for just about all of the growth and even made up for some shortfalls in other areas, but other pockets of strength included ACUVUE disposable contact lenses; electrophysiology and endovascular products in the cardiovascular care unit; and donor screening and clinical laboratories offerings in the domestic diagnostics division.
Global Pharmaceutical revenues of $6.8 billion represented an increase of 10.4%. Here, operational growth was 11.4% and the foreign exchange drag was 1.0%. A host of drugs, including REMICADE, INVEGA, SUSTENNA, XEPLION, PREZISTA, STELARA, and SIMPONI, helped to bolster the top line. Strong sales results of recently launched products included ZYTIGA, XARELTO, and INCIVO.
Finally, worldwide Consumer sales came in at $3.7 billion, an increase of 2.2%. The internal advance amounted to 3.3% and the negative impact from currency translation was 1.1%. Positive contributors to the gain were TYLENOL and MOTRIN and other over-the-counter medicines; LISTERINE mouthwash; and NEUTROGENA and other skin-care products.
Investors reacted favorably to the news, driving the price of JNJ stock (a component of the Dow Jones Industrial Average) slightly higher after the news was released. The equity continues to trade near its 52-week high.
We have made some very slight adjustments to our full-year targets, but remain optimistic about both Johnson & Johnson's prospects and the long-term potential of its stock. We cut $100 million from our revenue target, which now stands at $71.8 billion. This would represent growth of 6.8%. We added a penny to our 2013 share-earnings estimate, which is currently $5.44. This is almost pushing against the upper limit of management's guidance range ($5.35-$5.45) and is ahead of consensus ($5.40 as of this writing), but we expect the solid sales growth and better operational execution to lead to share-net growth of 6.7% this year. We also added a nickel to our 2014 share-earnings target, which is now $5.85, as we look for a margin expansion related to better expense management and further integration of Synthes.
We continue to recommend this blue chip for all types of accounts, but think it is an especially good choice for conservative investors seeking decent income and well-defined, albeit modest capital gains.
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.