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J&J Forecasts 2012 Profit That Misses Analyst Estimates

Johnson & Johnson (JNJ) Chief Executive Officer William C. Weldon said the decline in medical spending that started with the global financial crisis may be nearing a bottom, leading the company to forecast a sales gain for 2012.

J&J, the world’s second-biggest seller of health products, sees signs that the drop in elective procedures including knee and hip replacements is leveling off, Weldon said today. That pattern, and a return to the market of recalled J&J consumer products, may help boost sales by as much as 2 percent this year, the New Brunswick, New Jersey-based company said.

Elective surgeries, “could be hitting a trough right now,” Weldon said in an interview. “People are going to be coming back to the doctor, so we’re going to continue to invest in those areas and hopefully when these patients come back, we’ll be able to capture more” of the market.

Revenue may rise to as much as $66.5 billion this year, assuming no change in currency exchange rates, Chief Financial Officer Dominic Caruso said on a conference call with analysts today. J&J also forecast 2012 profit of $5.05 a share to $5.15 a share, less than the $5.20 average estimate of analysts surveyed by Bloomberg. The analyst estimates didn’t include the drag that sales outside the U.S. will face from a rising dollar, the company said.

Hopeful Indication

The medical trends are “a hopeful indication for J&J’s surgical and device business as well as the broader medical device group,” said Matthew Miksic, a Piper Jaffray & Co. analyst in New York, in a note to clients. Orthopedics companies including Stryker Corp. (SYK) in Kalamazoo, Michigan; Zimmer Holdings Inc. (ZMH) of Warsaw, Indiana; and Smith & Nephew Plc (SN/), based in London, may also benefit, he said.

J&J was unchanged at $65 in New York trading. The shares have gained 4.4 percent in the last 12 months. Stryker increased less than 1 percent to $52.94 and Zimmer climbed less than 1 percent to $56.55.

Pfizer Inc., based in New York, is the biggest health-care company by sales.

Excluding currency effects, J&J expects sales of about $68 billion in 2012, a 4.5 percent rise, Caruso told analysts. That would match the average forecast of 18 analysts in a Bloomberg survey.

J&J’s $21.3 billion acquisition of orthopedics maker Synthes Inc., expected to close this year, doesn’t mean the company can’t take on another big deal, Weldon said. The CEO said he’s interested in products that will serve an aging population, including drugs and devices to treat cardiovascular disease, diabetes, cancer, immune disorders and orthopedics.

Right Opportunity

“If the right opportunity came along, we’d assess it, but I think we’ll digest the Synthes deal right now,” Weldon said. “The strength of J&J is, obviously, we have the financial resources to really assess anything.”

Caruso tempered the outlook on the conference call. J&J expects more pressure to lower device prices in 2012, compared with last year, he said. The CFO said he doesn’t foresee significant improvement in the economy this year.

Recalls of over-the-counter medications have cost J&J sales over the past two years. Weldon said brands of children’s and infant’s Tylenol and Tylenol cold capsules already returned to the market, and most recalled products should be back by later this year. He declined to say how much of its market share, if any, J&J had recaptured.

“Our objective is to get back to beyond where we were, but that’s not going to happen next week or next month,” he said in the interview. “it’s going to take a lot of work but we’re committed to doing that.”

Net income in the fourth quarter fell to $218 million, or 8 cents a share, weighed down by $2.9 billion in charges for litigation and product recalls, J&J said in a statement. Earnings excluding one-time items of $1.13 a share beat the $1.09 average estimate of 20 analysts.

To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at Rgale5@bloomberg.net

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