Third-Quarter Sales Decline on Recalled Medicines

J&J Third-Quarter Profit Gains on Drug, Device Sales
Sales fell 0.7 percent to $15 billion, as recalls of over-the-counter drugs and suspension of manufacturing at the plant that made the medicines have hurt J&J’s consumer products division. Photographer: Daniel Acker/Bloomberg

Johnson & Johnson, the world’s largest health-products company, reported third-quarter revenue that missed analysts’ estimates as recalls of children’s medicines hurt sales of consumer products.

Total sales fell 0.7 percent to $15 billion, missing the $15.2 billion estimate of 16 analysts surveyed by Bloomberg. J&J declined as much as 2.1 percent in New York Stock Exchange composite trading.

Sales of consumer products fell 11 percent because of the recalls, the New Brunswick, New Jersey-based company said in a statement today. In April, J&J’s McNeil unit withdrew more than 40 types of children’s drugs from shelves due to quality and potency problems. The recalls and suspension of manufacturing at the facility that made some of those medicines will reduce sales this year by about $600 million, the company said in July.

“Weak U.S. consumer sales -- which came in $209 million below our estimates -- could potentially signal some systemic damage to J&J’s brand name in light of the recent McNeil recalls and negative publicity,” said Rick Wise, an analyst at Leerink Swann & Co., in a note today to clients.

2010 Forecast

Net income climbed 2.2 percent to $3.4 billion, or $1.23 a share, from $3.35 billion, or $1.20, a year earlier, J&J said. The company raised its 2010 earnings forecast to $4.70 a share to $4.80 a share, excluding items, from a previous projection of $4.65 to $4.75 to reflect favorable exchange rates.

The euro strengthened 8 percent against the dollar from mid-July to mid-October, according to Wise, in an Oct. 15 note to investors. The trend “could help offset potentially slower market growth overall and boost” fourth-quarter earnings, he said in the note.

Profit beat the $1.15 average estimate of 18 analysts surveyed by Bloomberg, helped by income from the sale of the company’s breast-care business and a lower-than-expected income-tax rate.

‘Growth Trends’

“Our business performance was solid” despite “a deceleration of growth trends in overall health-care spending related to the economy,” J&J Chief Financial Officer Dominic Caruso said today in a conference call with investors.

J&J fell 57 cents to $63.29 at 4 p.m. in New York Stock Exchange composite trading. The stock has declined 1.7 percent this year to date.

Revenue in the pharmaceuticals division rose 4.7 percent to $5.5 billion, helped by a 19 percent increase in sales of the anti-inflammatory drug Remicade and a 52 percent boost in revenue from the HIV drug Prezista.

Worldwide medical-device sales increased 1.3 percent to $5.9 billion. Pricing pressure and lower volume restrained growth at the DePuy unit’s joint-repair business in the U.S., the company said. The Cypher heart-stent commanded 15 percent of the worldwide market, down from 21 percent in the same period last year.

‘Challenging Environment’

Until recently, health-care companies “only had to navigate patent expirations and the challenges of innovation,” Linda Bannister, an analyst at Edward Jones & Co., said today in a telephone interview. “Now you add on the costs of health reform and austerity measures in Europe. It’s a challenging environment.”

At the end of the third quarter, J&J had more than $10 billion in net cash, Caruso said, and it is looking for “opportunities to use that cash.”

During the quarter, the drugmaker completed the $480 million acquisition of Micrus Endovascular Corp., the maker of products to treat strokes. It also made a $2.4 billion bid to acquire Dutch vaccine manufacturer Crucell NV, a deal expected to close in 2011, when it will cut annual earnings an estimated 3 to 5 cents.

“The good news is, it should only get better from here,” said Jeff Jonas, an analyst at Gabelli & Co. Inc. in New York, in a telephone interview yesterday. “Currency is going to help sales, and you’ll start to get some of those children’s drugs back on shelves. It should be increasingly positive.”


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