J&J Raises 2011 Profit Forecast After Dollar Boosts Sales

J&J Says Profit Fell 23% on Consumer Drug, Hip Recalls
Recalled over-the-counter medicines distributed by the McNeil Consumer Healthcare division of Johnson & Johnson. Photographer: Daniel Acker/Bloomberg

Johnson & Johnson, the world’s second-biggest seller of health products, increased its annual earnings forecast after quarterly profit beat estimates on drug sales and a weak dollar. The shares rose the most since 2008.

Earnings in 2011 will be $4.90 to $5 a share, above a January forecast of $4.80 to $4.90, New Brunswick, New Jersey-based J&J said in a statement today. Chief Financial Officer Dominic Caruso said he saw signs that a drop-off in medical procedures that hurt sales last year may be easing.

Revenue concerns are part of the motivation behind J&J’s takeover talks with Synthes Inc., a Swiss medical-device maker, said Jeff Jonas, a Gabelli & Co. analyst in Rye, New York. While consumer-product sales fell after the company pulled more than 40 brands, prescription drugs beat estimates for the quarter, he said. A stronger flu season helped, as did new medicines for psoriasis and arthritis, Jonas said.

“The story’s been delayed for a year and half because of all the consumer recalls, but they do have a good drug pipeline,” Jonas said in a telephone interview. “You could potentially see accelerating revenue as they launch their new drugs and recover on the consumer line.”

Shares Rise

Johnson & Johnson gained $2.23, or 3.7 percent, to $62.69 at 4 p.m. in New York Stock Exchange composite trading, making it the best performer in the Dow Jones Industrial Average. It was the biggest one-day increase since November 2008 for J&J, which has fallen 5.1 percent in the past 12 months.

Quarterly profit excluding one-time items of $1.35 topped by 10 cents the average estimate of 16 analysts. Net income dropped 23 percent to $3.48 billion, or $1.25 a share, hurt by withdrawals of over-the-counter drugs and artificial hips.

Revenue rose 3.5 percent to $16.2 billion. About half of the increase came from translating foreign currencies into dollars, the company said.

“The market will probably like this, although currency was 49 percent of their growth so it’s not as rosy as the first read will make it look,” said David Maris, a Credit Agricole analyst in New York, in a telephone interview.

J&J’s McNeil Consumer Healthcare unit pulled Tylenol, Motrin and other consumer medicines last year because of incorrect ingredients or a musty smell that sickened some customers. The company doesn’t expect to get all of the products back to the market until 2012, CFO Caruso said on a conference call with analysts.

Recall Costs

Caruso said fixing the quality problems will cut earnings this year by 12 cents a share, double January’s estimate, after J&J signed a consent decree in March giving U.S. regulators expanded oversight of three manufacturing plants. First-quarter sales of J&J’s over-the-counter drugs fell 6.5 percent, led by a 27 percent drop in the U.S., because of the recalls.

Investors “are concerned about this damaging the reputation of J&J,” said Linda Bannister, an analyst at Edward Jones & Co. in St. Louis. “The company needs to make it right, to get these things fixed.”

Synthes, which leads the $5.5 billion global market for tools to treat broken bones, said in a statement yesterday that it was in talks about being acquired by J&J. With a market value of $19.5 billion, the West Chester, Pennsylvania-based device maker would be J&J’s biggest takeover ever.

Caruso declined to comment on any potential deal. J&J’s priority for using its approximately $27 billion in cash and near-term investments remains raising the dividend, he said. After that, the company wants “to grow the business.”

Increasing Scale

“We’re the largest med-tech business in the world, so we believe that having a broad base of med-tech businesses, of scale, is important,” Caruso said. “And obviously where we don’t have sufficient scale, we’d love to increase the scale over time in the appropriate manner.”

Pharmaceutical division sales climbed 7.5 percent to $6.06 billion, J&J said. Revenue for psoriasis drug Stelara rose 91 percent to $166 million, while arthritis treatment Simponi’s sales climbed 36 percent to $53 million. Sales of Levaquin, an antibiotic, jumped 17 percent to $434 million because of a higher incidence of flu and respiratory illness, the company said.

Pfizer Inc., based in New York, is the largest health products maker by annual sales.



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