Turnaround: What Was Fixed at Johnson & Johnson?

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July 15 (Bloomberg) -- Bahl & Gaynor Principal and Portfolio Manager Matthew McCormick and National Retail Federation Chairman Stephen Sadove discuss their outlook for Johnson & Johnson on “In The Loop.” (Source: Bloomberg)

Stays with me as well.

Matt, let me start with you.

You were actually sold out of your j&j shares any recently got in because you felt finally the company has got it when he came to the company's recalls.

What made you more confident?

When we originally got out of j&j in early 2011, we were concerned about the former ceo's lack of ability to address the supply change and managing issues.

How bad would it have to be to take over -- that is a bad sign.

The potential loss and dividend cut, and we moved elsewhere.

When he came on board, we met with him and his senior management.

We felt they got it and we started being more adept and active in addressing these quality-control issues.

The stock is benefiting today, beating on earnings and revenue and outlook and it is a reason why we think it is a great stock right now for the long-term.

You are on the board.

What is the playbook for things like product recalls?

Quality consumer comes first.

That is oh is the mindset.

You have got to protect the consumer.

The brands are enormously valued.

You have brand names like johnson and johnson and you have got to protect the brands.

What johnson & johnson went through is remarkable change because it is a highly decentralized company that has different processes everywhere, very different from where everything is standardized on a global basis.

J&j had to move toward having better processes and controls.

That is what you are seeing going on right now.

Far better than anticipated, but you're seeing improvement because you moved from a very decentralized lack of process controls to something much more standardized and controlled and you're changing the culture.

If you are decentralized, you have a harder time responding to emergencies like that?

You have the same risk.

You do not have as much control.

You have to have, the right processes and controls.

I do not think -- j&j clearly did not have them back then.

J and j is your top holding.

Not only do you believe in its recovery, you really believe in j&j's outlook.

What makes you such a strong bull on them?

52 years of consecutive dividend increases, health care mutual fund, you have an aging demographic in the u.s. as low as the world.

If you look at what the stock does, if you believe as i do that the market will get more volatile, this is a stock that will hold up that are than the broad market and many of his peers.

When you look at j&j, you have diversified revenues, they are addressing quality-control issues, you get paid in dividend, and it is essentially on of the better managing companies out there.

What do you want to see as an investment -- investor in this company?

They have three major divisions.

Is there anything you would like to see them selloff?

Or possibly acquire?

You know, i think when we look at acquisitions, we want them to be immediately agreed.

We want to see dividend growth.

To a certain extent, i would like to see them keep doing what they're doing.

Working on incremental changes, definitely on quality-control.

Don't screw it up.

Earnings and revenues increasing outlook, that is perfect for what we want.

I do want to quibble a little bit with peterson's point, when you interviewed her, there was one topic she said was frankly quite stunning.

She said she would not interpret a recall as a bad thing.

Maybe she just phrased it in correctly but as a shareholder and consumer, i have to disagree.

That is an abject failure from all levels of management.

I agree they have to respond but do not tell me it is a good thing.

It is a bad thing and that is obviously a distraction and i prefer zero recalls as opposed to telling me it is a good thing.

Hopefully, she just phrased it in artfully, but that is something from your interview, i could -- i came away from that saying, that was a surprising statement from such a powerful person who is excellent at what she does.

I thought that was something that was an issue.

To clarify and give you more perspective, i think she totally agrees.

The goal is to have no more recalls.

The point was that what you're seeing from the company is a voluntary recall so there is a process, so the product comes out that meets potentially government standards and fda standards but does not necessarily live up to the j&j standards so they are pulling in and looking at the process to make sure it is up to their newer and improved standards.

To give you a little perspective and clarification, they do not want to see any recalls.

Nobody wants to.

The j&j brand, that is the value of the company.

They want to make sure they protect that.

The bottom line is they do not want to see recalls.


We hope there are no more recalls.

Thank you so much, matt.

This text has been automatically generated. It may not be 100% accurate.


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