Johnson & Johnson Profit Beats Estimates on Drug Sales

Johnson & Johnson, the world’s biggest maker of health-care products, reported third-quarter profit that beat analysts’ estimates as newer drugs continue to propel the company to faster growth than competitors. J&J raised its full-year forecast.

Earnings excluding one-time items of $1.36 a share beat the $1.32 average of 17 analysts’ estimates compiled by Bloomberg. Profit may be $5.44 to $5.49 a share for 2013, the New Brunswick, New Jersey-based company said today in a statement.

J&J has bolstered its pharmaceutical business with eight new medicines since 2011, including the blood thinner Xarelto and prostate cancer treatment Zytiga, after losing patent protection on two top-selling drugs in 2008 and 2009. Competing drugmakers are dealing with losing exclusivity on products more recently, with Pfizer Inc. spinning off units and Merck & Co. cutting 20 percent of its workforce.

“I’m a firm believer in shots on goal, and that’s something J&J has consistently focused on,” said Judson Clark, an analyst with Edward Jones in St. Louis, in a telephone interview. “They aren’t forced to rely on one or two products.”

J&J increased less than 1 percent to $89.93 at the close in New York. The shares have gained 28 percent this year.

Revenue Gain

Net income of $2.98 billion, or $1.04 a share, was little changed from $2.97 billion, or $1.05, a year earlier, J&J said. Revenue increased to $17.6 billion from $17.1 billion a year earlier, the 11th straight quarter of growth. The company in July had forecast 2013 earnings of $5.40 to $5.47 a share.

J&J is the first of the major U.S. drugmakers to release third-quarter results, with Bristol-Myers Squibb Co. and Eli Lilly & Co. reporting on Oct. 23, Merck on Oct. 28 and Pfizer on Oct. 29.

Prescription-drug sales increased 9.9 percent to $7 billion, putting the division ahead of the medical device and diagnostic unit, which is traditionally the company’s biggest. Device sales fell 2 percent to $6.9 billion.

Sales of over-the-counter medicines and consumer goods, including the Listerine mouthwash and Aveeno skin care products, rose less than 1 percent to $3.6 billion. J&J continued to return previously recalled products to store shelves, with U.S. over-the-counter product sales rising 18 percent in the quarter.

Clean Beat

“Johnson & Johnson’s earnings per share beat was clean, helped by sales outperformance and better-than-expected gross margins,” said Danielle Antalffy, an analyst with Leerink Swann & Co. in New York, in a note to clients today. “Overall, JNJ continues to ride the back of strong Pharma performance as recent product launches continue to exceed expectations.”

Sales were hurt by a stronger U.S. dollar, with foreign exchange rates reducing international sales by 2.9 percent. The negative impact of currencies was strongest in the medical device and diagnostic unit, where it lowered sales growth outside of the U.S. by 4.3 percent.

The 25 percent decline in the value of the yen won’t significantly affect the company’s performance in 2013 since J&J uses an advanced hedging technique to minimize fluctuations in exchange rates, Chief Financial Officer Dominic Caruso said on a conference call today. The company expects it to be a “significant headwind” in 2014, he said.

The Patient Protection and Affordable Care Act of 2010 will cost J&J about $1 billion this year, said Tony Butler, an analyst with Barclays Plc. The law, intended to help provide health coverage for some of the 48 million uninsured Americans, will weigh on the company because of rebates in the government’s Medicaid program for the poor, drug cost cuts in the Medicare program for the elderly, and a 2.3 percent excise tax on medical device sales.

(Updates with closing share price in fifth paragraph.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE