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Johnson & Johnson's Net Income Falls 23 Percent, Raises Full-Year Outlook

Tuesday, 19 Apr 2011 08:12 AM

Healthcare giant Johnson & Johnson said Tuesday its sales rebounded but its profit dropped 23 percent in the first quarter because of higher costs for product recalls and litigation and a tax gain that boosted last year's results.

Adjusted earnings handily topped analysts' expectations on strength overseas, helped by a weaker dollar. J&J also raised its full-year earnings outlook, sending the company's stock up $1.67, or 2.8 percent, to $62.13 in morning trading.

The maker of Band-Aids, baby shampoo and birth-control pills posted net income of $3.48 billion, or $1.25 per share, down from $4.53 billion, or $1.62 per share, in 2010's first quarter.

But after an unprecedented two years of declining sales, revenue rose in the quarter by 3.5 percent to $16.17 billion.

Overseas revenue jumped 7.3 percent to $8.57 billion, offsetting a 0.6 percent decline in U.S. revenue to $7.61 billion. Domestic sales have been hurt by an embarassing string of 22 recalls of products including Tylenol and Benadryl over the last 19 months and the year-long closure of a consumer health products factory where many of the recalled medicines were made.

"We are off to a good start in 2011 with solid sales growth," Chief Financial Officer Dominic Caruso told analysts during a conference call.

Adjusted income was $4.86 billion, or $1.35 per share. Analysts polled by FactSet, on average, expected earnings per share of $1.03 and revenue of $15.6 billion.

Johnson & Johnson, based in New Brunswick, N.J., raised its profit forecast for the year to $4.90 to $5 per share, from $4.80 to $4.90 per share, excluding one-time charges or gains. Analysts previously expected $4.84 per share.

Analyst Steve Brozak of WBB Securities said the higher forecast is still too conservative.

"Their guidance up until now was conservative to the point where pretty much just keeping the doors open, they could meet their guidance," Brozak said.

Fixing manufacturing problems that led to the recalls will take longer than expected, the company said on its conference call. That will delay until late in 2012 resumption of full shipments of all the nonprescription medicines hit by the recalls. J&J had said that would happen throughout 2011.

A March 10 agreement with the Food and Drug Admininstration prevents reopening of the shuttered Fort Washington, Pa., plant until upgrades are approved by an outside inspector and quality standards are met.

Two other factories also are under close FDA scrutiny: one in Lancaster, Pa., and the other in Las Piedras, Puerto Rico. J&J said it will continue shifting production of medicines to other factories, and will change formulations, which will further add to the delays.

J&J raised its estimates for the costs tied to the recalls to 12 cents per share from 6 cents per share.

Consumer product sales decreased 2.2 percent to $3.68 billion as a 5.9 percent rise in overseas sales was wiped out by a 13.8 percent plunge in the U.S., mainly due to the recalls.

Drug revenue rose 7.5 percent worldwide, to $6.1 billion, partly on some new product launches. Revenue from medical devices and diagnostic products edged up 3.3 percent, to $6.43 billion.

J&J took after-tax charges totalling $271 million for litigation and costs of additional recalls of DePuy artificial hips.

It also reported higher costs for sales and administration, research and development, and production, the latter due to the factory upgrades. A year earlier, the quarter's results were buoyed by a $910 million after-tax gain related to litigation.

Caruso declined to comment on a potential $20 billion deal to buy Synthes Inc., a Swiss-U.S. maker of implants and instruments for bone and tissue repair. Synthes confirmed Monday that the companies are in talks.

Acquiring the company would boost J&J'ss revenue and profit in the short term and give it a dominant position in the growing market for orthopedic surgery products, particularly for trauma patients.

J&J noted that additional rebates to the goverment under the U.S. healthcare overhaul and cutbacks by cash-strapped European government health programs each cost the company about $60 million in revenue in the first quarter.

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Healthcare giant Johnson Johnson said Tuesday its sales rebounded but its profit dropped 23 percent in the first quarter because of higher costs for product recalls and litigation and a tax gain that boosted last year's results. Adjusted earnings handily topped analysts'...
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2011-12-19
Tuesday, 19 Apr 2011 08:12 AM
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