J&J 1Q profit falls 10 pct despite higher sales
Wednesday, April 17, 2013
Johnson & Johnson’s first-quarter profit fell by just over 10 percent as increased sales were offset by higher costs for production, marketing and administration, plus charges for litigation and other items.
The maker of No More Tears baby shampoo, prescription drugs and surgical tools said Tuesday repeatedly during a conference call with analysts that revenue for a wide range of products is being hurt by “pricing pressures” from insurers and government health programs.
But the world’s biggest and most diversified maker of health care products said it continues to make progress fixing manufacturing problems that have caused about three dozen product recalls since 2009 and kept Tylenol, Motrin and other popular consumer health brands out of stores. More of those brands are returning or soon will be.
J&J, based in New Brunswick, N.J., said it earned $3.5 billion, or $1.22 per share, down 10.6 percent from $3.9 billion, or $1.41 per share, a year earlier. Excluding litigation and acquisition-related charges totaling $610 million, income would have been $4.1 billion, or $1.44 per share. That beat analysts’ forecasts by 4 cents per share.
The latest quarter included $515 million in litigation and acquisition charges plus one for Venezuela devaluing its currency, while the 2012 first quarter had a $611 million gain mainly from a divestiture.
Revenue totaled $17.51 billion, up 8.5 percent from $16.1 billion a year earlier. That just topped analysts’ expectations for sales of $17.46 billion, based on a survey by FactSet.
J&J shares rose $1.73, or 2.1 percent, to $83.44. The stock has rallied 19 percent in the year to date, better than the benchmark S&P 500.
“We’re off to a good start in 2013 with solid results,” Chief Financial Officer Dominic Caruso told analysts. “We are positioned well to sustain growth in the increasingly dynamic global health care market.”
Caruso said the latest quarter didn’t see the modest jump in U.S. health care utilization — more elective surgeries, doctors visits and patients filling prescriptions — that occurred in the fourth quarter. It’s unclear whether that’s the start of a trend due to belt-tightening, or the result of a fourth-quarter blip from people with health savings accounts spending more before the year ended. In the prior few quarters, J&J had noted utilization was increasing.
Analyst Steve Brozak of WBB Securities said he expects more insurers and government health programs around the world to demand lower prices.
“Now the government’s going to start to sharpen their pencils and say, ‘We want a discount of this and this and this, or else we’re going’ elsewhere with our business,” Brozak predicted. “That is not a good thing for them.”
That’s already beginning.
“As of now, we have $1 billion of costs of U.S. health care reform embedded in our business,” Caruso told analysts.
That amount will be fairly evenly spread out over the year, he said in an interview with The Associated Press. It includes effects from multiple provisions of the Affordable Care Act: new rebates on prescription drugs bought by state-managed Medicaid programs, higher rebates for drugs bought under Medicare, a fee on prescription drug sales and a new fee on sales of medical devices such as its artificial joint implants.
J&J’s U.S. sales rose 11.2 percent, due to jumps of 11 percent or more for both the prescription drug and medical devices and diagnostic segments. International sales grew by 6.3 percent.
Caruso told analysts on the conference call that about 75 percent of J&J’s consumer health brands will be back on store shelves by the end of this year. J&J has repeatedly pushed back its forecast of when all its brands will again be available.
Caruso told The AP that of the other 25 percent of brands, Rolaids has been sold off and some variations of other brands have been discontinued.
“The balance will then come onto the marketplace in 2014,” he said.
Caruso noted that three popular brands — Children’s Tylenol, Benadryl allergy pills and heartburn treatment Pepcid Complete — resumed sales during the first quarter.
Sales of consumer health products, which were down 2.9 percent in the fourth quarter, edged up 2.2 percent to $3.68 billion.
The company continues to make factory upgrades and undergoes increased regulatory inspections under an agreement with the Food and Drug Administration that followed the unprecedented number of recalls. Reasons for them range from nauseating packaging smells to tiny glass and metal shards in liquid medicines.
In the medical devices and diagnostics business, J&J’s biggest unit, sales climbed 10 percent to $7.06 billion. That was mainly because of new products acquired last year with orthopedics device maker Synthes, J&J’s biggest acquisition ever at $19.7 billion. The segment also launched a couple of new products.
“Thank God for Synthes,” Brozak said. “They got a very robust return on it.”
Prescription drug revenue rose 10.4 percent to $6.77 billion, led by Invega Sustenna for schizophrenia, three drugs for immune disorders and two new medicines likely to become blockbusters with more than $1 billion in annual sales. Those are Xarelto for preventing blood clots and strokes, and prostate cancer pill Zytiga, which jumped 72 percent to $344 million.
Caruso noted the FDA on March 29 approved Invokana, J&J’s first entry in the multibillion-dollar market fueled by the global diabetes epidemic. The daily pill is the first in a new class of Type 2 diabetes medicines that increase how much sugar is excreted via urine.
“It will be a core component of our comprehensive platform for the management of diabetes,” Caruso said, and will be promoted by salespeople for J&J’s OneTouch and Vibe lines of diabetes-testing products and insulin pumps.
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