Johnson & Johnson results remain unimpressive

The healthcare giant reported sales growth for a few drugs, but it can't escape a plethora of other problems.

By Melly Alazraki Apr 17, 2012 3:55PM

Image: Pills (© ImageShop/Corbis)Johnson & Johnson (JNJ) reported first-quarter earnings that beat analyst estimates. It also raised guidance for 2012. But the diversified healthcare company's problems -- from recalls to legal liabilities -- are far from over.


The healthcare giant, which makes everything from Band-Aids to implants to HIV drugs, said it earned $3.91 billion, or $1.41 per share, in the first quarter, up from $3.48 billion, or $1.25 per share, a year earlier. Excluding special items, J&J earned $1.37 per share, beating analyst estimates of $1.35, according to Thomson Reuters.


The company raised its 2012 earnings per share guidance to $5.07 to $5.17 from its earlier view of $5.05 to $5.15 to reflect the positive impact of current exchange rates.


Sales in the quarter were $16.14 billion, down from $16.17 billion the year before, and below analyst expectations of $16.26 billion, partly due to the stronger dollar.


Sales of J&J's pharmaceutical segment rose 1.2%. While the company's newly introduced Zytiga treatment for prostate cancer performed well, as did some HIV drugs -- its anti-inflammatory drug Stelara and multiple myeloma drug Velcade -- the company had to deal with generic competition for its Levaquin antibiotic and Concerta treatment for attention deficit disorder.


Sales of consumer products fell 2.4%, mainly because of recalls and ongoing quality-control issues. Since 2009, the company has suffered from endless recalls of many products, including over-the-counter products such as children's Tylenol and Motrin. The company was forced to close a plant to refurbish it, but it's taking longer than the company had previously anticipated, CFO Dominic Caruso said in a conference call, Bloomberg reported.


Sales of medical device and diagnostic sales also slipped slightly. This was partly due to J&J's decision to end sales of drug-coated heart stents, but also because of the unit's large recall of the DePuy hip replacement.


On top of its ongoing anemic sales, the New Brunswick, N.J., company is mired in legal troubles.


Just last week, a judge in Arkansas fined the company and its Janssen Pharmaceuticals subsidiary a huge $1.2 billion penalty for downplaying and concealing the dangers of its Risperdal antipsychotic drug and for tricking Medicaid into overpaying for it. It is the largest fine levied by any state in similar cases. J&J plans to appeal, but could that be a precursor to fines from other states?


Meanwhile, the company is trying to settle a kickback case involving Risperdal with the Justice Department. Reportedly, the DOJ is asking for $1.8 billion. And even before he takes the reins later this month as CEO, the DOJ wants to compel Alex Gorsky, who was in top management at Janssen at the time, to answer questions for his part in the case.


Gorsky is expected not only to revive sales growth in all three of the company's businesses, but also to resolve its manufacturing, quality control and legal liabilities.


JNJ shares have been less than impressive recently. They are down 2.5% this year, while the Standard & Poor's 500 Index ($INX) is up about 10.5%. While it has a solid yield of 3.5% and offers some stability, it certainly doesn’t offer anything more exciting.

Tags: JNJ
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