Johnson & Johnson 'spinning out of control'?

Yes, the recalls were damaging, but the big picture at the company isn't nearly as bad as you think.

By Kim Peterson Jan 18, 2011 3:11PM
Credit: Tylenol recall (©Paul Sakuma/AP)A recent New York Times article on Johnson & Johnson (JNJ) paints a picture of a company beyond repair, a doomed purveyor of shabbily made medicinal products that has drawn the scrutiny of government officials.

"It looks like a plane spinning out of control," one former employee told the newspaper. This past year, the Times wrote, could have been called "annus horribilis." The headline was just as dramatic: "Can Johnson & Johnson get its act together?"

Let's push aside the doom and gloom and look at the numbers. Johnson and Johnson shares started last year at around $64.50 and by the end had plunged to the shocking level of . . . $61.85. Hmmm. Are investors missing something here?   

How about earnings? A quick scan through the quarters doesn't reveal huge disaster. Third-quarter profit rose 2.2% from the year before, while sales were down 0.7%. The company even raised its full-year guidance in October. The second quarter saw gains in sales and profit. Same with the first quarter.

I don't know about you, but to me that sounds an awful lot like a company that has its act together. So where is the Times getting its drama?

Post continues after video:
Ahh, Tylenol. Of course. McNeil Consumer Healthcare, a unit of J&J, recalled nearly 300 million containers of medications last year, including children's Tylenol, Motrin and Benadryl. An investigation found numerous quality issues at the company's factories, causing many parents to swear off of Tylenol completely in favor of generics.

All of this is legitimate and should concern consumers. McNeil's flaws -- and the parental reaction to them -- make for great journalism. J&J is spending more than $100 million to upgrade McNeil's manufacturing facilities.

But here's the rub, and it's something the Times quickly glossed over in its reporting. McNeil is having a tough time, but Johnson & Johnson is doing just fine. Business isn't tanking. Tylenol sales are such a small part of J&J's operations that the entire brand could disappear without making too much of a dent.

J&J's pharmaceutical sales totaled $5.5 billion in the third quarter, up from 4.7% the year before. The company is seeing strong sales of drugs such as Remicade, Prezista and Stelara.

Similarly, J&J's medical device division saw $5.9 billion in sales, an increase of 1.3% helped along by interest in its surgical care and sterilization products.

To be sure, the consumer division (in which the Tylenol business resides) took a sales hit, with a 10.6% decrease from the year-ago quarter to $3.6 billion.

There's no question that J&J needs to fix McNeil and then repair its brand. The company said last week it has sent the government a "comprehensive action plan" to improve its manufacturing network. Executives are working on major fixes.

J&J also has some serious image repair, and articles that simply rehash all the recalls and proclaim the over-the-counter version of the Titanic don't help. Not all is lost at J&J, and last year wasn't quite the annus horribilis that some would have you believe.
2Comments
Jan 25, 2011 8:49PM
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Until J&J's Board fires their CEO, Bill Weldon, this company will continue to struggle.  While he acts like a concerned leader of this organization, their troubles are a direct result of his cutting headcount at all divisions during his nearly 9 years as CEO, in order to prop up profits at a company where growth has completely stalled.  He still has no game plan for revitalizing growth, and now has oficially put Quality in a direct reporting relationship with Operations - a recipe for disaster!  For this lack fo leadership and performance, J&J's Board and Compensation Committee has "rewarded" him to the tune of over $165 Million in compensation since he took over, and gullibly allowed Mr Weldon to stay on past normal retirement age as CEO "until a successor is ready".  Isn't that a key role of responsible management, to groom their successor?  Remember this when it comes time to vote your shares at the next annual meeting.  Stockholders deserve much better than this!
Jan 20, 2011 5:19PM
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i cant believe it-- another johnson & johnson recall! this is getting ridiculous already! after i heard about the tylenol recall it really got me nervous--i wasnt sure where i could find any helpful information b/c i sure wasnt going to trust j&j so i decided to turn to google. the first site i clicked on was drugrecalls.com and it turned out to be the best site discussing and all drug or medical recalls. VERY HELPFUL www.drugrecalls.com  

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