Charges drag down J&J 4Q profit, but sales rebound

[January 25, 2012]  NEW YORK (AP) -- A slew of charges for recalls, product liability, litigation and an acquisition dragged Johnson & Johnson's fourth-quarter profit down to barely a tenth of what the health care giant made a year ago, and some recalled products won't be back till year's end. But higher sales overseas boosted revenue enough to end an unprecedented two-year decline.

After an embarrassing series of product recalls and other problems overshadowed the past two years, the maker of Tylenol, prescription drugs and medical devices managed to beat Wall Street's forecast for adjusted profit and came in just below its revenue forecast.

The New Brunswick, N.J.-based company said Tuesday that net income was $218 million, or 8 cents per share, down from $1.94 billion, or 70 cents a share, a year earlier.

Excluding charges totaling $2.9 billion, net income was $3.13 billion, or $1.13 per share.

Revenue rose 4 percent to $16.26 billion, up from $15.64 billion in 2010's fourth quarter.

Analysts on average expected earnings per share of $1.09 and revenue of $16.28 billion.

"In the last five years, we've never felt better about our business coming out of one year and going into the next," CEO Bill Weldon told analysts during a conference call.

But he said he doesn't expect significant improvement this year in macroeconomic conditions, with escalating government pricing pressures in the U.S. and Europe and slower growth in the emerging markets that medical product makers are targeting as their best chance for expansion.

Weldon said the slump in elective surgeries, due to unemployed and uninsured people delaying them, continues. That affects sales of J&J's artificial joints and surgical implements and supplies.

"You can only put off procedures for so long," he added.

Revenue fell 3.4 percent in the U.S., to $6.99 billion, but jumped 10.2 percent in foreign countries, to $9.27 billion. The U.S. decline was mostly due to an 8 percent drop in sales of prescription drugs, as two big sellers -- the powerful antibiotic Levaquin and Concerta for attention deficit hyperactivity disorder -- got generic competition late last spring.

Revenue rose 2.7 percent to $6.49 billion for medical devices, and 6.7 percent to $6.09 billion for prescription drugs. Consumer product sales edged up 1.6 percent to $3.67 billion.

Analysts were not impressed.

Erik Gordon, an analyst and professor at the University of Michigan's Ross School of Business, called the results "mediocre," adding that they were "saved, as has become typical for big pharma, by non-U.S. sales."

He said the "slow pace of consumer product sales trying to recover from" more than two dozen recalls of products due to quality problems is disappointing.

Since September 2009, J&J has recalled a host of prescription and nonprescription medicines, as well as replacement hip joints, contact lenses and diabetes test strips. Among the recalls were tens of millions of bottles of children's and adult Tylenol and Motrin, Benadryl, Zyrtec, Rolaids and Simply Sleep pills. The prescription drug recalls have included HIV medicine Prezista and epilepsy pill Topamax.

Reasons for the recalls have ranged from contamination with metal shards and glass particles, to nauseating odors and inaccurate levels of active drug ingredients.

Weldon said in an interview that J&J has eliminated some low-volume products made by its McNeil Consumer Healthcare unit and should have most of the others back by the middle of the year, with the rest returning by year's end.

Analyst Steve Brozak of WBB Securities called the results lackluster. Like Gordon, he's concerned about profit margins declining due to multiple factors, including the costs of factory upgrades and litigation related to product recalls and increasing pricing pressures from government health programs.

Excluding one-time items, J&J's operating margin fell 2 full percentage points for the year, to 24.9 percent, and dropped to 20.3 percent in the fourth quarter. Chief Financial Officer Dominic Caruso said he expects that will almost bounce back in 2012, when he expects earnings of $5.05 to $5.15 per share, excluding special items, and revenue of about $68 billion. Analysts expected earnings of $5.20 per share and revenue of $68.45 billion, according to FactSet.

J&J said analysts likely had not updated their forecast to account for the recent surge of the dollar against the euro, which the company said will cut earnings per share by about 13 cents.

For the full year, J&J reported net income of $9.67 billion, or $3.49 per share, down from $13.33 billion, or $4.78 per share, in 2010. Revenue rose 5.6 percent to $65.03 billion, from $61.59 billion in 2010.

Shares of the company closed unchanged at $65.

[Associated Press; By LINDA A. JOHNSON]

Linda A. Johnson can be followed at http://twitter.com/LindaJ_onPharma.

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