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Dow 30 Earnings: Johnson & Johnson – Fourth Quarter 2011
Johnson & Johnson (JNJ – Free Johnson & Johnson Stock Report), the world's largest and most diversified healthcare company, has recently reported fourth-quarter results. Revenues were $16.3 billion, up 4% compared to a year ago, but slightly below our target. Domestic sales dropped 3%, while international revenues rose 10%. After backing out a slew of charges related to product liabilities, the DePuy ASR hip recall program, litigation, and the planned acquisition of Synthes, share earnings came in at $1.13. The bottom-line figure was 10% ahead of the year-earlier total and four pennies better than our estimate of $1.09.
On a full-year basis, worldwide sales were $65.0 billion, an increase of 6%. The growth was generated by contributions from operations (3%) and positive currency translation (3%). However, domestic revenues fell 2%, while international sales climbed 12%. Adjusted share earnings were $5.00 ($3.49 on a GAAP basis), up 5% from the $4.76 notched in 2010.
Worldwide Consumer sales were $14.9 billion in 2011, an increase of 2%. On the home front, the group struggled, posting a 7% decline in revenues, as sales of over-the-counter medicines were significantly affected by the suspension of manufacturing at the Pennsylvania-based McNeil facility. Lower production volumes stemming from ongoing efforts to enhance quality control and manufacturing systems also hurt results.
Full-year Pharmaceutical revenues came in at $24.4 billion, a healthy 9% advance. Again, the company ran into some trouble domestically, posting a 1% top-line decrease. Generic competition for antibiotic LEVAQUIN hurt U.S. revenues, though the strong performances turned in by some recently launched drugs helped offset the negative effect. On the other hand, the international Pharmaceutical arm notched an impressive 21% sales gain, as J&J continues to make inroads in various new markets.
The company's largest division, Medical Devices & Diagnostics, reported sales of $25.8 billion in 2011, up 5% from a year prior. Domestic revenues were flat, while sales generated abroad ticked up 9%. Strong volumes of surgical care, minimally invasive, blood glucose monitoring, insulin delivery, and other products all contributed to the solid top-line advance.
Along with the fourth-quarter and 2011 results, management announced earnings guidance for 2012. J&J is looking for share earnings to fall between $5.05 and $5.15, excluding the impact of special items. This compared unfavorably to our previous bottom-line target of $5.25 a share. Consequently, we are cutting our estimate by a dime, to $5.15, though we may lower our call again upon further review.
Somewhat surprisingly, there was not much of a premarket reaction on Wall Street, as JNJ shares actually traded up slightly after a modestly weak start. We thought that even though J&J's fourth-quarter profits came in ahead of our targets, the weaker-than-anticipated guidance would have led to a selloff—indeed, it could well retreat late on. However...
Regardless of what happens in the near term, our long-term outlook remains unchanged. We think this top-quality blue chip is an excellent buy-and-hold vehicle for most investors. The dividend yield is about 3.5%, and J&J's strong finances ought to continue to support the healthcare giant's growth out to 2014-2016.
About The Company:Johnson & Johnson manufactures and sells health care products. Its major lines consist of numerous household products. The company operates in a diverse number of segments, including Consumer (baby care, nonprescription drugs, sanitary protection, and skin care), Medical Device & Diagnostics (wound closures, minimally invasive surgical instruments, diagnostics, orthopedics, and contact lenses), and Pharmaceutical (contraceptives, psychiatric, anti-infective, and dermatological drugs).
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.