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J&J Beats Despite Profit Decline
By Zacks Investment Research on July 15, 2009 | More Posts By Zacks Investment Research | Author's Website
Yesterday, Johnson & Johnson (NYSE:JNJ) announced financial results for the second quarter ended June 30, 2009. The company beat ours and the Street’s expectations on both the top- and bottom-line. However, both revenues and earnings declined from the year-ago period mainly due to tighter consumer spending, generic competition and foreign exchange impact.
Total revenues declined 7.4% from the year-ago quarter to $15.2 billion. Operationally, sales decreased by only 1% while the remaining 6% of the decline came from the stronger dollar.
Pharmaceutical division sales declined 13.3% to $5,498 million, but were slightly better than our forecast. The primary growth drivers in this segment were Remicade, Concerta, Prezista, and Velcade. Weaker-than-expected product sales came from Duragesic, Topamax and Risperdal Consta all of which were hampered by generic competition.
The Medical division posted sales of $5,887 million, down 3.1% year-over-year, but in-line with our forecast. Ethicon and DePuy continue to be areas of strength for the company, while Cordis continues to struggle with declining sales of the Cypher drug-eluting stent which is facing intense competition. Products acquired through the company’s acquisition of Mentor Corp also contributed to revenues.
Total Consumer division sales fell 5% in the second quarter to $3.8 billion. However, performance was significantly better-than-expected on surprisingly strong sales of Listerine, Neutrogena, and Aveeno.
Net income for the second quarter came in at $3,208 million, down 5% from the year-ago period. Earnings per share totaled $1.15, four cents above the consensus estimate of $1.11. On a year-over-year basis, EPS was down 3% in the second quarter. Operationally, business was strong in the second quarter, but foreign exchange headwinds had a significant negative impact.
For 2009, the company expects to report earnings between $4.45 and $4.55 per share on total revenues of $61 - $62 billion. Based on our updated financial model, we forecast revenues of $60.5 billion, with EPS of $4.53 per share.
We believe the shares remain undervalued given the company’s strong financial position and ability to post solid growth even in times of severe macroeconomic stress. We reiterate our Buy recommendation with a price target of $70.
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