Highlights From JNJ's Q4 Conference Call: Q4 Sales Up 9% Year-over-Year; Guides In-line for FY10

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January 26, 2010 12:59 PM EST

Johnson & Johnson (NYSE: JNJ) reports Q4 EPS of $1.02, ex-items, 5 cents better than the analyst estimate of $0.97. Revenue for the quarter was $16.6 billion, which compares to the estimate of $15.70 billion. Shares are down 0.85% today.

Highlights From JNJ's Q4 Conference Call:

Sees FY10 EPS of $4.85-$4.95, which compares to the Street estimate of $4.94.
(Vice President Investor Relations) Worldwide sales to customers were $16.6 billion for the fourth quarter of 2009, up 9% as compared to the fourth quarter of 2008. On an operational basis, sales were
4.5% and currency had a positive impact of 4.5%.
In the U.S., sales increased 2.6%. Outside the U.S., our operational growth was 6.4%, while the effective currency exchange rates positively impacted our reported results by 9.2 points. The Western hemisphere, excluding the U.S., grew 19% on an operational basis. Europe grew by 5.1% operationally, while the Asia-Pacific-Africa region grew 2.3% operationally.
If you'll now turn to the Consolidated Statement of Earnings, net earnings on the reported basis were $2.2 billion and earnings per share were $0.79. That compares to $2.7 billion and $0.97 per share in the same period in 2008.
Net earnings on an adjusted basis were $2.8 billion and earnings per share were $1.02, up 8.4% and 8.5%, respectively, versus the fourth quarter of 2008.
Sellings, marketing and administrative expenses at 34% of sales were down 330 basis points versus last year. As noted, the fourth quarter of 2008 concluded investment spending. Also contributing to the favorability is cost management across the businesses.
Our investment in research and development as a percent to sales was 13.4%, 50 basis points less than the fourth quarter of 2008, due to a change in the mix of the businesses and reductions in spending levels due in part to increased efficiency.
Consolidated sales to customers for the full year of 2009 were $61.9 billion, a decrease of 2.9% as compared to the same period a year ago.
Worldwide consumer segment sales for Q4 of 2009 of $4.2 billion increased 10.2% as compared to the same period last year. On an operational basis, sales increased 5.2% while currency positively impacted sales by five points.
U.S. sales were up 3.4% while international sales grew 6.5% on an operational basis. For the fourth quarter of 2009 sales were the over-the-counter pharmaceuticals increased 4.2% on an operational basis compared to the same period in 2008, with U.S. sales up 5.9% and sales outside the U.S. up 2.2% on an operational basis.
Our Skin Care business achieved growth of 8.1% in the fourth quarter of 2009 with sales in the U.S. up 10.2% and sales outside the U.S. up 6.7% on an operational basis.
New launches drove growth of Neutrogena, AVEENO and rock products.
Baby Care products were up 3.4% on an operational basis when compared to the fourth quarter of 2008. Sales in the U.S. were down 2.8% due to lower sales for babycenter.com.
Sales outside the U.S. were up on an operational basis by 12.5% primarily due to the acquisition of the Vania products.
Sales in the Oral Care franchise were down 1.7% on an operational basis. In the U.S. sales were down 13% due to softness in the category, lower sales of toothbrushes and the fourth quarter divestiture of certain products.
Sales outside the U.S. increased 9.1% operationally driven by strong growth of Listerine. Sales in the Wound Care/Other category were up 20% on an operational basis, primarily due to the acquisitions of two businesses in our Wellness and Prevention platform and the Vania and Poliv acquisition.
Pharmaceutical segment. Worldwide net sales for Q4 of $6 billion were up 5.4% versus the same period last year. On an operational basis, sales were up 1.6% with a positive currency impact of 3.8 points.
Sales in the U.S. increased 2.7% while sales outside U.S. increased on an operational basis by 8%. Our results continued to be impacted by generic competition on some of our products, namely RISPERDAL Oral, Topamax and Razadyne.
Now reviewing the major products, sales of REMICADE , a biologic approved for the treatment of the number immune mediated inflammatory diseases were up 28.4% when compared to the fourth quarter of 2008, with sales growth in the U.S. at 12.8%. In the U.S., strong double-digit market growth was partially offset by lower market share due to new competitive entrants and additional for competitive products.
Export sales to our customers for markets outside the U.S. were up 79.4% and adjusting for the fluctuation of inventory levels, growth was estimated at 11%.
PROCRIT/EPREX declined operationally by 1.9% during the quarter as compared to the same quarter last year with PROCRIT down 3.1%.
Sales of EPREX were down 0.3% operationally. Market share stabilized, however the market declined slightly. Sales of LEVAQUIN, our anti-infective, were up 9.8% on an operational basis when compared to the same period a year ago.
Increased competition from generic products has impacted market share. RISPERDAL CONSTA, our long-acting injectable formulation of Risperidone, achieved fourth quarter sales growth of 18.1% on an operational basis. U.S. sales growth was 13.7% with increased script share and market growth contribute to go the results. Sales outside the U.S. were up 20% operationally with double-digit sales growth in all the major regions and the launch earlier this year of RISPERDAL CONSTA in Japan.
CONCERTA, our product for attention deficit hyper activity disorder, increased 33.4% operationally in the fourth quarter as compared to the same period last digit - last year. Double-digit market growth contributed to the sales results in the U.S. Sales outside the U.S. were up approximately 31.2% on an operational basis with strong growth seen across the major regions.
VELCADE, a treatment for multiple myeloma, co-developed with Millennium Pharmaceuticals, continued to improve its market-leadership position. Operational growth strong at 26.5%, driven by the additional approval in 2008 for front line therapy.
PREZISTA, a protease inhibitor for treatment of HIV, grew operationally 86.5% with U.S. growth at 76% and sales outside the U.S. growing 98.7% on an operational basis. Expanded labeling to include treatment-naive patients contributed to the continued positive momentum in share.
INVEGA, an atypical anti-psychotic, grew operationally 8.4%. Sales in the U.S. were up 2.9%, in line with market growth. Sales outside the U.S. grew 23.8% operationally driven by steady progress in market-share growth.
Medical Devices & Diagnostics segment sales of $6.3 billion grew 6.8% operationally as compared to the same period in 2008. Currency played a positive impact of 5% resulting in total sales growth of 11.8%. Sales in the U.S. were up 9.1%, while sales outside the U.S. increased on an operational basis by 4.9%. Results have been impacted by lower sales of drug-eluting stents due to increased competition. Sales, excluding the impact of lower sales of drug-eluting stents, grew over 8% operationally.
Now turning to the franchises starting with Cordis. Cordis sales were down 3.2% operationally with U.S. sales up 1.7% and sales outside the U.S. down 5.8% operationally. Cordis results were impacted by lower sales of Cypher, our cerolomus-eluting stent, partially offset by the solid growth in balloons and our Biosense Webster business.
Cypher sales were approximately $225 million, down 23% on an operational basis versus the prior year. Sales in the U.S. of approximately $55 million were down 20%. In comparison to the fourth quarter of 2008, the U.S. drug-eluding stent market is estimated to be down 11%. PCI procedures were
down 11%, while penetration rates were estimated at 77%, up from 73% a year ago. The estimated price for Cypher in the U.S. is down approximately 4% versus the fourth quarter of 2008. Estimated share in the U.S. of 12% was flat on the sequential basis and down three points from the fourth quarter of 2008 due to the increased competition.
Cypher sales outside the U.S. of approximately $170 million declined 24% operationally. The estimated market share in the quarter of 24% was down two points on a sequential basis and down seven points from the fourth quarter of 2008.
Mitek, our sports medicine business, grew approximately 15% operationally fueled by new product launches. U.S. growth was 17% and the growth outside the U.S. was 12% operational.
The Diabetes franchise grew 8% operationally in the fourth quarter of 2009 with the U.S. business growing 13.8%. As we discussed last year, the fourth quarter 2008 results were impacted by an adjustment to sales rebate reserve. Excluding this adjustment sales declined 2% with the U.S. down 7% due to both lower volumes and continued pressure on pricing.
Outside the U.S., sales increased 2.9% operationally. Onomus, our insulin pump business grew nearly 20% on an operational basis due to new product launches and continued development of the international market. Ethicon Worldwide sales grew operationally by 14.8% with the U.S. up 26.2% and sales outside the U.S. up 7.5% operationally.
Suture, Biosurgicals and Meshes made strong contributions to the results of this quarter.
Ethicon Endo-Surgery achieved operational growth of 7% of the fourth quarter of 2009 with the U.S. sales growing 3.3% and sales outside the U.S. growing on an operational basis by 10.5%.
Ortho Clinical Diagnostics achieved operational growth of 6.9% in the fourth quarter. Sales growth from the U.S. was 4%, while sales outside the U.S. were up 10.6% on an operational basis.
Rounding out the review of the Medical Devices & Diagnostics segment, Vision Care sales declined 2.6% on an operational basis in the fourth quarter compared to the same period last year. Sales in the U.S. decreased 6.5%, while sales outside the U.S. decreased .7% on an operational basis.
(CEO) Faced with significant patent expirations worth nearly $3 billion in sales and increasingly competitive business environment on many fronts and unprecedented economic pressures around the globe, our people delivered results that met or exceeded expectations for 2009.
Despite a decline in sales which we had forecast, we grew our adjusted earnings per share by 1.8% and maintained our long-term management focus.
As we begin 2010 our business is focused, energized and well positioned to take on the leadership and growth opportunities before us.
Our operational growth in the BRIC countries in 2009 was 5%. Excluding Russia and the impact of the severe economic issues that they had, our growth has been double digits.
Our adjusted earnings were $12.9 billion and adjusted EPS was $4.63, up 1.8%, which was a higher rate of growth in earnings due to our share repurchase program. We also generated a record free cash flow of approximately $14.2 billion.
In terms of sales by segment, consumer generated approximately $15.8 billion in revenue or 26% of our total. Pharmaceuticals approximately $22.5 billion or 36% of our total. And MD&D generated approximately $23.6 billion or 38% of our total, making it now our largest segment.
Our Pharmaceutical segment, with sales of $22.5 billion, represents the world's seventh largest pharmaceutical business and fourth largest biotech basis. The segment saw an operational sales decline of 6.1% for the year, reflecting a loss of nearly $3 billion in sales due exclusively to the loss of RISPERDAL Oral and Topamax. Excluding the impact of generic competition, pharmaceutical sales grew by 7%.
Our Medical Devices and Diagnostics business is the largest medical technology business in the world, with sales of $23.6 billion. Sales grew 4.2% operationally for the year.
Operating profit for 2009, excluding special items, was $17.4 billion and 28.1% of sales. That is an increase from $17.3 billion or 27.1% in 2008.
Many nations are moving to increase the access their citizens from to healthcare, and while progress has been made, sizable opportunities still exist. For example, in the last five years private medical insurance in Brazil has increased by 60%, but that still only covers 30% of the population. In India, the covered population is expected to double to 220 million by 2015. And in China, a nation with more than 1.3 billion people, coverage is expected to grow from 75% today to 85% by 2012, and universal coverage is planned by 2020.
We have seen promising results from our clinical trials to date and in terms of regulatory filings we plan to file NEVO for CE mark approval in Europe this year with a PMA submission in the U.S. to follow in 2012. NEVO also contains sirolimus, the same drug as our Cypher stent, which is that of supporting the safety and efficacy of sirolimus and coronary applications after six years.
SEDASYS received a favorable recommendation from an FDA advisory committee last year and we're in ongoing discussions with the FDA.
(Q&A) I understand why you'd want to make cautious and diplomatic comments here but maybe just, in a more simple way, do you feel better than you did six months ago, more optimistic that whatever is going to happen will have a less negative impact on J&J and the industry? Where do you think we are in this whole process?(A)Rick, I wish, as we all do, we wish we had a crystal ball. And as I said, I don't think the administration has really reached out to anybody since the Massachusetts elections. So, you know, we only know what everyone else is hearing and what our people in Washington are telling us. You know, I think there - we're talking about this earlier with some people. I think there are some fundamental areas that everybody can support. Access to healthcare is one. You know, coverage for, you know, pre-existing conditions and things like that. So I think that there's a way that they could probably bring something together that everybody would support and could move forward in a very positive way. And these are things that we have, if you go on our website, you can see we've got this promise for healthcare for some time and have supported many of these, you know, evidence-based medicine and comparative effectiveness. There are certain things that I think are really beneficial that could move that way. Now, there's - and that could be where everybody could come together and support it. There's another movement there that says let's go to reconciliation, get something approved that only needs 50 votes in the Senate and move forward with that. So, you know, but, you know, again today they're saying they don't have enough votes to get that through. I don't think anyone really knows. I think that they would like to get something through, and I'm talking about in general now, Congress and the President and everyone else. I don't think it'll be what it may have been in the past. If we wanted to look backwards and say what could it have cost, and that's why both Dominic and I wanted to reference that if things do move along, it's not inconsequential. The pharmaceutical group could be up to, talking industry-wide, over $100 billion over ten years, medical devices between 20 and 40 billion. Those are large numbers. And I think - but we don't know what they're going to be. We don't know what's going to happen. So I think right now, you know, it's really a matter of wait and see. We'll keep you informed and it could be anything from probably from nothing to something substantial through reconciliation or anywhere in between. And hopefully they'll come to the point that will help a lot of people and move forward in this area. The critical piece, I think, of all of this is how does it get paid for? I think if you - you know, we're going to see tonight when the President makes his speech, you know, jobs seem to be the big concern. And I think we've said this all along. We have jobs and the deficit. And then we have some costs over here and how do you reconcile this and drive the economy forward while people are losing their jobs? And I think, you know, it's connecting the dots that become so important. So I wish I had a better answer for you. I really don't. But I think there will be - and let's just say, hopefully they'll be able to work together to move something forward that will be beneficial for everybody.
Let me follow up with two quick ones. One, just you talked about 5% long-term growth for the markets that you could address. I assume you'd hope that internal - through internal investment and acquisition, J&J can grow faster than that. When do we get to that, let's call it six to eight, seven to 9% growth in your view? And a follow-up for Dominic. Dominic, this is the third year in a row that gross margins are lower. I understand why, but maybe you can talk us through the quarterly impact of currency and the moving pieces and where do we go from here?(A)Rick, the answer to the first part of that is that we feel very encouraged where we are. I think what we just talked about, the fourth quarter, when you see that we're back in positive growth, I think we've weathered the storms of the RISPERDAL Oral and Topamax. We think we're on a positive movement. If you > took generics out, Louise said we had close to 14% growth in Pharma in the fourth quarter when you take the generics out. We feel we're positioned very, very positively right now to move forward. The new approvals we have and the ones I talked about that are pending, when that's going to happen and not - I shouldn't say when, it's going to happen, but when you're going to see the more even robust growth that you're talking about, as you know we're always looking for opportunities to work together, whether it's to acquire or license. And I think last year we actually took a step that is different for us and that's the area of partnering. If you look at the Elan agreement, the Crucell agreement, and Gilead agreement, which offer extraordinary opportunities for us upsides, as well as litigating risks and sharing costs. So I think we're on a really strong trajectory. I think that the reason we wanted to go back and take you to the beginning is to show that we've been on a journey over the last few years. We've committed to you all that we were going to make these investments. We were going to do these things and we were going to build the pipeline to be able to take to us the future. We think we're there now and it's all starting to come and we think we're on a trajectory that will take us to a much better place.(A)Rick, with respect to gross margins it's been three years there's been some deterioration in gross margin. As you might expect the largest contributor to that is the mix of the business and the largest component of that mix is of course the patent expirations that we've experienced. We're happy that's largely behind us now of course and also we're launching a number of new products, five new electro-energies just last year. New product growth plus the anniversary, if you will, of the patent expirations should help that. Most importantly, however, I would just refer you to the overall pre-tax operating margin for the enterprise which despite the pressure in gross margin has improved year over year and as my guidance indicated, we expect that to be continuing in 2010 as well.
You mentioned increasing reliance in the partnership model, maybe sort of a deviation of changes, but in the pharmaceutical business historically. Do you think that going forward to the extent the partnership model takes hold or is it a bigger percentage of the activities you engage in? You can still maintain the level of profitability you historically had in pharmaceuticals if you're increasing the reliant on in licensing and partnering.(A)Yes, I think so. And I think part of the reasons for that are that we're able to bring - it's not that we have all of the best expertise in the world. If you look at the Elan acquisition or the partnership we have there. If you look at Elan, we think we've brought together three groups of people that have extraordinary talent in development of the Alzheimer's product and it may be able to accelerate, may be able to better penetrate, may be able to move into new areas and fields in the neurology area using some of these compounds that will afford us more over time. So we think that the sharing will be able to put us in a better position. We also feel that we have the reliance on our internal R&D which is also yielding significant areas of growth for us. So I think you have to look at it that these are just ways that kind of compliment what we ordinarily do. But we think we'll be able to continue to move forward in a very positive way. Let me also comment on the comment of, you know, the headwinds becoming tail winds. I think we have to be careful that, you know, when you look at all indications things are picking up somewhat. But I think we have to be careful to assume that it was - it's funny, somebody in Washington to me the other day said well, we don't have to worry about healthcare reform because it will be over shortly. Well, you know, I kind of laughed and said you've got to be kidding me. I think that until we fix the things that I talked about before, some of the unemployment issues and deficits and some of these other areas, I don't know how much we can - we can expect there to be this significant upswing. I think you're right, there will be some tail winds or some things that we dealt with in 2009 as an industry and as a macro economic environment that are going to become less significant. But I still think we have a lot of challenges ahead of us that are going to continue to impact this industry.