J&J likely to deliver in Q4 - Earnings Preview

(RTTNews) - Healthcare giant Johnson & Johnson (JNJ | Quote | Chart | News | PowerRating) is scheduled to announce fourth-quarter results before the market opens on Tuesday. The New Brunswick, New Jersey-based company engages in the research and development, manufacture, as well as sale of various products in the healthcare field, spread across three divisions - Consumer segment, Pharmaceutical segment and Medical Devices & Diagnostics segment. Due to the sheer diversity of the company's offerings, Johnson & Johnson is expected to weather the economic uncertainty.

Analysts' estimates: When Johnson & Johnson reveals its progress card for the fourth-quarter, 14 analysts polled by First Call/Thomson Financial expect the company to report earnings of $0.92 per share with estimates ranging between $0.89 per share and $0.94 per share. Revenue is estimated to be $15.93 billion. Analysts' estimates typically exclude one-time items.

In the fourth-quarter of 2007, the company's net earnings rose to $2.37 billion or $0.82 per share from $2.17 billion or $0.74 per share reported a year ago. Johnson & Johnson's quarterly sales increased 16.6% to $15.96 billion from $13.68 billion last year.

On October 14, Johnson & Johnson said third quarter earnings rose 30% from the year-ago period, helped by strong sales of consumer products and medical devices as well as the absence of a hefty restructuring charge that weighed on the prior year results.

Third-quarter net income rose to $3.31 billion or $1.17 per share from $2.55 billion or $0.88 per share for the year-ago quarter. Sales for the third quarter grew 6.4% to $15.92 billion from $14.97 billion generated in the same quarter last year.

While announcing the third-quarter results, the company also raised its earnings outlook for full year 2008 to a range of $4.50-$4.53 per share from its prior outlook of $4.45-$4.50 per share. The guidance does not include the impact of any in-process research and development charges or other special items. For full year 2008, analysts expect earnings of $4.53 per share on revenues of $64.46 billion.

In a client note 'Price Increases Should Outweigh Currency Headwinds in 4Q 2008', Credit Suisse said on January 16 that post-quarter, Johnson & Johnson might offer a short-term trading opportunity. The firm said the stock is down 11% over the last 3 months as investors have been bracing for 2009 guidance, given competitive and/or economic pressure on all three divisions. The brokerage expects guidance to offer a wide range, with the bottom beneath consensus.

Maintaining its "Outperform" rating on the company's stock, Cowen & Co. said on January 15 that the healthcare titan should deliver in the fourth quarter. Despite some incremental pressure from forex and likely softening in some consumer/elective procedure linked business areas during the quarter, the brokerage expects Johnson & Johnson to deliver on the consensus $0.92 forecast. The firm believes that operating margin will be a key performance metric and harbinger of earnings quality.

Acquisitions: Johnson & Johnson, whose products include contraceptives, baby care products, medical devices and prescription drugs, is a strong believer in growth strategy through acquisitions. The company is in the process of acquiring aesthetic medical products maker Mentor Corp. (MNT | Quote | Chart | News | PowerRating) for $31 per share or about $1.07 billion in a cash tender offer. Including net debt, the deal has an estimated net value of $1.12 billion. Johnson & Johnson expects the deal to hurt its earnings for 2009 by $0.03-$0.05 per share.

On December 30, 2008, the company completed the acquisition of Omrix Biopharmaceuticals, Inc., a fully integrated biopharmaceutical company that develops and markets biosurgical and immunotherapy products.

The consumer health care division of Pfizer, which Johnson & Johnson acquired in 2006 for $16.6 billion, added a diverse portfolio of renowned brands like Listerine oral care products, Sudafed, and the Nicorette line of smoking cessation treatments, among others, to the healthcare giant's already strong roster.

Products: Johnson & Johnson has a robust late-stage pipeline. The company expects to seek approval for 7-10 new pharmaceutical products between 2008 and the end of 2010. Key therapy areas, in which the healthcare company is evaluating its drugs include central nervous system, gastrointestinal, immunology, hematology, oncology, infectious disease, anti-viral, pain management, cardiovascular and reproductive health.

Johnson & Johnson's Invega, indicated for bipolar mania and schizoaffective disorder, and Carisbamate, for epilepsy, are into the Phase III stage of trials. Its Remicade for pediatric ulcerative colitis is into late-stage trail, while study of Remicade for Ulcerative colitis-colectomy avoidance was discontinued earlier. The company's Deltoid injection Risperdal Consta was approved in October 2008.

Legal side: During the just concluded quarter, the healthcare company received an adverse court order. On November 17, 2008, two of the company's subsidiaries were found liable for the death of Janice DiCosolo, who died while using a Duragesic patch, and ordered to pay her family $16.56 million. DiCosolo had been using the patch to reduce pain experienced as a result of a neurological condition called reflex sympathetic dystrophy.

In 2007, a federal court jury in Florida awarded $5.5 million to the family of 28-year-old Adam Hendleson, who died while using a Duragesic patch that was prescribed for hip pain. Duragesic patches are part of Johnson & Johnson's Pharmaceutical segment.

On December 31, 2008, PriCara, a unit of Johnson & Johnson, said it voluntarily recalled two lots of the pain patch Duragesic, citing possible tears in the reservoir containing the drug, which might cause an overdose.

Peer Update: Among peers, Merck & Co. Inc. (MRK | Quote | Chart | News | PowerRating) in December 2008 reaffirmed its previous forecast for 2008 and 2010. However, the company said its top-line results for fiscal 2009 would be hurt by several factors including economic volatility and market fluctuations. Merck cited the effects of a volatile global economy, fluctuations in the foreign exchange markets, as well as continued challenges for certain key products as fear factors for 2009 earnings.

On January 9, Merck said the U.S. Food and Drug Administration issued a second complete response letter, requesting more data before making a decision on the supplemental biologics license application for prescribing Gardasil papillomavirus vaccine to women aged between 27 and 45. Merck said it anticipates providing a response in the fourth quarter of 2009 and re-affirmed its earnings and sales guidance for fiscal 2009.

Merck did not have a commendable third-quarter performance. On October 22, 2008, the company said third-quarter profit dropped 28% from the previous year quarter, hurt by restructuring costs and a 2% decline in sales. Merck also said it would axe about 7,200 jobs by the end of 2011, as part of a new restructuring plan, with about 40% of the reductions planned in the U.S.

Stock Performance: JNJ closed Friday's regular trade at $57.44, down $0.18 or 0.31%, on 20.75 million shares. For the past year, the stock traded in the range of $52.06-$72.76.

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