Monday, April 18, 2011

Johnson & Johnson (NYSE: JNJ): Q1 Earnings Preview 2011

Johnson & Johnson (NYSE: JNJ), the world's largest health-products company, is scheduled to release first-quarter earnings before the opening bell on Tuesday, April 19, 2011. Analysts, on average, expect the company to report earnings of $1.26 per share on revenue of $15.83 billion. In the year-ago period, the company reported earnings of $1.29 per share on revenue of $15.63 billion.

Johnson & Johnson engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three business segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics.

In the preceding fourth-quarter, the New Brunswick, New Jersey-based company's net income was $1.94 billion or $0.70 per share, compared with a profit of $2.21 billion or $0.79 per share in the prior-year quarter. On an adjusted basis, the company earned $1.03 per share in the fourth quarter. Revenue slipped 5.5% to $15.64 billion from $16.55 billion. Analysts, on average, expected the company to report earnings of $1.03 per share on revenue of $16.08 billion. 

At its last earnings call in January, the healthcare giant said that it anticipates earnings in a range of $4.80 to $4.90 per share, excluding the impact of special items. 

The healthcare-giant's reputation has been severely tarnished in recent months due to a eries of recalls at its troubled McNeil Consumer Healthcare unit, which has been recalling over-the-counter or OTC, medicines like Benadryl, Zyrtec, Motrin and Tylenol. Johnson & Johnson is also facing legal action related to the product recall.

The company has been also grappling with generic competition that have impacted its revenues. The drug maker has been trying to offset the effects of generics by sprucing up its other products, as well as foraying into vaccines. The company's blockbuster drugs, the antipsychotic drug Risperdal and epilepsy treatment Topamax, are finding it hard to take on competing generic versions. Risperdal lost patent exclusivity in 2008 and Topamax lost U.S. patent exclusivity in March 2009. JNJ's Concerta attention-deficit drug and Levaquin antibiotic also are expected to face generic competition in the U.S this year. Together, they represent approximately $2.7 billion in sales. 

In the short term, Johnson & Johnson will need to overcome challenges like the product recalls, pricing austerity in the European Union and patent expiries. However, the long term outlook remains strong. The pharmaceutical group has a robust late-stage product pipeline. New medical devices, including ceramic orthopedics and minimally invasive surgical tools have been created. Demographic trends like the aging of the population in the developed countries and health care market growth in developing countries will support further sales growth. Johnson and Johnson’s diversified business model, lack of cyclicality and strong financial position will help it in tough situations. Moreover, Johnson & Johnson has been entering deals, which should help boost its revenues in the long-term.

The company's stock currently trades at a forward P/E (fye Jan 2, 2013) of 11.85 and PEG ratio (5 yr expected) of 2.23. In terms of stock performance, JNJ shares have lost nearly 8 percent over the past year.

Full Disclosure: None.
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