Johnson & Johnson Reports Higher Revenue in Q1 with Help from Synthes Acquisition

Andrew Klips  |

Johnson & Johnson (JNJ) reported Tuesday morning that first-quarter 2013 profit slipped compared to last year, but sales rose as the world’s second biggest seller of health care products felt the impact of the acquisition of orthopedic giant Synthes, Inc., lawsuits and divesture of the DePuy trauma business.

In April 2011, JNJ agreed to pay $21.3 billion to buy Synthes, the largest acquisition in its 125-year history.

For the quarter, JNJ recorded sales of $17.5 billion, up by 8.5 percent from $16.14 billion in the 2012 quarter. Profit for the quarter dropped by 11 percent to $3.5 billion, or $1.22 per share, from $3.91 billion, or $1.41 per share a year earlier. Litigation expenses, costs associated with the Synthes acquisition and other one-time items resulted in about $600 million in after-tax special items. Excluding items, adjusted net earnings were $4.1 billion, or $1.44 per share, up 8.0 percent and 5.1 percent, respectively, from the year earlier period.

Wall Street was expecting EPS of $1.40 on revenue of $17.44 billion. Analyst estimates typically exclude one-time items.

"We delivered solid first quarter results led by the success of many of our recently launched pharmaceutical products and the addition of Synthes to our orthopaedics business," said Alex Gorsky, chairman and chief executive of JNJ.

Worldwide consumer sales increased 2.2 percent to $3.7 billion. Worldwide pharmaceutical sales swelled 10.4 percent to $6.8 billion, fighting-off a 1.0 percent negative impact from currency. Domestic sales jumped 14.7 percent compared to the year prior quarter.

Global sales of JNJ’s medical devices and diagnostics also rose 10.2 percent to $7.1 billion, with the acquisition of Synthes contributing 14 percent to the increase, net scrapping the DePuy trauma operations.

Other highlights for the quarter included JNJ completing the acquisition of Shanghai Elsker Mother & Baby Co., Ltd. (a baby care company in China) and the U.S. Food and Drug Administration approving Invokana™ for the treatment of adults with type 2 diabetes. The FDA also gave JNJ 510(k) marketing clearances for Enseal® G2 Articulating Tissue Sealer and Enseal® G2 Cordless Tissue Sealer Device.

Part of the gains for New Brunswick, New Jersey-based Johnson & Johnson were offset by costs starting to stream in from its DePuy Articular Surface Replacement (ASR) hip lawsuit. More than 10,000 cases have been filed related to the recall of the defective ASR implant with some analysts predicting the costs will ring into the billions for JNJ. The first decision was handed down in March, ordering the company to pay a claimant in Montana $8.3 million in damages ($8 million in pain and $338,000 in medical expenses).

Also in Tuesday’s statement, Johnson & Johnson confirmed its full-year EPS guidance in the range of $5.35 to $5.45, excluding special items. The outlook was in line with analyst expectations of earnings of $5.40 per share for 2013.

Shares of JNJ have been marching upward in 2013, rising about 18 percent so far, including a down day on Monday as part of a broad market sell-off. Shares closed the day off by 1.2 percent at $81.71, but are coming out at the opening bell to recover part of the lost ground.

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