This summary is based on the second quarter fiscal 2008 earnings call conducted by Johnson and Johnson (JNJ) on July 15, 2008.
Management:
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Vice President, Finance and Chief Financial Officer: Dominic Caruso
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Vice President, Investor Relations: Louise Mehrotra
Key Investors Issues
- Earnings were $3.3 billion or $1.17 per share, up 6.4% from $3.1 billion or $1.05 a share in 2007.
- Worldwide sales to customers were $16.5 billion, up 8.7%.
- The firm has purchase $6.5 billion of stock and increased the quarterly dividend by 10.8%.
Half Year Highlights:
- Sales to customers were $32.6 billion, an increase of 8.2% as compared to the same period a year ago.
- Net earnings were $7 billion or $2.44 per share up 7.8% and 10.4% respectively as compared to the same period in 2007.
Second Quarter Highlights
Worldwide sales to customers were $16.5 billion, up 8.7% as compared to $15.1 billion in the prior year with operational growth of 3.1% and currency added 5.6 points.
- In regions outside the US. operational growth was 4.3%, while the effect of currency exchange rates positively impacted reported results by 11.9 points.
- The strongest performing region was the Asia/Pacific/Africa region growing 8.5% on an operational basis.
- The Western Hemisphere excluding the US grew by 3.3% operationally while Europe grew 2.4% operationally.
Earnings were $3.3 billion or $1.17 per share, up 6.4% from $3.1 billion or $1.05 a share in 2007 on revenue growth.
- Cost of goods sold at 28.9% was up 10 basis points versus the same period in 2007, due to the change in mix of the businesses with higher growth in the consumer business and lower growth in the pharmaceutical business.
- Selling, marketing, and administrative expenses of 33.5% of sales were up 20 basis points due primarily to costs associated with new product launches in the MD&D business.
- Investment in research and development as a percent to sales was 11.5%, 80 basis points less than 2007, with half of the leverage due to the mix of businesses and the remaining half was due to timing of expenditures.
- Interest expense net of interest income of $16 million compares to $36 million of net interest income in 2007.
The firm has now substantially implemented the cost restructuring program announced last year and is on track to achieve the higher end of the annual cost savings of approximately $1.3 billion to $1.6 billion for 2008.
- The firm began purchasing shares in August 2007 and as of the end of June had purchased approximately $6.5 billion of stock.
- It also announced the 46th consecutive year of dividend increases, increasing the quarterly dividend by 10.8%.
- Johnson reached a settlement with Amgen concerning litigation regarding their contracting practices that have had an impact on the sales or Procrit in certain market segments.
- The settlement includes the payment by Amgen to Johnson & Johnson of $200 million which it expects to record in this account in the third quarter.
Business Segment Highlights:
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Worldwide consumer segment sales of $4 billion increased 13.2% as compared to the prior year.
- Operational growth was 6.8% while currency added 6.4 points.
- US sales were up 8.5% while international sales grew 5.6% on an operational basis.
- Sales for the over the counter pharmaceuticals and nutritionals increased 11% on an operational basis compared to the same period in 2007.
- Sales in the US were up 16% while sales outside the US were up 5% operationally on the back of a successful launch of Zyrtec in the US in January.
Adult Tylenol achieved strong growth driven by the sales outside the US and outside the US nutritionals achieved strong double digit growth led by the growing demand for Splenda.
- The skin care business achieved operational sales growth of 5% 2008 with sales in the US growing at 12% and sales outside the US down 1% on an operational basis.
- Strong growth was driven by Neutrogena, Aveeno and Clean & Clear, due to a combination of new product launches and strength in the core businesses due to innovative technologies, like Helioplex.
- These gains were partially offset by lower sales of rock products and in Europe the discontinuation of Evian Facial Refresher.
- Baby care products achieved operational growth of 9%, and sales growth in the US was 5% due to increased sales of cleansers and babycenter.com.
- Sales outside the US grew 11% on an operational basis, driven by the double digit growth of hair care, wipes, lotion, and oil.
Women’s health operational growth was 1% and in the increasingly competitive US market sales were down 3% while sales outside the US were up on an operational basis by 3% with solid growth in the internal sanitary protection line.
- Operational sales growth in the oral care franchise was 10% with US sales down 1% and sales outside the US up 21%.
- The Listerine product line achieved sales growth of over 20% operationally due to whitening strips launched in the third quarter of 2007 and the strong performance of Listerine mouthwash.
- Sales declines in Reach toothbrushes and Rembrandt products partially offset this growth.
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Pharmaceutical segment worldwide net sales of $6.3 billion were up 3.1% versus the same period last year.
- On an operational basis, sales were down 1.3% with positive currency adding 4.4 points.
- Sales in the US decreased 1.7% while sales outside the US decreased on an operational basis by 0.6% as results continue to be impacted by generic competition on some products, namely Duragesic, and outside the US, Risperdal Oral in many countries.
- The combined effect of this generic competition has reduced the second quarter worldwide pharmaceutical operational sales growth rate by 2.5 percentage points.
- Additionally, the firm saw a retraction in the US market for ESAs following the ODAC discussions, the label changes, and changes to reimbursement.
