Johnson & Johnson (JNJ)
Q1 2009 Earnings Call Transcript
April 14, 2009 8:30 a.m. ET

Executives

Louise Mehrotra - Vice President, Investor Relations
Dominic Caruso - Vice President, Finance and Chief Financial Officer

Analysts

Matthew Dodds - Citigroup
Bruce Nudell - UBS
Sara Michelmore – Cowen & Co.
Rick Wise - Leerink Swann
Michael Weinstein - JPMorgan
Tao Levy - Deutsche Bank
Bob Hopkins - Banc of America/Merrill Lynch
Larry Biegelsen – Wachovia Capital Markets
Catherine Arnold - Credit Suisse
David Lewis – Morgan Stanley
Glenn Novarro – RBC Capital Markets

Presentation

Operator

Good morning and welcome to the Johnson & Johnson first quarter 2009 earnings conference call. All participants will be able to listen only until the question-and-answer session of the conference. The call is being recorded. If, any one has any objections, you may disconnect at this time. If you experience technical difficulties during the conference, you may press “*0” to reach the operator. I would now like to turn the call over to Johnson & Johnson. You may now begin.

Louise Mehrotra

Good morning and welcome. I’m Louise Mehrotra, Vice President of Investor Relations for Johnson & Johnson and it is my pleasure this morning to review our business results for the first quarter of 2009. Joining me on the call today is Dominic Caruso, Vice President, Finance and Chief Financial Officer.

A few logistics before we get into the details, this review is being made available to a broader audience via a webcast accessible through the Investor Relations section of the Johnson & Johnson website. I’ll begin by briefly reviewing highlights of the first quarter for the corporation and highlights for our three business segments. Following my remarks Dominic will provide some additional commentary on the first quarter results and guidance for the full year of 2009. We will then open the call to your questions.

We expect the call to last approximately one hour. Included with the press release that was sent to the investment community earlier this morning is a schedule showing sales for major products and/or business franchises to facilitate updating your models. These are also available on the Johnson & Johnson website as is the press release.

Before I get into the results let me remind you that some of the statements made during this call may be considered forward-looking statements. The 10-K for the fiscal year 2008 identifies certain factors that could cause the company’s actual results to differ materially from those projected in any forward-looking statements made this morning. The company does not undertake to update any forward-looking statements as a result of new information or future events or developments. The 10-K is available through the company or online.

Last item, during the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. These measures are reconciled to the GAAP measures and are available in the press release or on the Johnson & Johnson website.

Now I would like to review our results for the first quarter of 2009. If you would refer to your copy of the press release, let’s begin with the schedule titled “Supplementary Sales Data” by geographic area.

Worldwide sales to customers were $15 billion for the first quarter of 2009, down 7.2% as compared to the first quarter of 2008. On an operational basis sales were down 1.2% and currency had a negative impact of 6%. In the US, sales declined 5%. In regions outside the US our operational growth was 3% while the effect of currency exchange rates negatively impacted our reported results by 12.6 points.

Our strongest performing region was the Asia/Pacific/Africa region which grew 8.5% on an operational basis. The Western Hemisphere excluding the US grew by 4.5% operationally while Europe declined 0.2% operationally.

If you now turn to the consolidated statement of earnings, net earnings on a reported basis were $3.5 billion compared to $3.6 billion in the same period in 2008, a decrease of 2.5%. Earnings per share were $1.26 in both periods. I would now like to make some additional comments relative to the components leading to earnings before we move on to the segment highlights.

Cost of goods sold at 28.3% of sales was 20 basis points less than the same period in 2008 due to cost containment primarily in our MD&D business, partially offset by unfavorable mix in our consumer and pharmaceutical businesses. Selling, marketing and administrative expenses at 30.7% of sales were down 90 basis points versus last year driven by leverage across the businesses, most notably consumer.

Our investment in research and development as a percent to sales was 10.1%, 50 basis points less than the first quarter of 2008 due to a change in the mix of the businesses and reductions in spending levels. Interest expense net of interest income of $81 million compares to $16 million in the first quarter of 2008. This change in the net expense was due primarily to lower interest rates on our cash balance.