Johnson & Johnson (JNJ)
Q4 2008 Earnings Call Transcript
January 20, 2009 8:30 a.m. ET

Executives

Louise Mehrotra - Vice President, Investor Relations
William Weldon – Chairman and Chief Executive Officer
Dominic Caruso - Vice President, Finance and Chief Financial Officer

Analysts

Larry Biegelsen – Wachovia Capital Markets, LLC
Catherine Arnold - Credit Suisse
Mike Weinstein - JPMorgan
David Roman – Morgan Stanley
Bob Hopkins - Banc of America/Merrill Lynch
Rick Wise - Leerink Swann
Matthew Dodds - Citigroup
Glenn Novarro – RBC Capital Markets
Bruce Nudell - UBS

Presentation

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 fourth quarter of 2008 and full-year 2008. Joining me on the podium today are our host for today’s meeting Bill Weldon, Chairman of the Board of Directors and Chief Executive Officer of Johnson & Johnson, and Dominic Caruso, Vice President, Finance and Chief Financial Officer.

A few logistics before we get into the details, the audio and visuals from this presentation are 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 fourth quarter for the corporation and highlights for our three business segments. Following my remarks, Bill Weldon will comment on the 2008 results and provide a strategic outlook for the company. At the completion of Bill’s remarks Dominic Caruso will provide some additional commentary on the 2008 financial results and guidance for 2009. We will then open the floor to your questions. We will conclude our formal presentation at approximately 9:30 a.m. and following Q&A with some final remarks by Bill we’ll conclude the meeting around 10:00 a.m.

Distributed with the copy of the press release that you just received is a schedule with actual revenues for major products and/or business franchises. For the listening audience these are available on the Johnson & Johnson website as is a copy of the press release.

Before I get into the results, let me remind you that some of the statements made during this presentation may be considered forward looking statements. The 10-K for the fiscal year 2007 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 on the Johnson & Johnson website.

Now I would like to review our results for the fourth quarter of 2008. 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 $15.2 billion for the fourth quarter of 2008, down 4.9% as compared to the fourth quarter of 2007. On an operational basis, sales were down 1% and currency had a negative impact of 3.9%. In the US, sales declined 6.9%. In regions outside the US our operational growth was 5.4% while the affect of currency exchange rates negatively impacted our reported results by 8.1 points.

Our strongest performing region was the Asia/Pacific/Africa region which grew 9.9% on an operational basis. The Western Hemisphere excluding the US grew by 6% operationally while Europe grew 2.7% operationally.

If you’ll now turn to the consolidated statements of earnings, net earnings on a reported basis were $2.7 billion and earnings per share were $0.97. This compares to $2.4 billion and $0.82 in the same period in 2007. Please direct your attention the boxed section of the schedule where we have provided adjusted earnings information.

As referenced in the footnote fourth quarter 2008 results were adjusted to exclude special items including charges for in-process research and development and the after tax net gain from several litigation matters. In the fourth quarter of 2007 results were adjusted to exclude the write down of the intangible asset related to Natrecor and a tax gain associated with the restructuring of certain international subsidiaries. Net earnings on an adjusted basis were $2.6 billion and earnings per share were $0.94, up 3.1% and 6.8% respectively versus the fourth quarter of 2007.

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 28.8% of sales was 90 basis points less than the same period in 2007. In 2007 the results were impacted by one-time charges. The 2008 results had some favorable impact of one-time items which were substantially offset by charges in other income and expense. Excluding one-time items, cost of goods sold would have increased approximately 30 basis points due to the ongoing changing mix of the business.

Selling, marketing and administrative expenses at 37.3% of sales were up 150 basis points versus last year. As we discussed last quarter we planned some investment spending in the fourth quarter. The increase in selling, marketing and administration is a combination of this investment spending and the change in the mix of our business driven by the growth in the consumer business and the lower sales in the pharmaceutical business.