Johnson & Johnson (JNJ) posted stronger-than-expected fourth quarter earnings Tuesday and forecast a modestly increase in full year sales for 2019 as the consumer healthcare group looks to rebound from last month's steep share price declines triggered by a report that alleged it knew for decades that its iconic baby powder sometimes contained asbestos and failed to alert authorities.
Johnson & Johnson said earnings for the three months ending in December came in at $1.97 per share, topping the Street consensus of $1.95 and rising 13.2% from the same period last year. Group sales, Johnson & Johnson said, were pegged at $20.4 billion, again beating the consensus forecast. The group sees full year sales of as much as $81.4 billion, with adjusted earnings in the range of $8.50 to $8.65 per share.
"Looking ahead, the strength of our broad-based business and disciplined approach to portfolio management positions us to continue to fuel investments in innovation that enable us to capitalize on strategic opportunities and deliver strong performance over the long-term," said CEO Alex Gorsky.
Johnson & Johnson shares closed down 1.45% to $128.80.
"I think Johnson and Johnson is a buy off today's pullback despite the tepid sales outlook," said Jeff Marks, senior portfolio analyst for Jim Cramer's Action Alerts Plus portfolio, which owns Johnson and Johnson. "Two divisions (Consumer and Pharmaceutical) are still expected to grow at above market rates, while management has stayed true to its word about Devices improvements. Meanwhile, the balance sheet is pristine, the cash flow is robust and a nice-sized buyback is in place."
Johnson & Johnson (JNJ) shares plunged the most in more than 15 years in mid-December after it was reported that the company knew both its raw talc and finished powder tested positive for traces of asbestos, a carcinogen, citing documents linked to a court case that saw a jury in Missouri award $4.7 billion to 22 women who said that the products contained asbestos and caused them to develop ovarian cancer.
Reuters also said the company tried, unsuccessfully, to influence plans by U.S. regulators to reduce the amount of asbestos that could legally remain in some cosmetic talc products.
"The Reuters article is one-sided, false and inflammatory," Johnson & Johnson said in an emailed statement to TheStreet. "Simply put, the Reuters story is an absurd conspiracy theory, in that it apparently has spanned over 40 years, orchestrated among generations of global regulators, the world's foremost scientists and universities, leading independent labs, and J&J employees themselves."
"Johnson & Johnson's baby powder is safe and asbestos-free. Studies of more than 100,000 men and women show that talc does not cause cancer or asbestos-related disease," the statement added. "Thousands of independent tests by regulators and the world's leading labs prove our baby powder has never contained asbestos."
Analysts at JPMorgan, however, said it was "highly unlikely the company's exposure to this talc issue will even come close to the ~$40 billion in lost market cap today", noting that the $21 billion set aside by Pfizer Inc. (PFE) to compensate for damages from its fen-phen diet drug.
"We note that all issues reported were previously disclosed as part of talc litigation discovery. As we think about the risk to JNJ here, we see today's move as an over-reaction, especially from a longer-term perspective," said JPMorgan analyst Chris Schott. "At the same time, talc does not seem to be an issue that is going to resolve quickly for JNJ and we would expect shares to trade at a lower multiple pending further clarity on the company's exposure to this issue (which could be an extended period of time)."
The Missouri jury award in the case, which was granted in July, included $550 million in compensatory damages and $4.14 billion in punitive damages, according to a statement from the attorneys representing the plaintiffs. The company faces more than 9,000 cases over body powders containing talc, according to its latest quarterly filing with the Securities and Exchange Commission, and has consistently denied that its products are dangerous or contain asbestos.
Johnson & Johnson is in the midst of five appeals to similar verdicts linked to its products, even after the U.S. Food & Drug Administration said a study found "no asbestos fibers or structures in any of the samples of cosmetic-grade raw material talc or cosmetic products containing talc."