J&J Sales Come in Light

Earnings, however, meet estimates.
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Updated from 12:58 p.m. EST

Johnson & Johnson

(JNJ) - Get Report

missed analysts' fourth-quarter sales estimates by more than half a billion dollars as revenue fell 1.1% from last year.

The company's shares fell 2.6% to $59.58 following its earnings report and conference call Tuesday.

J&J reported $12.6 billion in sales for the quarter, whereas analysts were expecting $13.2 billion. Domestic sales were the primary culprit, falling 4.2%. International sales rose by 3.1%.

However, the New Brunswick, N.J., company reported earnings of $2.2 billion, or 73 cents a share, in line with the consensus forecast of analysts surveyed by Thomson First Call.

Sales for J&J's medical devices and diagnostics segment were up 3.7% to $4.8 billion for the quarter, but revenue from its pharmaceuticals segment fell 6.1% to $5.5 billion as generic competition cut into sales of the Duragesic pain patch, the analgesic Ultracet, the antifungal drug Sporanox and its hormonal contraceptives. Consumer products sales advanced 2% to $2.3 billion.

The success J&J did have in the quarter came from the drugs Risperdal, Remicade, Topamax and Levaquin. In the fourth quarter, worldwide sales of Risperdal, a schizophrenia drug, climbed 9%, mostly thanks to international sales. U.S. sales of the drug were relatively flat.

The Crohn's disease drug Remicade saw sales grow 8% in the U.S. and 50% in Europe.

J&J's pharmaceuticals division was also propped up by drugs already on the market that received approvals for additional uses. Sales of the epilepsy drug Topamax grew 8%, reflecting its increased use in preventing migraine headaches. Revenue from anti-infective drugs also improved as Levaquin was cleared to treat bacterial sinusitis.

At its Cordis medical devices segment, the Cypher drug-eluting stent was a major contributor to sales. The stent is a device used to prop open clogged arteries. The company said the Cypher captured 51% of the worldwide drug-eluting stent market, with 46% of the U.S. market and a 58% share outside the country.

Although some of J&J's products have shown significant sales growth, WBB Securities analyst Steve Brozak expressed some concern about the company's reliance on its international results.

"If you look at their growth numbers, a lot of it focused on overseas markets," he said. Brozak said J&J should be looking to markets outside the U.S. to add to its current sales, but not to drive them. "They're looking for new indications for products as opposed to new products, which is a little bit disconcerting," he added.

"The year 2005 was a solid one for Johnson & Johnson, despite significant challenges," said William C. Weldon, J&J's chairman and CEO. "We delivered excellent full-year earnings results, while continuing to make the major investments that will fuel future growth," he said in a prepared statement.

For much of last year, J&J tiptoed around questions about its proposal to buy Indianapolis-based heart-device maker

Guidant

(GDT)

, a company besieged by recalls in the second half of 2005. Then

Boston Scientific

(BSX) - Get Report

entered the scene in December and touched off a bidding war. J&J has until midnight to decide whether to counter Boston's latest offer, which values Guidant at $80 a share.

Some analysts have been speculating that if J&J doesn't end up buying Guidant, it might make a pitch for

St. Jude Medical

(STJ)

, another maker of cardiac instruments. J&J wouldn't comment on Guidant or Boston Scientific during its earnings conference call.

Instead, the company steered the focus to its business strategy, which includes 75 products in development, several treatments in late-phase clinical trials, and its plan to continue growing through acquisitions and partnerships.

J&J admitted that its reported sales growth came in below historical levels, but said it would concentrate on higher-margin products and cost-containment efforts in order to improve its future results.

Excluding option expenses, J&J expects to report earnings of $3.78 to $3.85 a share for 2006. However, the company cautioned that analysts should expect the results to be toward the bottom of that range. On average, analysts are calling for a profit of $3.79 this year.