Updated from 9:11 a.m. EST Johnson & Johnson ( JNJ) Tuesday reported fourth-quarter results that beat analysts' expectations as the company reported record sales for the fourth quarter. Excluding one-time items, J&J earned $2 billion, or 67 cents a share, on revenue of $12.8 billion. Analysts polled by Thomson First Call were expecting a profit of $1.92 billion, or 64 cents a share, on revenue of $12 billion. For the same period in 2003, the company earned $1.85 billion, or 62 cents a share, on revenue of $11.25 billion. The news sent J&J's stock up, recently higher by $2.29, or 3.7%, to $63.78, less than $1 below the 52-week high. On a reported basis, J&J earned $1.2 billion, or 41 cents a share, for the three months ended Dec. 31, thanks primarily to a $789-million tax charge related to a new law that allows companies to repatriate earnings from their foreign subsidiaries at a reduced tax rate. The law, signed by President Bush in October, says repatriated profits can be taxed at a 5.25% rate instead of the usual 35% corporate tax rate. Last week, J&J said it would repatriate about $11 billion in foreign subsidiary earnings, but it did not identify a specific use for the funds. Robert J. Darretta, the chief financial officer, said he expected earnings per share to grow about 10% this year, making him comfortable with an EPS estimate of $3.38 to $3.41. The consensus among analysts polled by Thomson First Call is $3.35. Darretta said he expects total sales to grow in the range of 5% to 7% for the year, lower than "traditional double-digit levels." He attributed the lower rate to the anticipated generic competition for Duragesic, a transdermal patch pain reliever, and Concerta, a treatment for attention deficit hyperactivity disorder. Duragesic contributed nearly $2.1 billion in sales in 2004; Concerta added $695 million. Darretta said he expects sales growth to return to historical levels in 2006. Darretta said his financial projections exclude the impact of the pending acquisition of Guidant ( GDT) as well as new accounting rules for the expensing of stock options which take effect July 1. The full-year impact of the change in stock options accounting should be 12 cents a share, he said. The Guidant deal remains on track to close in the middle of the year, Darretta said. The transaction must be approved by U.S. and foreign regulators, as well as by Guidant shareholders who are expected to vote during the second quarter. The cash-and-stock deal is valued at $23.9 billion.
During the fourth quarter, J&J's prescription drug business reported a 13.8% increase in sales to $5.1 billion compared to the same period in 2003. The consumer products business sales rose 14.3% to $2.26 billion; and the medical devices and diagnostics divisions produced a revenue gain of 12.3% to $4.14 billion. Both the consumer products and medical device and diagnostics units had greater sales gains overseas than domestically. The prescription drug business had a bigger percentage gain in U.S. operations vs. foreign operations. Last year was "another strong year for Johnson & Johnson," said William C. Weldon, the company's chairman and CEO. "Our broad base and breadth of businesses has been the key to our long-term consistent performance and continue to serve us well." Many of J&J's biggest-selling drugs turned in strong sales performances for the year with healthy double-digit percentage gains. For example, Remicade, for Crohn's Disease and rheumatoid arthritis, posted a 24% gain for the year to $2.15 billion; Risperdal, an antipsychotic, gained 21% to $3.05 billion; and Topamax, for epilepsy and migraines, enjoyed a 35% gain to $1.4 billion. One pharmaceutical setback was the continued decline of the Procrit/Eprex anemia drug franchise, which still remains the company's best-selling product. The anemia franchise still recorded sales of $3.59 billion, but that was 10% lower than the previous year. Price competition remains fierce. Sales growth of hormonal contraceptives also eased, gaining only 9% worldwide to $1.28 billion. International sales remained strong; but sales in the U.S. market, which accounts for most of the contraceptive revenue, gained only 5% for the year. One product with slumping U.S. sales was Cypher, the drug-coated arterial stent. Competition from the Taxus stent from Boston Scientific ( BSX) has cut into Cypher's sales sharply. In the fourth quarter, Cypher's U.S. sales fell 35% to $307 million during the fourth quarter vs. the same period in 2003, when Cypher had the U.S. drug-coated stent market all to itself. Cypher now accounts for 38% of the U.S. drug-coated stent market, J&J said. Cypher had $254 million in overseas sales for the fourth quarter.