Acquisition Charges Hit J&J - TheStreet

Acquisition Charges Hit J&J

Per-share earnings plunge 26% despite higher revenue.
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Updated from 9:17 a.m. EDT

Second-quarter earnings at

Johnson & Johnson

(JNJ) - Get Report

plunged 26.8% to $1.2 billion, thanks to some acquisition-related charges, even as sales rose 13.9% to $10.3 billion. Per-share earnings tumbled 25.9% to 40 cents.

The company's stock drifted steadily downward during the day, closing at $52.55, down $1.05, or 2%.

New Brunswick, N.J.-based J&J attributed the decline in earnings to charges of $900 million in the second quarter for in-process research-and-development costs associated with the acquisitions of

Scios

and

Link Spine Group

.

In April, J&J completed its acquisition of Scios, a biotechnology company based in Sunnyvale. Scios' signature product is a drug for congestive heart failure. In early June, J&J completed its purchase of Link Spine, of Branford, Conn., the maker of an artificial disc.

Excluding the charges for Scios and Spine Link, as well as charges of $189 million in the second quarter last year, net earnings were $2.1 billion in the latest period, up 14.5% from the same period in 2002. Earnings per share were 70 cents, up 16.7% from the year-ago period.

"Despite challenging economic conditions and intense competition, our business maintained solid operational growth," William C. Weldon, the company's chairman and chief executive, said in a prepared statement.

In a conference call with analysts, Robert J. Darretta, the company's executive vice president and chief financial officer, reaffirmed an earlier prediction that J&J would still achieve its earnings-per-share goal of $2.62 for the year.

Darretta said the deals for Scios and Link Spine would initially cause some earnings dilution, but he added that he "remains comfortable" with the $2.62 EPS prediction.

Darretta said the company expects sales to grow 10% for the year, meaning that second-half sales will have to expand faster than the first half's sales advance of 8.5%. He said the sales-growth spurt should come primarily from Cypher, a drug-coated stent used after procedures to unclog blocked coronary arteries. The stent is inserted into the arteries to prevent reblockage of the treated arteries.

Cypher was approved for marketing April 24 by the Food and Drug Administration. J&J officials said Tuesday that demand had exceeded supply for the product, adding that the company was trying to improve its manufacturing and distribution efforts to meet the demand and reduce customer frustration. Helen E. Short, the company's vice president for investor relations, said the problems should be corrected by September.

Among broad categories of products, J&J reported that second-quarter pharmaceutical sales rose 14.7% to $4.88 billion from $4.26 billion for the same period last year; medical devices and diagnostic product sales gained 14.6% to $3.63 billion from $3.17 billion; and consumer product sales advanced 10.3% to $1.82 billion from $1.65 billion.