Johnson & Johnson (J & J) reported fourth-quarter earnings fell 12%, and issued a year as a health-care company, the current health care spending slowed, from the continuing effects of its products recalled a disappointing outlook.
The New Brunswick, N.J., maker of products ranging from Band-Aids to the anti-inflammatory drug Remicade posted back-to-back years of sales declines for the first time since it went public in 1944, a spokesman said. J&J had previously posted three consecutive years of sales declines in the early 1930s.
J&J shares fell $1.02, or 1.6%, to $61.20 in recent trading and earlier hit their lowest point since September.
J&J has been trying to recover from a series of product recalls since 2009, especially over-the-counter medicines such as Tylenol and Motrin, for quality-related issues such as musty odors and excessive concentrations of active ingredients. In response to the problems, J&J suspended manufacturing at a plant outside Philadelphia and made changes at a plant in Puerto Rico, which together reduced the company's 2010 sales by about $900 million.
J&J had previously predicted the shutdown of its Fort Washington, Pa., plant would reduce 2010 sales by about $600 million, but that didn't factor in the impact of another plant in Las Piedras, Puerto Rico, which also has been the source of recalled products and has been cited by U.S. regulators for deficiencies. J&J said Tuesday it is streamlining operations at Las Piedras, temporarily transferring certain products to other sites, or eliminating some other products and promotional items that would have been produced there.
The company said it is facing a broader slowdown in health-care spending trends, partly due to economic sluggishness. In addition, J&J and other drug and medical device makers have incurred new costs related to the U.S. health-care overhaul enacted last year, and European national health programs have imposed price cuts on certain products.
Chief Executive William Weldon said 2010 was a challenging year and the company would continue to see near-term pressures for 2011. "The results of our consumer business were clearly a disappointment," Weldon told analysts at a meeting Tuesday in New York.
"Consumer trust in our company and products is fundamental to everything we do and that trust has truly been tested," he said.
But he said he was optimistic the company was making progress resolving its quality-related problems, and that J&J would start returning to more normal growth rates later this year and next. "I am confident we are putting the supply chain problems of 2010 behind us," Weldon said.
J&J has completed a review of McNeil Consumer Healthcare products that are manufactured internally--about 80% of the products--and is now in the process of reviewing externally manufactured products, which could result in further market actions such as recalls.
For the fourth quarter, J&J posted earnings of $1.9 billion, or 70 cents a share, compared with $2.2 billion, or 79 cents a share, a year earlier. The latest quarter included expenses related to litigation settlements, product liability and last year's recall of hip replacement products. Excluding these items, earnings were $1.03 a share, matching the mean estimate of analysts surveyed by Thomson Reuters.
J&J's DePuy unit in August recalled certain hip-replacement systems due to a high rate of repeat surgeries. The company took a fourth-quarter reserve of $280 million to cover reasonable and customary testing and treatment for recipients of the implants.
Credit Suisse analyst Catherine Arnold said lower tax provisions and expenses, as well as higher non-operating income, helped J&J meet fourth-quarter earnings expectations.
Fourth-quarter sales fell 5.5% to $15.6 billion, short of the Street estimate of $16 billion, with U.S. sales down 8.1% and non-U.S. sales down 3.1%. Currency-exchange rates reduced sales growth by less than 1%. The year-over-year comparison also suffered from an extra week in 2009.
J&J's biggest unit, medical devices and diagnostics, had fourth-quarter sales of $6.3 billion, up 0.2%. Vision-care and diagnostics products posted sales growth, while sales of artery-opening stents and joint-replacement parts declined. J&J said the weakened economy curbed growth in joint-replacement procedures.
J&J's pharmaceutical unit had sales of $5.7 billion, down 4.7%, hurt by generic competition for certain drugs. Sales rose for HIV treatment Prezista and cancer drug Velcade, but declined for Remicade and antipsychotic Risperdal. Remicade, J&J's top-selling drug, lost share from what J&J said was an increasingly competitive U.S. market for anti-inflammatory drugs, which treat rheumatoid arthritis and the skin disease psoriasis.
Consumer unit sales declined 15% to $3.6 billion, with over-the-counter and nutritionals sales off 31% due largely to the recalls. Other consumer products also saw declines, including skin care and women's health.
Louise Mehrotra, head of investor relations, said J&J expects to ramp up supply of products previously made at its Fort Washington, Pa., plant in the latter half of this year, slightly later than expected. She said J&J pushed back the production plans because it is upgrading its manufacturing and quality processes.
J&J's handling of issues related to the over-the-counter medicine recalls have triggered investigations by various government bodies, including a House committee and a criminal probe by the Justice Department. The Food and Drug Administration has found various deficiencies at J&J plants following inspections over the past year. J&J has vowed to correct the problems, including a renovation of its Fort Washington plant.
Full-year 2010 sales were $61.6 billion, down 0.5% versus 2009.

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