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Lower Drug Sales Crimp Shares of J&J

January 25, 2006|From Associated Press

TRENTON, N.J. — Healthcare conglomerate Johnson & Johnson posted a 79% increase in fourth-quarter profit Tuesday, mainly because of lower overhead costs and a large tax charge a year ago.

Although the earnings were in line with Wall Street expectations, revenue was below estimates, with domestic pharmaceutical sales down 10%. J&J shares fell nearly 3% to $59.36.

The maker of contraceptives, contact lenses, prescription drugs and baby and skin care products said that net income totaled $2.2 billion, or 73 cents a share, for the quarter, compared with $1.2 billion, or 41 cents a share, a year earlier.

The year-earlier figures were depressed by a $789-million charge for repatriating foreign profits. J&J would have earned $2 billion, or 67 cents a share, without that charge.

New Brunswick, N.J.-based J&J said sales dipped to $12.61 billion, from $12.75 billion a year earlier, when the quarter had one additional week.

"If this is a trend, it is not a friendly sign" to have revenue decline for such a large company, said healthcare analyst Steve Brozak of WBB Securities.

He noted a second concern: Most of J&J's revenue growth has been coming from overseas, where profit margins are lower and marketing can be difficult.

Analysts surveyed by Thomson Financial were expecting earnings per share of 73 cents and revenue of $13.2 billion.

After the report was released, J&J let pass a Tuesday night deadline to raise its bid or let rival Boston Scientific Corp. acquire heart-device maker Guidant Corp. J&J officials refused to discuss the Guidant deal during a morning conference call with analysts, and J&J spokesman Marc Monseau said at noon that the company had no comment.

"The silence was really deafening, given that everybody cares about one thing -- Guidant," Brozak said. "Above all, the future of J&J is dictated by what happens with Guidant."

Although J&J refused to discuss the issue, he noted that management repeatedly stressed the importance of its medical device segment as a future growth driver.

Revenue at J&J's pharmaceutical segment fell 10% in the U.S. and 6% worldwide in the fourth quarter, to $5.5 billion. By comparison, sales of medical devices and diagnostics grew 4% to $4.8 billion and consumer product sales grew 2% to $2.3 billion.

For the year, J&J reported net income of $10.4 billion, or $3.46 a share, up from $8.5 billion, or $2.84, a year earlier. Revenue was $50.51 billion, up 7%.

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