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Johnson & Johnson Gains 9 Percent for Quarter, Boosts Forecast for Year

Posted on: Wednesday, 20 July 2005, 15:01 CDT

Jul. 20--Johnson & Johnson Inc. posted a 9 percent rise in second-quarter net income Tuesday and nudged up its profit forecast for the full year.

Sales of medical devices such as drug-coated stents, joint reconstruction and spine products lifted performance at the New Brunswick-based health care giant, countered by generic competition to its Duragesic pain patch.

J&J's report kicked off what analysts expect to be a mixed quarterly earnings season for metro area-based drug makers. Pfizer, Merck and Bristol-Myers Squibb all are projected to post lower earnings amid product setbacks and generic competition, according to Thomson First Call. Wyeth and Schering-Plough are expected to increase profits.

"The group doesn't have a lot of positive sentiment behind it these days," said Les Funtleyder, a health care strategist with Miller Tabak. "Almost everybody is going to show a down year."

Another pharmaceutical analyst, Trevor Polischuk of OrbiMed Healthcare Fund Management, took a more optimistic view.

Many drug makers are cutting costs through restructuring, Polischuk said, reducing the chance their quarterly results will come up short of expectations. He said 11 of 15 big drug makers reported results that beat consensus expectations in the first quarter.

"That's what investors can get excited about," Polischuk said.

The American Stock Exchange Pharmaceutical Index, a common barometer for drug stocks, has risen about 2 percent this year, just ahead of the Standard & Poor's 500 Index.

For the quarter, J&J said sales rose 11 percent to $12.8 billion. The company reported quarterly net income of $2.7 billion.

Without charges related to two acquisitions and gains from tax adjustments, the company posted 93 cents in earnings per share for the quarter, two cents better than Wall Street's estimate, according to Thomson First Call.

J&J's medical devices and diagnostics division led the way, with sales rising nearly 20 percent. Its Cypher heart stent -- which keeps arteries from closing -- totaled $659 million in quarterly sales, with strong results in the U.S. and international markets.

However, sales of J&J's pharmaceutical division rose only 2 percent, not including a boost from the weak dollar increasing the value of foreign sales.

Polischuk said that while J&J's numbers were "pretty solid" overall, "there's clearly softness on the pharmaceutical side, which gives me pause going forward."

Shares of J&J, which are trading about 2 percent higher this year, climbed 42 cents to $65.02 Tuesday.

In a conference call Tuesday, analysts questioned the company about its impending acquisition of cardiovascular devices maker Guidant. Recalls and other concerns involving Guidant's pacemakers and defibrillators has sparked uncertainty about the $24 billion deal, such as whether J&J would seek to lower its offer.

Robert Darretta, vice chairman and chief financial officer, said J&J remained "excited" about Guidant, but he suggested he was less certain about whether the recent product issues would push back the potential closing of the deal beyond the end of the third quarter, as previously expected.

"We're trying to understand the impact and implications of these more recent events," Darretta said.

Funtleyder said questions about the Guidant deal would constrain J&J's stock.

"Until that's resolved, it's not going to be a flier," he said.

JOHNSON & JOHNSON INC.

(Second quarter)

Net income: $2.7 billion

Revenue: $12.8 billion

Stock price: $65.02, up 42 cents Tuesday

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Source: The Record - Hackensack, New Jersey

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