Johnson & Johnson’s (NYSE:JNJ) latest earnings statement reveals deep holes in profits due to costs associated with product liability charges and legal settlements in 4th quarter and full year of 2011.
The company posted $65.03 billion in sales for 2011, a 5.6% increase from the $61.59 billion sold in 2010.
Earnings sank 27.5% to $9.67 billion, or $3.49 earned per diluted share, a heavy drop from 2010’s $13.33 billion, or $4.78 per diluted share, according to SEC filings.
"After 2 challenging years, I am proud to say Johnson & Johnson returned to delivering sales growth in 2011, and we grew adjusted earnings for the 28th consecutive year," CEO William Weldon said during the conference call. "Though we continue to face challenging macroeconomic conditions, our ongoing investments have us well-positioned to grow and increase our market leadership in one of the most important and rewarding industries in the world."
J&J shelled out $4.2 billion in 2011 for product liability expenses, litigation settlements, the DePuy ASR hip recall program, restructuring for Cordis. Corp. and the pending acquisition of Synthes, according to a press release.
Liabilities, settlements and the DePuy recall left the New Brunswick, N.J.-based device maker with a net after-tax gain of $55 million in 2010.
"Manufacturing issues and recalls have been a serious disappointment for all of us," Weldon said. "But through it all, we have remained committed to retaining the trust of our patients and customers. We have taken responsibility and instituted new measures to ensure that our products live up to the high-quality standards that our customers expect and deserve."
He added, "The fruits of these efforts are now being born out, and I feel very good about where we are and where we’re going."
Excluding special items J&J would have posted $13.9 billion in earnings last year, or $5.00 earned per diluted share, representing a 4.4% increase from 2010, according to the release. That beats analysts’ forecast of $4.96 in earnings per share for 2011.
Worldwide medical devices and diagnostic sales grew 4.8% to $25.8 billion in 2011, making it the largest device maker in the world. Medical devices represented 40% of J&J’s total business last year.
Growth was driven by Ethicon’s surgical products, Diabetes Care’s glucose monitoring and insulin management devices, Biosense Webster’s electrophysiology business and Vistakon’s disposable contact lenses.
That growth was partially offset by lower sales in J&J’s cardiovascular care business. Cardiovascular sales were down 14.5% globally, which the company attributed to continued market and competitive pressures. Weldon also cited European austerity measures, pricing pressures and a slowdown in elective surgeries as challenges to growth.
U.S. device and diagnostic sales saw a modest decrease of 0.4%, and altogether global sales grew 2.4% to $6.5 billion in 2011.
Looking forward, the company is making progress in a wide restructuring of its device business by reorganizing into 3 global business groups: surgery, medical solutions and orthopedics. J&J’s decision to exit the drug-eluting stent business and pending merger with Synthes are in service to the overhaul.
The company also has some patent expirations headed its way, Weldon said.
The company issued earnings guidance of $5.05 to $5.15 per share for 2012, not counting special items, reflecting operational growth of about 3.5% to 5.5%.
J&J’s 4th quarter earnings were more dramatically affected by one-time charges. The company posted an 88.8% drop in earnings to $218 million, or 8 cents per diluted share, compared to $1.95 billion in earnings, or 70 cents per diluted share, during the same time in 2010.
Sales during Q4 2011 were $16.26 billion, a 4% increase over the $15.64 billion reported the year before.
Despite some rough numbers, Weldon seemed optimistic about the future.
"At this point in our history, I am especially excited and energized because we have turned the quarter on a particularly difficult period for our company," he said during the conference call today. "The headwinds from patent expirations, portfolio choices and OTC quality issues I have mentioned are being or have been addressed."
"Macroeconomic conditions have been incredibly challenging the last several years but opportunities remain," he added. "Slowing economic growth, the uncertainty in financial markets, high unemployment and pressure in health care costs have all contributed to constraints on health care spending, and the volatility of currency exchange rates continues to be an issue. But these economic dynamics are balanced by positive demographic trends creating demand."
Wall Street appeared unmoved by the news. Shares of JNJ stock opened and closed at $65 today.