Johnson & Johnson (NYSE:JNJ) may have a monster fish on the hook, but it’s still got some work to do on its bottom line after watching its profits drop 23 percent during the first three months of 2011.
As for that monster on the line, officials at Swiss medical device maker Synthes yesterday confirmed Wall Street rumors that the company is being wooed by the New Brunswick, N.J.-based conglomerate for a potential $20 billion mega-merger. A consummated deal of that scale — it would be largest in J&J’s history — would also change the landscape of the orthopedics industry and, the company hopes, revive its beset DePuy brand.
Word of the talks broke late Friday, with the Wall Street Journal reporting a “fragile” understanding that could collapse at any moment. Synthes, which makes bone screws, rods and power tools used in surgery, pulled in just under $3.7 billion in sales last year, making it one of the biggest medical device companies in the world.
Adding a nearly $4 billion boost to its medical device unit would be a boon for JNJ, which saw net income slump to $3.5 billion for the three months ended April 3, on sales of $16.2 billion.
The news was better for J&J’s device unit, which posted $6.4 billion in sales during the quarter, up 3 percent from $6.3 billion during the same period last year. The uptick was led by strong international sales and a good quarter for the DePuy and Ethicon businesses, which reported 3.4 percent and 4 percent sales growth, respectively. JNJ’s diabetes unit also posted impressive numbers, with Q1 revenues jumping nearly 7 percent.
Cordis Corp., the company’s stent-making operation, said sales were down 5.5 percent during the quarter, to $635 million. Cordis pulled in $2.5 billion in 2010, a 4.7 percent slide from $2.7 billion in 2009.
Despite the earnings slump, analysts were bullish on JNJ. Rick Wise of Leerink Swann called the quarter “a very solid start to 2011” in a memo to investors, noting that JNJ is a barometer for its brethren in large-cap med-tech.
The Street seems to agree. Shares were up nearly 3 percent to $62.08 in mid-morning trading.