Johnson & Johnson posts higher 1Q profit, due to slightly higher sales and large 1-time gain

J&J posts higher 1Q profit, mainly on 1-time gain

Johnson & Johnson, the world’s biggest maker of health care products, looks to be on the mend, with a slight increase in first-quarter profit as consumer spending continues to recover from recession levels.

But the company, which last year posted its first annual revenue decline since the Great Depression, said Tuesday the combined impact of the health care overhaul, currency fluctuations and generic competition together will hold down profits the rest of the year. It lowered its 2010 profit outlook by a nickel, about 1 percent.

The maker of biologic drugs, baby shampoo and birth control pills reported first-quarter profit rose 29 percent to $4.53 billion, or $1.62 per share, mainly on a $900 million gain from settling a patent fight with Boston Scientific Corp. and other litigation. Excluding that, net income increased 3 percent to $3.62 billion, or $1.29 per share, from $3.51 billion, or $1.26 per share.

The New Brunswick, N.J.-based health conglomerate said sales rose 4 percent to $15.63 billion. That gain was due to a 4 percent boost from mostly favorable currency exchange rates, although the medical devices business posted an 8 percent sales increase excluding rates.

The results just beat the forecast of analysts, who on average expected $1.27 per share on sales of $15.6 billion.

“Essentially an in-line quarter during a difficult year,” concluded Credit Suisse analyst Catherine Arnold, adding the reduction in profit forecast “is lower than could have been expected, given that it was driven by currency and health care reform.”

Chief Financial Officer Dominic Caruso said changes from the health care overhaul would lower J&J’s earnings for the year by about 10 cents, or $300 million. That’s because the government will now get back higher rebates for drugs purchased through the Medicare and Medicaid programs. He said the company can absorb that impact, given that it expects sales of around $63.5 billion this year.

In the first quarter, the overhaul cut revenue by $60 million.

“The quarter was pretty much just the status quo (but) they started to give you the warning signs” about the impact of the health overall and exchange rates, said WBB Securities analyst Steve Brozak.

International sales rose 14.4 percent, mostly due to exchange rates. U.S. sales fell 5 percent, as a major recall of Tylenol pain reliever and other popular nonprescription medicines dragged down consumer sales and U.S. generic competition slashed sales by about 90 percent from a year ago for blockbusters Topamax for epilepsy and Risperdal for schizophrenia and bipolar disorder.

The recall — covering the Tylenol, Motrin, Benadryl, Rolaids, Simply Sleep and St. Joseph aspirin brands — was due to a musty smell determined to be caused by a chemical in since-replaced shipping pallets. That pulled down all over-the-counter products sales by 25 percent, hurting the entire consumer business.

Some products are back to normal shipping, and the rest will be before the quarter ends, J&J said.

Except for the euro, the dollar was weaker against foreign currencies in JNJ’s top 10 foreign markets in the quarter, boosting the value of most overseas sales.

“If you take out the impact of generics … if you take out the impact of the recall, the underlying business grew around 5 percent,” Caruso told The Associated Press in an interview.

Meanwhile, sales of multiple products that are barometers of consumer confidence rose during the quarter, as people opened their wallets and scheduled elective procedures put off during the recession. Those products included Acuvue contact lenses, OneTouch blood sugar testing strips, Mentor breast implants, artificial hip and knee joints, and surgical supplies such as sutures and meshes.

Overall, sales of medical devices and diagnostic products rose 12.5 percent to $6.2 billion, and sales of consumer products rose 1.5 percent to $3.8 billion. Prescription drug sales declined 2.5 percent to $5.6 billion. Those figures all were boosted by the exchange rates.

The company said it has appealed a Food and Drug Administration decision rejecting its highly touted Sedasys computer-assisted system to dispense the powerful anesthetic propofol for use during colonoscopies and similar low-risk diagnostic procedures. Coincidentally, an autopsy report found singer Michael Jackson died from an overdose of propofol.

Brozak noted that J&J increased its “cash hoard by $1 billion,” to $6 billion, calling it a smart move at a time when companies don’t want to be “at the mercy of the capital markets.”

J&J lowered its 2010 profit forecast 5 cents from its January forecast, to $4.80 to $4.90 per share, citing the impact of currency exchange rates, which it expects to remain similar the rest of the year. That range excludes the impact of one-time items.

Shares of J&J fell 4 cents to close at $65.99 Tuesday. In earlier trading, the stock set a 52-week high of $66.20.