NEW YORK (Reuters) - Johnson & Johnson <JNJ.N> posted better-than-expected quarterly earnings on Tuesday as the weak dollar and cost cutting offset plunging sales of anemia drugs hit by safety concerns and medicines facing generic competition.
By Ransdell Pierson
NEW YORK (Reuters) - Johnson & Johnson <JNJ.N> posted better-than-expected quarterly earnings on Tuesday as the weak dollar and cost cutting offset plunging sales of anemia drugs hit by safety concerns and medicines facing generic competition.
Demand for the company's vast array of consumer products, including a new over-the-counter form of Pfizer Inc's <PFE.N> Zyrtec antihistamine and an array of products recently acquired from Pfizer, boosted results.
But its two other major businesses, pharmaceuticals and medical devices, would have fared poorly if they had not been propped up by the beaten-down dollar.
!ADVERTISEMENT!"International sales and exchange rates in overseas markets that benefit from the weak dollar are the only things that are keeping Johnson & Johnson afloat," said Steve Brozak, an analyst with WBB Securities.
Sales of J&J and other U.S.-based companies could be hurt if interest rates rise and allow the dollar to rebound, he said. "What the weak dollar giveth, the dollar can take away."
The diversified health care company earned $3.6 billion, or $1.26 per share, up from $2.57 billion, or 88 cents per share, a year earlier, when it took several merger-related charges.
Analysts polled by Reuters Estimates, on average, had expected a profit of $1.20 per share.
"Cost savings and over $1.5 billion spent on share repurchases in the first quarter are major reasons for the beat on earnings," said analyst Tim Nelson of FAF Advisors in Minneapolis.
J&J said global sales rose 7.7 percent to $16.2 billion, above the average forecast of $15.85 billion. Revenue would have risen only 2.6 percent if not for the weak dollar, which boosts the value of sales in overseas markets when converted back into dollars.
"It's not fantastic growth, but when you compare it with General Electric <GE.N> and other large-cap stocks, and the expected earnings of Merck <MRK.N> and Schering-Plough <SGP.N>, I'll take it," said Eldene Doyle, an analyst for Optique Capital Management.
Sales of the consumer brands, including Band-Aids and Listerine mouthwash, jumped 16 percent to almost $4.1 billion, revenue from medical devices rose 7.2 percent to $5.7 billion, and prescription drug sales rose 3.3 percent to $6.4 billion.
Excluding the benefit of the weak dollar, sales of consumer brands rose 6.3 percent, revenue from medical devices increased just 1.4 percent, and prescription drug sales fell 0.6 percent.
Combined sales of anemia drugs Procrit and Eprex fell 23 percent to $629 million in the quarter, hurt by concerns that overuse of such medicines can increase the risk of adverse events and death.
Sales of Duragesic, a skin patch for pain now competing with cheaper generics, also fell 23 percent, to $233 million. Schizophrenia treatment Risperdal, once the company's biggest drug, fell almost 7 percent to $809 million amid growing competition with other drugs.
Revenue from arthritis treatment Remicade, however, leaped almost 37 percent to $998 million. Topamax, for epilepsy, rose almost 6 percent to $646 million.
The company raised its 2008 earnings forecast slightly, to a range of $4.40 to $4.45 per share, reflecting growth of up to 7 percent. That represents a slowdown, however, from growth of more than 10 percent last year. Its previous forecast was $4.39 to $4.44 per share.
J.P. Morgan analyst Michael Weinstein has predicted U.S. Procrit sales will plunge almost 40 percent this year to $1 billion, half the sales seen in 2006. He sees overseas revenue of Eprex falling 10 percent to $1.1 billion.
Moreover, J&J is bracing for generic competition by June for Risperdal and by March 2009 for Topamax, and the expected approval of Abbott Laboratories Inc's <ABT.N> Xience stent could hurt sales of J&J's Cypher product.
Launches of new J&J medicines -- including a new psoriasis drug, an antibiotic called ceftobiprole and the once-monthly injectable schizophrenia drug paliperidone -- are expected to help offset some of those sales declines.
Even so, Weinstein expects company pharmaceutical sales to slip 1 percent this year and more than 5 percent next year before growing again in 2010.
J&J shares were down 38 cents at $65.36 in afternoon trading on the New York Stock Exchange, amid slight declines for the drug sector.
Optique Capital's Doyle said some investors remain worried about sales of the anemia drugs and may be disappointed that J&J raised its 2008 earnings forecast by just a penny.
(Reporting by Ransdell Pierson; editing by John Wallace/Andre Grenon)
