10-QPeriod: Q2 FY2004

JOHNSON & JOHNSON Quarterly Report for Q2 Ended Jun 27, 2004

Filed August 3, 2004For Securities:JNJ

Summary

Johnson & Johnson reported strong financial performance for the second quarter and first six months of 2004, demonstrating significant sales growth across all its business segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. Worldwide sales increased by 11.1% for the quarter and 14.3% for the six-month period compared to the prior year, with international sales showing particularly robust growth, partly due to favorable currency exchange rates. The company's profitability also saw a substantial improvement, with net earnings rising significantly year-over-year. This was driven by operational growth, effective cost management, and a lower effective tax rate, partly due to the absence of significant non-deductible in-process research and development (IPR&D) charges that impacted the prior year's comparable period. The company also continued its commitment to returning value to shareholders, evidenced by a 42nd consecutive year of dividend increases. While the company faces ongoing litigation and regulatory scrutiny, particularly concerning product liability and patent disputes, management expressed confidence in its ability to manage these risks. The overall financial health and growth trajectory presented in this filing suggest a positive outlook for investors, underscoring the company's diversified business model and effective execution of its strategies.

Key Highlights

  • 1Worldwide sales increased by 11.1% to $11.48 billion for the second quarter of 2004 and by 14.3% to $23.04 billion for the first six months of 2004 compared to the prior year.
  • 2Net earnings for the second quarter of 2004 more than doubled to $2.46 billion ($0.82 per diluted share) from $1.21 billion ($0.40 per diluted share) in the prior year's quarter.
  • 3For the first six months of 2004, net earnings increased to $4.95 billion ($1.65 per diluted share) from $3.28 billion ($1.09 per diluted share) in the comparable period of 2003.
  • 4All three business segments – Consumer, Pharmaceutical, and Medical Devices and Diagnostics – reported significant sales growth, with Medical Devices and Diagnostics showing the strongest percentage increase (17.1% for six months).
  • 5The company increased its regular cash dividend by 18.8% to $0.285 per share, marking the 42nd consecutive year of dividend increases.
  • 6Cash flow from operations increased by $1.1 billion to $4.78 billion for the first six months of 2004, reflecting improved profitability and working capital management.
  • 7The effective income tax rate for the first six months of 2004 decreased to 28.6% from 34.2% in the prior year, largely due to the absence of non-deductible IPR&D charges.

Frequently Asked Questions

Sales growth was driven by increases across all three major segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. International sales showed particularly strong performance, benefiting from operational growth and favorable currency fluctuations. Key product performance in pharmaceuticals like RISPERDAL(r) and REMICADE(r), and in medical devices like the CYPHER(r) Sirolimus-eluting Stent and LifeScan's OneTouch(r) Ultra(r) brand, also contributed significantly.

Profitability saw a substantial improvement. Net earnings for the second quarter rose by over 100% to $2.46 billion, and for the first six months, they increased by approximately 51% to $4.95 billion. This was supported by strong sales growth, improved gross margins, effective selling, general, and administrative expense management, and a lower effective tax rate, partly due to the absence of significant one-time IPR&D charges seen in the prior year.

Johnson & Johnson is involved in numerous legal proceedings, including product liability cases (like the PROPULSID litigation) and patent infringement disputes. While the company is vigorously defending itself, it also enters into settlements where deemed appropriate. The company believes that any liabilities, net of accrued amounts and insurance, are not expected to have a material adverse effect on its consolidated financial position, although resolutions could impact results of operations or cash flows in specific periods.

In the first six months of 2004, the company made several acquisitions, including Merck's interest in a consumer pharmaceutical joint venture, EGEA Biosciences, and Artemis Medical. The total net cash paid for acquisitions was $300 million. A divestiture of DePuy's Castings business also occurred, which did not have a material effect on results. These activities contributed to the overall sales growth and strategic positioning.