10-QPeriod: Q3 FY2007

JOHNSON & JOHNSON Quarterly Report for Q3 Ended Sep 30, 2007

Filed November 6, 2007For Securities:JNJ

Summary

Johnson & Johnson reported strong revenue growth for the nine months ended September 30, 2007, with worldwide sales increasing by 13.9% to $45.1 billion. This growth was significantly driven by the acquisition of Pfizer Inc.'s Consumer Healthcare business, which contributed 7.3% to the overall sales increase. The company also saw positive impacts from currency fluctuations, particularly in international markets. Despite the revenue growth, net earnings for the nine months decreased to $8.2 billion from $8.9 billion in the prior year, largely due to significant restructuring charges of $745 million announced in the third quarter. These charges impacted profitability, particularly in the Pharmaceutical and Medical Devices & Diagnostics segments. The company continues to manage a complex legal and regulatory environment, with ongoing litigation related to product liability, patent disputes, and government investigations, though management believes these will not materially adversely affect the company's financial position.

Key Highlights

  • 1Total sales for the first nine months of 2007 increased by 13.9% to $45.1 billion, driven significantly by the acquisition of Pfizer's Consumer Healthcare business (+7.3%).
  • 2Net earnings for the nine months decreased to $8.2 billion from $8.9 billion in the prior year, impacted by $745 million in restructuring charges.
  • 3The Consumer segment experienced robust growth of 48.2% for the nine months, primarily due to the Pfizer acquisition.
  • 4The Pharmaceutical segment saw a 6.7% sales increase for the nine months, with notable performance from Remicade and Topamax, though generic competition impacted Duragesic and hormonal contraceptives.
  • 5The Medical Devices and Diagnostics segment grew sales by 5.8% for the nine months, with strong performance in DePuy and LifeScan, but faced challenges in the Cordis franchise due to the drug-eluting stent market contraction.
  • 6Operating cash flow increased to $10.9 billion for the nine months, up from $10.0 billion in the prior year.
  • 7The company is managing significant legal and regulatory challenges, including ongoing product liability cases and investigations, while maintaining confidence in its ability to manage potential liabilities.

Frequently Asked Questions

The primary driver of Johnson & Johnson's sales growth was the acquisition of Pfizer Inc.'s Consumer Healthcare business, which contributed significantly to the 13.9% increase in total sales to $45.1 billion. Currency fluctuations also positively impacted international sales.

Net earnings decreased from $8.9 billion to $8.2 billion primarily due to significant restructuring charges totaling $745 million announced in the third quarter of 2007. These charges impacted profitability across several business segments.

The company is experiencing generic erosion in products like Duragesic and hormonal contraceptives. While patent expirations and generic competition are a concern, as noted with products like Risperdal and Topamax, the company is actively defending its patents and managing the impact on sales. They also benefit from pediatric exclusivity extensions on some products.

Johnson & Johnson is involved in numerous legal proceedings, including product liability claims and patent litigation. While the ultimate outcome of these matters cannot be estimated with certainty, the company believes, based on its assessment and accrued liabilities, that the resolution of these cases is not expected to have a material adverse effect on its financial position, although it could significantly impact results of operations and cash flows in any given period.