10-QPeriod: Q2 FY2011

JOHNSON & JOHNSON Quarterly Report for Q2 Ended Apr 3, 2011

Filed May 10, 2011For Securities:JNJ

Summary

Johnson & Johnson's (JNJ) Q1 2011 filing shows a 3.5% increase in worldwide sales to $16.2 billion, driven by international growth and a positive currency impact, despite a slight decline in U.S. sales. The company's Pharmaceutical segment demonstrated robust performance with a 7.5% sales increase, while Medical Devices and Diagnostics saw a 3.3% rise. However, the Consumer segment experienced a 2.2% sales decrease, largely due to production issues and quality enhancement efforts at McNeil Consumer Healthcare facilities. Net earnings for the quarter were $3.5 billion, or $1.25 per diluted share, a decrease from the prior year's $4.5 billion, impacted by a significant litigation gain in Q1 2010 and increased litigation expenses in the current quarter. Despite the decline in net earnings, the company generated strong operating cash flow of $2.3 billion. JNJ also continued its commitment to shareholder returns by declaring a quarterly cash dividend increase, marking the 49th consecutive year of dividend growth. The company remains focused on managing its extensive legal landscape, with ongoing proceedings across various segments, and is implementing remediation plans for manufacturing facilities. The acquisition of Crucell NV for $2 billion was a notable investment during the quarter.

Financial Highlights

54 data points
Beta

Revenue

$16.17B

70.5% Gross Margin

Net Income

$3.48B

21.5% Net Margin

EPS (Diluted)

$1.25

Total Assets

$108.15B

Cash & Equivalents

$22.36B

Free Cash Flow

$1.88B

Financial Statements
Beta
Revenue$16.17B
Cost of Revenue$4.78B
Gross Profit$11.39B
SG&A Expenses$5.06B
Operating Income$4.73B
Interest Expense$125.00M
Net Income$3.48B
EPS (Basic)$1.27
EPS (Diluted)$1.25
Shares Outstanding (Basic)2.74B
Shares Outstanding (Diluted)2.77B

Key Highlights

  • 1Worldwide sales increased by 3.5% to $16.2 billion, driven by international performance and favorable currency exchange rates.
  • 2Pharmaceutical segment sales grew by 7.5%, highlighting the strength of key products like REMICADE® and LEVAQUIN®.
  • 3Consumer segment sales declined by 2.2%, impacted by operational issues at McNeil Consumer Healthcare facilities, including ongoing quality remediation efforts and a consent decree with the FDA.
  • 4Net earnings decreased to $3.5 billion ($1.25/share) from $4.5 billion ($1.62/share) in the prior year, influenced by a large litigation gain in Q1 2010 and increased litigation expenses in Q1 2011.
  • 5Operating cash flow remained strong at $2.3 billion, supporting the company's liquidity and operational needs.
  • 6Johnson & Johnson increased its quarterly dividend to $0.570 per share, demonstrating a commitment to shareholder returns and a history of consistent dividend growth.
  • 7The company completed the acquisition of Crucell N.V. for $2 billion, strategically enhancing its biopharmaceutical and vaccine capabilities.

Frequently Asked Questions

The primary driver of the 3.5% increase in worldwide sales to $16.2 billion was strong performance in international markets, which grew by 7.3%, and a positive impact from currency fluctuations that added 1.7% to the growth. While U.S. sales saw a slight decrease of 0.6%, international sales growth more than compensated for this.

Net earnings decreased to $3.5 billion in Q1 2011 from $4.5 billion in Q1 2010. This decline was primarily due to a significant net gain of $1.5 billion from litigation matters recorded in the first quarter of 2010, which boosted prior year earnings. In contrast, the current quarter experienced increased litigation expenses and recall costs, particularly related to the DePuy ASR™ Hip recall and consumer product issues, which negatively impacted earnings.

The filing highlights several challenges and risks. These include ongoing legal proceedings and investigations across various segments (product liability, intellectual property, government investigations), increased competition leading to pricing pressures and generic drug challenges, the impact of U.S. healthcare reform legislation (like increased Medicaid rebates and new fees), and operational issues within the Consumer segment requiring manufacturing enhancements and quality remediation. The company also faces economic uncertainties in certain international markets.

Johnson & Johnson is actively engaged in managing its extensive legal and regulatory matters. The company records accruals for probable liabilities when estimable and is vigorously contesting allegations in most cases. For matters like the McNeil Consumer Healthcare facility issues, a consent decree has been approved with the FDA to ensure enhanced product quality. The company also voluntarily disclosed potential Foreign Corrupt Practices Act (FCPA) violations and resolved these and Oil for Food program matters through settlements. Despite the significant number of legal cases, the company believes the ultimate outcome, net of accrued liabilities, is not expected to have a material adverse effect on its financial position, though it could impact results of operations for a specific period.