10-QPeriod: Q1 FY2013

JOHNSON & JOHNSON Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 3, 2013For Securities:JNJ

Summary

Johnson & Johnson reported strong top-line growth in its first quarter of 2013, with worldwide sales increasing by 8.5% to $17.5 billion. This growth was primarily driven by the Medical Devices and Diagnostics segment, which saw a significant 10.2% increase in sales, largely due to the acquisition of Synthes, Inc. The Pharmaceutical segment also demonstrated robust growth, with sales up 10.4%, propelled by strong performance in Immunology and Oncology. Despite the healthy sales figures, net earnings decreased by 10.6% to $3.5 billion, or $1.22 per diluted share, compared to $3.9 billion, or $1.41 per diluted share, in the prior year. This decline was attributed to higher litigation expenses, acquisition-related costs for Synthes, and a charge related to the devaluation of the Venezuelan currency. The company's effective tax rate also decreased significantly to 17.9% from 22.5% due to the retroactive U.S. Research & Development tax credit.

Financial Highlights

54 data points
Beta

Revenue

$17.50B

68.3% Gross Margin

Net Income

$3.50B

20.0% Net Margin

EPS (Diluted)

$1.22

Total Assets

$121.54B

Cash & Equivalents

$14.86B

Free Cash Flow

$1.69B

Financial Statements
Beta
Revenue$17.50B
Cost of Revenue$5.55B
Gross Profit$11.95B
SG&A Expenses$5.22B
Operating Income$4.48B
Interest Expense$125.00M
Net Income$3.50B
EPS (Basic)$1.25
EPS (Diluted)$1.22
Shares Outstanding (Basic)2.79B
Shares Outstanding (Diluted)2.86B

Key Highlights

  • 1Worldwide sales increased by 8.5% to $17.5 billion in Q1 2013, driven by an 11.9% operational increase in Medical Devices and Diagnostics, largely due to the Synthes acquisition.
  • 2Pharmaceutical segment sales grew by 10.4% to $6.8 billion, with strong contributions from Immunology (up 16.3%) and Oncology (up 33.2%).
  • 3Net earnings decreased by 10.6% to $3.5 billion, impacted by $0.7 billion in unfavorable items including litigation expenses and Synthes acquisition costs.
  • 4Diluted Earnings Per Share (EPS) declined to $1.22 from $1.41 in the prior year's first quarter.
  • 5The effective income tax rate decreased to 17.9% in Q1 2013 from 22.5% in Q1 2012, primarily due to retroactive R&D tax credits and favorable tax jurisdictions.
  • 6Cash flow from operations remained strong at $2.3 billion, although lower than the prior year's $2.8 billion.
  • 7The company declared a quarterly cash dividend of $0.61 per share, indicating continued commitment to returning capital to shareholders.

Frequently Asked Questions

Worldwide sales increased by 8.5% to $17.5 billion, primarily fueled by the Medical Devices and Diagnostics segment, which saw a 10.2% rise. This growth was significantly bolstered by the acquisition of Synthes, Inc. The Pharmaceutical segment also contributed positively with a 10.4% increase in sales, driven by strong performance in its Immunology and Oncology portfolios.

Net earnings declined by 10.6% to $3.5 billion ($1.22 diluted EPS) compared to $3.9 billion ($1.41 diluted EPS) in the prior year. This was due to an unfavorable impact of approximately $0.7 billion, largely attributed to increased litigation expenses, costs associated with the Synthes acquisition, and a charge for the devaluation of the Venezuelan currency. Higher inventory step-up and amortization costs related to the Synthes acquisition also impacted the cost of goods sold.

The effective income tax rate saw a notable decrease to 17.9% from 22.5% in the prior year. This reduction was primarily driven by the retroactive application of the U.S. Research & Development tax credit and the Controlled Foreign Corporation (CFC) look-through provisions, which were enacted into law in January 2013 and applied to the 2012 fiscal year. Increases in taxable income in lower tax jurisdictions also contributed to the lower rate.

The acquisition of Synthes, Inc. was completed in the second quarter of 2012 and had a significant impact on the first quarter of 2013. It drove substantial growth in the Medical Devices and Diagnostics segment, particularly in Orthopaedics. However, it also resulted in higher acquisition-related costs, integration expenses, and increased amortization expenses, which negatively affected net earnings and profitability metrics.