Johnson & Johnson (JNJ.N) on Tuesday reported higher-than-expected quarterly earnings on strong demand for its prescription drugs and medical devices, but a big gain from the sale of a stake in Irish drugmaker Elan Corp ELN.I skewed the results.
"It looks like it was a great quarter, when it was really only a good quarter," Edwards Jones analyst Judson Clark said.
J&J posted a second-quarter gain of $213 million from the sale of Elan shares it acquired in 2009 as part of a deal to develop a treatment for Alzheimer's disease.
The diversified healthcare company, whose shares were little changed in afternoon trading, said it earned $3.8 billion, or $1.33 per share. That compared with $1.41 billion, or 50 cents per share, a year earlier, when J&J took $2.2 billion in charges for the writedown of research assets, litigation expenses and merger-related costs.
J&J earned $1.48 per share, excluding special items such as expenses from litigation and an acquisition. Analysts on average expected $1.39, according to Thomson Reuters I/B/E/S.
Wells Fargo analyst Larry Biegelsen said the earnings beat estimates because of surprisingly strong sales, a lower tax rate, improved profit margins and the Elan gain.
Revenue rose 8.5 percent to $17.88 billion, while Wall Street had been expecting $17.71 billion.
Global sales of the company's prescription drugs rose 11.7 percent to $7.02 billion, on strong performances of Remicade for arthritis, Stelara for psoriasis and Zytiga, a fast-growing medicine for prostate cancer.
Sales of medical devices rose 9.6 percent to $7.19 billion, helped by the company's recent acquisition of Synthes Inc and its devices used for trauma procedures.
"This report shows that concerns about growth of J&J's device business are overblown," said Bill Smead, chief investment officer of Smead Capital Management.
But sales of consumer medicines edged up only 1.1 percent, to $3.66 billion, with weakness in both in U.S. and overseas markets. U.S. sales continue to suffer from recalls of Tylenol, Motrin and other over-the-counter medicines over the past three years due to quality-control lapses.
J&J raised its full-year earnings forecast to between $5.40 and $5.47 per share from an earlier range of $5.35 to $5.45. It earned $5.10 per share last year.
(Reporting by Ransdell Pierson and Caroline Humer; Editing by Lisa Von Ahn)