J&J cautious view on 2014 profit, drug sales, hits shares

Tue Jan 21, 2014 3:29pm EST

(Reuters) - Healthcare company Johnson & Johnson (JNJ.N) cautioned Tuesday that prescription-drug sales would likely lose some momentum this year and forecast 2014 earnings at the lower end of Wall Street expectations, sending its shares down almost 2 percent.

Chief Financial Officer Dominic Caruso cautioned that the growth rate of prescription drug sales will "decelerate" this year, from impressive 11 percent gains in 2013 that were fueled by use of newer treatments for psoriasis, arthritis and cancer.

The company announced the outlook during a meeting with investors to review its fourth-quarter financial results, which beat Wall Street expectations on strong drug sales and an upturn in sales of consumer products.

"Things looked solid in the quarter," said Edward Jones analyst Judson Clark. "Pharmaceuticals have been strong for a while, but medical devices and diagnostics also picked up steam versus Wall Street's expectations."

J&J said it expects to earn $5.75 to $5.85 per share in 2014, excluding special items, compared with analysts' forecasts at the top end of that range.

"The guidance was a little disappointing, but management tends to be conservative with their initial forecast," gradually raising its profit views during the year, Clark said.

Sanford Bernstein analyst Derrick Sung said concerns about J&J's forecast were "overdone," and he cited "a very strong operational performance" by the company in the fourth quarter.

Caruso said price pressures on J&J's array of products, particularly in Europe, would crimp company profit margins this year by 0.5 percent, as was the case last year. But he said an additional $1 billion in accrued cost cuts over the next three years would help offset that negative trend.

Sales of prescription drugs have been "exceptional," Chief Executive Alex Gorsky said in a meeting with industry analysts. They jumped 11.8 percent to $7.3 billion in the quarter, helped by price increases and demand for Remicade and Simponi for rheumatoid arthritis, Stelara for psoriasis and Zytiga for prostate cancer.

The company, whose products span everything from medical devices to over-the-counter painkiller Tylenol, earned $3.52 billion, or $1.23 per share, in the fourth quarter.

That was well above the $2.57 billion, or 91 cents per share, it earned in the year-earlier period, when J&J took a charge of $800 million related mostly to its recall of defective hip implants.

Excluding special items, J&J earned $1.24 per share. Analysts, on average, expected $1.20 per share, according to Thomson Reuters I/B/E/S.

Global company sales rose 4.5 percent to $18.36 billion, topping Wall Street expectations of $17.95 billion. They would have risen 6.3 percent if not for the stronger dollar, which lowers the value of sales in overseas markets.

Remicade sales jumped 13.8 percent to $1.71 billion. Simponi sales soared 40 percent to $254 million, while Stelara sales jumped 55 percent to $417 million. But sales of Concerta, a treatment for attention deficit disorder that is now facing cheaper generics, tumbled 31 percent to $169 million.

Sales of consumer products, including Listerine, Aveeno skin care products and over-the counter medicines such as Tylenol and Motrin, grew almost three percent in the quarter to $3.75 billion, after relatively flat sales in the prior quarter.

The company's other big business, of medical devices and diagnostics, posted a 1 percent decline in sales to $7.3 billion, against a 2 percent decline in the prior quarter.

"There are early signs of improvement in areas like orthopedics," Gorsky said, adding he remained confident in long-term growth of the business.

J&J's DePuy orthopedics business is struggling to regain its footing following costly recalls of its defective artificial hips. Sales of orthopedics rose 2.8 percent in the quarter to $2.46 billion.

Company shares were down 1.5 percent to $93.66 in afternoon trading on the New York Stock Exchange, amid a 0.2 percent advance for the ARCA Pharmaceutical Index .DRG of large U.S. and European drugmakers.

(Reporting by Ransdell Pierson in New York; Editing by Sofina Mirza-Reid, Bernadette Baum and Chizu Nomiyama)

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