(The following statement was released by the rating agency)
CHICAGO, April 17 (Fitch) Fitch Ratings has affirmed Johnson &
long-term 'AAA' debt ratings. The Rating Outlook is Stable. In
has affirmed JNJ's short-term Issuer Default Rating (IDR) at
'F1+'. A complete
list of JNJ's ratings is provided at the end of this press
Key Rating Drivers:
--The rating action reflects Fitch's expectation that JNJ's
model will generate improving operational and financial
--Fitch anticipates that JNJ will operate with leverage
consistent with its
'AAA' rating and solid liquidity, supported by significant cash
ample access to credit markets.
--Fitch forecasts free cash flow (FCF) generation of $7 billion
- $7.5 billion
in 2013, driven by 5%-6% sales growth and modestly improving
--JNJ's pharmaceutical business has weathered significant patent
has launched a number of medicines with meaningful sales
potential. As such, the
business is positioned for long-term profitable growth.
--Fitch believes that JNJ is proceeding with the Synthes
integration as planned
and will be able to drive profitable long-term growth in the
--The ratings also incorporate anticipated softness in a number
domestic consumer franchises and the cost of the remediation of
JNJ's recently launched products in its medical device and
businesses and an expanding pipeline in both businesses support
for continued growth. In addition, strong demand for many of the
products in developing markets should more than offset dampened
performance of a
few of JNJ's U.S. consumer and medical device franchises.
Other Operational Headwinds to Persist:
Select manufacturing problems will likely weigh on revenues and
costs in select
franchises in the near term, as JNJ works to remediate these
expectation for continued weak economic and employment
environment will also
moderate growth to varying degrees in most of the company's
addition austerity measures in Europe will likely weigh on the
revenues and margins that region. Fitch expects these issues
will persist at
least through 2013.
Fitch believes that JNJ is making substantial progress with
Synthes acquisition. JNJ had a substantial orthopedic franchise,
acquiring Synthes in June 2012. Given the limited overlap in
Fitch continues to view the transaction as strategically sound.
In addition to
cross-selling opportunites/greater distribution potential of
devices, Fitch also expects that JNJ will achieve significant
from the integration.
Fitch expects JNJ's improving sales mix and continued focus on
support margins. The company's recently approved pharmaceutical
continued expansion of its medical device segment will support
faster growth for
these segments relative to JNJ's lower-margin consumer business.
management should continue to focus on generating greater
efficiencies in administration, manufacturing and distribution.
JNJ has significant liquidity and access to the credit markets.
and relatively stable margins enabled the company to generate
$5.85 billion of
FCF [cash flow from operations ($15.40 billion minus capital
billion) and dividends ($6.61 billion)] during the LTM period,
ended Dec. 30,
On Dec. 30, 2012, JNJ had approximately $21.1 billion in cash
marketable securities and access to $10 billion in short-term
also had approximately $16.2 billion in debt, including
billion in commercial paper. JNJ has approximately $1.5 billion
debt maturing in 2013, $1.8 billion in 2014 $900 million in 2016
and $1 billion
Cash Deployment for Growth and Shareholder Returns:
Fitch believes JNJ will remain acquisitive, focusing on targets
or products that
offer innovation and growth in the health care sector. The
company will likely
finance its transactions within the context of its 'AAA' credit
Shareholder-focused activities, such as dividend increases and
are also expected to continue, which Fitch believes will largely
While Fitch does not anticipate a downgrade during its four-year
horizon, a negative rating action could occur if some
deteriorating operational performance and leveraging
transactions stress the
company's credit profile. Fitch believes the company's widely
care related franchises make it more likely that a negative
rating action would
be prompted by a leveraging transaction, as opposed to
Three of the key rating metrics for JNJ's 'AAA' rating that
investors should consider are the following:
--Total debt/FCF of 3.0 times (x) gives no flexibility.
--Total debt/EBITDA of 1.0x gives no flexibility.
--Net debt of $4 billion - $5 billion gives no flexibility.
On Dec. 30, 2012, latest 12 month (LTM) selected credit metrics
were as follows.
--Total debt/FCF was nearly 2.8x (including one-time
--Total debt/EBITDA was 0.76x.
--JNJ had a net cash position of $4.9 billion.
Fitch affirms JNJ's ratings as follows:
--Issuer Default Rating (IDR) at 'AAA';
--Senior unsecured debt at 'AAA';
--Subordinated debt at 'AAA';
--Short-term IDR at 'F1+';
--Commercial paper at 'F1+'.
The Rating Outlook is Stable.
The ratings apply to approximately $16.2 billion of debt.
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012).
Applicable Criteria and Related Research
Corporate Rating Methodology
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