Rising prescription drug sales and continued recovery of Johnson & Johnson's beleaguered consumer health business in the third quarter helped the health care giant overcome slumping medical device sales.
U.S. pricing pressure forced J&J to cut prices for devices including diabetes testing products and hip replacements. And it's having trouble integrating part of orthopedic products maker Synthes, bought last year for $20 billion in J&J's biggest acquisition.
For the second straight quarter, the maker of baby shampoo and immune disorder drugs nudged up its 2013 earnings forecast by a few cents, to $5.44 to $5.49 per share. Analysts expect $5.46. In afternoon trading, shares rose 53 cents to $90.33.
The New Brunswick, N.J., company said Tuesday that net income rose to $2.98 billion, or $1.04 per share, up from $2.97 billion, or $1.05 per share, a year earlier. Excluding charges, it earned $1.36 per share, 4 cents per share more than expected.
Revenue rose 3 percent to $17.58 billion. Analysts expected $17.43 billion.
"We are still seeing (health care) utilization rates that are essentially flat year over year," Chief Financial Officer Dominic Caruso told analysts on a conference call.
That's been a problem throughout the global economic slowdown, as consumers delay elective surgical procedures and chose store brands over J&J's pricier Band-Aids and nonprescription medicines.
Those nonprescription drugs, responsible for most of J&J's roughly four dozen product recalls over the past four years, saw sales jump 18 percent in the U.S. as more products returned to stores. Pain relievers Tylenol and Motrin, among the products recalled for reasons including wrong active ingredient levels and contamination with metal and plastic particles, fueled that growth.
The consumer health business, which also makes dental, wound and skin care items such as Aveeno and Neutrogena, boosted sales 0.8 percent to $3.61 billion.
The lower device sales helped the prescription drug business regain its position as J&J's top revenue generator.
Drug sales rose 9.9 percent to $7.04 billion, led by big jumps for newer medicines: anticlotting drug Xarelto, immune disorder drug Simponi, Stelara for psoriasis, Invega Sustena for schizophrenia and Zytiga for prostate cancer.
"The new drug sales are particularly impressive," said Erik Gordon, an analyst at University of Michigan's Ross School of Business. But he said J&J can't seem to get its consumer products business "moving quickly. They've lost four years of business and may never get it all back."
Analyst Steve Brozak of WBB Securities was encouraged by J&J's $2.3 billion in sales of arthritis and inflammatory disorder drugs, and its push into cancer medicines, both growth areas.
Device sales dropped 2 percent to $6.93 billion, thanks to pricing pressures and difficulty integrating the Synthes sales reps and products for repairing spinal damage.
J&J said it's developing cheaper medical devices for markets such as China and India. They're among the top emerging markets — countries with big populations now spending more on health care — expected to provide 40 percent of device business growth in coming years.
Edward Jones analyst Judson Clark said J&J is acknowledging the industry can't hit its earlier rosy profit expectations in emerging markets.
"People who can't afford a $100 medicine also can't afford to pay list price for replacement knees," Clark said.
Follow Linda A. Johnson at http://twitter.com/LindaJ_onPharma.