Johnson & Johnson, continuing a tough year of declining revenue, posted a 29 percent drop in third-quarter earnings as it was hammered by plunging sales of its hepatitis C medicine and unfavorable currency exchange rates.
The healthcare bellwether's results were also hurt by comparison to a year-ago when it had a $2 billion gain from selling a large diagnostics business.
Company executives on Tuesday tried to put a positive spin on the results, saying that underlying performance remained strong after excluding multiple negative factors. J&J raised its profit forecast and announced a $10 billion stock buyback plan that will be financed by issuing new debt.
J&J, based in New Brunswick, New Jersey, beat analysts' muted profit expectations for the quarter, but Wall Street was unimpressed. J&J shares slipped 33 cents to $95.66 in midday trading Tuesday.
"International growth — the hoped-for growth driver — was anemic even after adjusting for currency swings, and the domestic market is dead in the water," wrote analyst Erik Gordon, a professor at the University of Michigan's Ross School of Business.
The U.S. consumer health business, nearly recovered after a long and embarrassing spate of recalls dating to 2009, was the lone bright spot, with a 9 percent sales increase, but it accounts for just 7.5 percent of sales.
"Domestic consumer sales of Tylenol and other brands that had suffered being off shelves for so long after the manufacturing problems are rebounding. The brand names still are strong," Gordon noted.
The maker of Tylenol, medical devices and Xarelto, for preventing heart attacks and stroke, reported third-quarter net income of $3.36 billion, or $1.20 per share, compared with $4.75 billion, or $1.66 per share, a year ago.
Adjusted net income, excluding the impact of its sale of its Ortho-Clinical Diagnostics business and higher charges for litigation and write-downs in the value of assets, was $4.17 billion, or $1.49 per share. That topped analysts' average expectation for $1.44 per share.
J&J's revenue of $17.1 billion missed analysts' forecasts for $17.41 billion. The strong dollar, which reduces the value of products bought with local currency in other countries, cut total revenue by 8.2 percent, the company said.
The company increased its 2015 profit forecast to $6.15 to $6.20 per share, excluding one-time items, up from the company's July forecast of $6.10 to $6.20 per share. Analysts surveyed by FactSet expected $6.16 per share.
Pharmaceutical sales declined 7.4 percent to $7.7 billion, mainly because sales of hepatitis C drug Olysio plunged 90 percent to just $79 million. The drug was once seen as a likely blockbuster, but newer hepatitis C pills Sovaldi, Harvoni and Viekira Pak have since cornered the market and together are raking in billions every quarter.
Asked whether the recent furor over sky-high prescription drug prices would affect J&J's pricing, Chief Financial Officer Dominic Caruso told analysts on a conference call, "We think the real answer is to monitor and provide outcome-based measures (on drugs' benefits and risks) and not focus solely on price."
"We're very responsible in the pricing of our drugs," Caruso added.
Sales of consumer health products such as pain reliever Motrin and allergy pill Zyrtec fell 7.7 percent worldwide, to a total of $3.3 billion.
Sales of medical devices dropped 7.3 percent to $6.1 billion. This month, J&J sold its Cordis heart devices unit, which accounts for about one-quarter of device sales, but the company said the other device businesses should be able to compensate for that.
Analysts asked whether the share buyback program indicates J&J isn't looking for acquisitions, something J&J clearly needs to provide future growth. Caruso said the company historically has mostly made small and medium-sized deals, but is open to big ones that provide value.
Gary Pruden, worldwide head of medical devices, said the company will have announcements in a few weeks on its partnership with Internet search giant Google, announced in March, to build robots that can help surgeons in the operating room.
"We think what's available today is like the (computer) mainframes of 50 years ago," Pruden said. "We want to move to the iPad version."
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