Johnson & Johnson beat Wall Street expectations despite flat first-quarter profit, as higher sales of new prescription drugs and other key medicines couldn't quite offset another hit from the strong dollar and other issues.
However, the world's biggest maker of health care products cheered investors Tuesday by raising its forecasts for the year. Shares rose $1.97 to $112.90 in midday trading.
J&J posted net income of $4.29 billion, or $1.54 per share. The maker of Band-Aids, prescription medicines and medical devices reported adjusted profit, which excludes one-time items, of $1.68 per share, easily beating analysts' expectations for $1.64 per share.
Lower sales, marketing and administrative expenses largely drove the earnings beat, Credit-Suisse analyst Vamil Divan wrote to investors.
The New Brunswick, New Jersey, company had revenue of $17.48 billion, up 0.6 percent and $60 million above Street forecasts.
"It was a good quarter for the company," with continued "very impressive" results for the key prescription drug business, said Edward Jones analyst Ashtyn Evans.
J&J expects by 2019 to launch nine new products that each could produce $1 billion in annual sales. Last year, it launched Darzalex, a potential blockbuster that's the first antibody-based drug for the blood cancer multiple myeloma.
Other segments aren't doing as well. The medical device business is reorganizing, and its sales fell 2.4 percent to $6.11 billion, after last year's sale of the Cordis heart devices unit.
The consumer health business saw operational declines in four of its six categories even excluding the strong dollar. J&J blamed the mild flu season and Venezuela's currency devaluation, but Evans said they don't explain the drops.
"They may not ever get back to where they were," Evans said, on market share of nonprescription medicines such as pain relievers Tylenol and Motrin before dozens of product recalls beginning in 2009 kept products out of stores for years.
For instance, J&J said market share for adult pain relievers is up to 14 percent, versus 26 percent in 2009, and pediatric analgesics have a 46 percent market share, versus 72 percent in 2009. J&J had to gut and rebuild its main U.S. factory for those, and it's still under extra scrutiny by the Food and Drug Administration.
Like other multinational companies, J&J has been squeezed for a couple of years by unfavorable currency exchange rates, which reduce the value of products bought in local currencies. However, the first quarter's 3.3 percent hit is well below the 7 percent impact a year ago, one reason for the higher 2016 financial forecast, Chief Financial Officer Dominic Caruso told analysts on a conference call.
J&J raised its January profit forecast by a dime, to a range of $6.53 to $6.68 per share, and hiked its revenue forecast by $400 million, to $71.2 billion to $71.9 billion.
"We carried last year's momentum into 2016," Caruso said, adding, "Underlying (sales) growth was a very strong 7 percent," after excluding acquisitions, divestitures and the 86 percent plunge in hepatitis C drug Olysio's sales, to just $32 million in the quarter.
That once-lucrative drug is being crushed by newer rivals such as Gilead Sciences Inc.'s Harvoni, which is raking in billions every quarter.
Prescription drug sales jumped 5.9 percent to $8.18 billion, driven by higher sales of immune disorder drugs Remicade, Simponi and Stelara, and Xarelto for preventing heart attacks and strokes, plus sales of new blood cancer drug Imbruvica.
Sales of consumer health products such as allergy pill Zyrtec fell 5.8 percent to $3.2 billion. Caruso noted competition hurt sales of baby care items such as No More Tears shampoo.
"It looks like millennial moms are trying a lot of organic, natural and what we call premium brands in that space," Caruso said, adding J&J plans a new marketing campaign for that business later this year.
The company has $17 billion in net cash and marketable securities on hand, and Caruso said it's looking for acquisitions "at the right price."
Meanwhile, Erik Gordon, an analyst and business professor at University of Michigan, warned, "Nobody knows how huge the company's liabilities could be in the talcum powder and other mass tort product liability cases."
A Missouri jury in February awarded $72 million to the family of an Alabama woman who died from ovarian cancer blamed on J&J's baby powder, and at least 1,200 other cases are pending.
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