Johnson & Johnson (JNJ)

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Johnson & Johnson (JNJ)

F1Q09 Earnings Call

April 14, 2009 8:30 am ET


Louise Mehrotra - Vice President, Investor Relations

Dominic Caruso - Vice President, Finance and Chief Financial Officer


Matthew Dodds - Citigroup

Bruce Nudell - UBS

Sara Michelmore – Cowen

Rick Wise - Leerink Swann

Mike Weinstein - JP Morgan

Tao Levy - Deutsche Bank

Bob Hopkins - Banc of America-Merrill Lynch

Larry Biegelsen - Wachovia

Catherine Arnold - Credit Suisse

David Lewis – Morgan Stanley

Glenn Novarro – RBC



(Operator Instructions) Welcome to the Johnson & Johnson First Quarter 2009 Earnings Conference Call. I would now like to turn the call over to Johnson & Johnson.

Louise Mehrotra

I’m Louise Mehrotra, Vice President of Investor Relations for Johnson & Johnson and it is my pleasure this morning to review our business results for the first quarter of 2009. Joining me on the call today is Dominic Caruso, Vice President, Finance and Chief Financial Officer.

A few logistics before we get into the details, this review is being made available to a broader audience via a webcast accessible through the Investor Relations section of the Johnson & Johnson website. I’ll begin by briefly reviewing highlights of the first quarter for the Corporation and highlights for our three business segments. Following my remarks Dominic will provide some additional commentary on the first quarter results and guidance for the full year of 2009. We will then open the call to your questions.

We expect the call to last approximately one hour. Included with the press release that was sent to the investment community earlier this morning is a schedule showing sales for major products and/or business franchises to facilitate updating your models. These are also available on the Johnson & Johnson website as is the press release.

Before I get into the results let remind you that some of the statements made during this call may be considered forward looking statements. The 10-K for the fiscal year 2008 identifies certain factors that could cause the company’s actual results to differ materially from those projected in any forward looking statements made this morning. The company does not undertake to update any forward looking statements as a result of new information or future events or developments. The 10-K is available through the company or online.

Last item, during the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. These measures are reconciled to the GAAP measures and are available in the press release or on the Johnson & Johnson website. Now I would like to review our results for the first quarter of 2009. If you would refer to your copy of the press release, let’s begin with the schedule titled supplementary sales data by geographic area.

Worldwide sales to customers were $15 billion for the first quarter of 2009 down 7.2% as compared to the first quarter of 2008. On an operational basis sales were down 1.2% and currency had a negative impact of 6%. In the US, sales declined 5%. In regions outside the US our operational growth was 3% while the effect of currency exchange rates negatively impacted our reported results by 12.6 points.

Our strongest performing region was the Asia/Pacific/Africa region which grew 8.5% on an operational basis. The Western Hemisphere excluding the US grew by 4.5% operationally while Europe declined 0.2% operationally.

If you now turn to the consolidated statement of earnings, net earnings on a reported basis were $3.5 billion compared to $3.6 billion in the same period in 2008, a decrease of 2.5%. Earnings per share were $1.26 in both periods. I would now like to make some additional comments relative to the components leading to earnings before we move on to the segment highlights.

Cost of goods sold at 28.3% of sales was 20 basis points less then the same period in 2008 due to cost containment primarily in our MD&D business, partially offset by unfavorable mix in our consumer and pharmaceutical businesses. Selling, marketing and administrative expenses at 30.7% of sales were down 90 basis points versus last year driven by leverage across the businesses most notably consumer.

Our investment in research and development as a percent to sales was 10.1%, 50 basis points less then the first quarter of 2008 due to a change in the mix of the businesses and reductions in spending levels. Interest expense net of interest income of $81 million compares to $16 million in the first quarter of 2008. This change in the net expense was due primarily to lower interest rates on our cash balance.

Other income net of other expense was $75 million in the first quarter of 2009 compared to $18 million in the same period last year. The 2008 results included expenses related to the integration of Pfizer Consumer Healthcare.

Taxes were 24.5% in the first quarter of 2009 versus 24.2% in the first quarter of 2008 reflecting the change in the mix of the businesses. Turning now to business segment highlights please refer to your supplementary sales schedules highlighting major products or business franchises. I’ll begin with the Consumer segment.

Worldwide Consumer segment sales for the first quarter of 2009 of $3.7 billion decreased 8.7% as compared to the same period last year. On an operational basis sales declined 1% while the impact of currency was -7.7 points. US sales were down 5.1% while international sales grew 2.4% on an operational basis. The first quarter results for 2008 included the launch of Zyrtec OTC. Excluding the impact of Zyrtec the Consumer business grew approximately 1% operationally.

For the first quarter of 2009 sales for the over the counter pharmaceuticals and nutritionals declined 8.4% on an operational basis compared to the same period in 2008. Sales in the US were down 13.8% with approximately half the decline due to the 2008 inventory build for initial stocking related to the launch of Zyrtec.

The OTC category in the US in the first quarter is estimated to decline by 2% to 3% and competition from private label has intensified. A milder flu and fever season has impacted sales in the upper respiratory and analgesics categories. Sales outside the US were down 2.4% operationally due to the general softness in the economy and new competitive entrants in certain categories.

Our skincare business achieved operational sales growth of 7.8% in the first quarter of 2009 with sales in the US growing at 10.7% and sales outside the US up 5.4% on an operational basis. Strong growth was driven by the newly acquired products from Dabao, the leading moisturizer in China, Neutrogena and Aveeno, partially offset by lower sales of rock products outside the US.

Baby care products achieved operational growth of 0.9% when compared to the first quarter of 2008. Sales in the US were down 11.3% primarily due to lower sales for Baby center has exited the online retail business and will focus on online content. Sales outside the US were up 4.3% operationally due to strong growth in cleansers and powders.

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