By Jonathan D. Rockoff And Tess Stynes
Johnson & Johnson reported fourth-quarter sales slipped 0.6%
despite surging prescription-drug sales, in a sign of what the
stronger dollar will mean for U.S. companies counting on overseas
markets.
Like many health-product companies, J&J, New Brunswick,
N.J., has expanded its businesses overseas, especially in
fast-growing emerging markets like China. The moves have helped
companies increase sales in health-care markets that are expanding
much more than cost-conscious U.S. and European markets.
Yet it has also left them more vulnerable to fluctuations in the
various economies as well as currency shifts like the recent rising
dollar.
Now, 53% of J&J's sales of drugs, medical devices and
consumer products like Band-Aids come from outside the U.S. Chief
Executive Alex Gorsky said in a conference call that problems in
Russia and Venezuela were challenging the businesses in those
countries. J&J's $18.3 billion in fourth-quarter sales were up
3.9% operationally but suffered a 4.5% currency hit.
"Currency headwinds have increased quite substantially," Chief
Financial Officer Dominic Caruso said in a conference call. Last
year, he said, the dollar grew stronger "to a greater extent than
we had anticipated." He said the company expects another 3.5% to
4.5% of negative foreign-exchange impact this year if the dollar
remains at its current high levels.
Overall, J&J reported a profit of $2.52 billion, or 89 cents
a share, in the quarter, compared with $3.52 billion, or $1.23 a
share a year earlier. Excluding an increase in litigation-related
items, integration costs and other items, per-share earnings rose
to $1.27 from $1.24 and above the average analyst estimate of $1.26
a share.
Shares of J&J dropped 3% on the New York Stock Exchange.
J&J's financial performance is considered a bellwether for
the various health-products markets because the company's portfolio
spreads so broadly. Mr. Gorsky said the U.S. health-care market
seemed to be reviving, with hospital admissions and surgical
procedures growing, though doctor's visits are still in negative
territory.
He said China's health-care market was also in good shape but
described Europe, Russia and Venezuela as challenging, while saying
Brazil was "mixed."
The dollar's strengthening blunted another strong quarter for
J&J's prescription-drugs business, which reported its sales
grew 9.6%, propelled by such new drugs as diabetes treatment
Invokana, blood-thinner Xarelto and prostate-cancer therapy
Zytiga.
The pharmaceuticals business is primed for further growth, Mr.
Gorsky said, with promising drugs for depression, multiple myeloma
and prostate cancer in development. Yet low-price competition looms
for some of J&J's top-selling drugs, including for the
antipsychotics Invega and Risperdal, the latter of which the
company expects to face generic competition in Europe this
year.
A big, surprising sales driver for J&J last year was the
hepatitis C drug Olysio, but the company expects the drug's sales
to drop off as the result of growing competition. In the latest
period, Olysio sales reached $256 million in the U.S., above
analysts's expectations, but below the $671 million in the third
quarter.
J&J improved its operating margins by 190 basis points,
excluding the impact of special items. The company is planning to
wrest another $1 billion in savings out of its IT, finance and
human-resources operations, Mr. Caruso said.
Mr. Gorsky said J&J's consumer-health business was "on
track" to fixing the manufacturing problems that led to recalls of
children's Tylenol and other popular over-the-counter medicines. He
said that 80% of the McNeil over-the-counter medicines unit's SKUs
had returned to shelves, and sales of children's Tylenol were
growing four times the market rate.
J&J's medical-device business is finishing up the
integration of Synthes's surgical-parts business, which J&J
bought for $21.3 billion in 2012. J&J ended last year with
$14.3 billion in net cash. Mr. Gorsky indicated the company was
interested in deals to further bolster its medical-device
business.
"We continue to look for new options," Mr. Gorsky said.
Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com and
Tess Stynes at tess.stynes@wsj.com
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