MASSIVE RECALLS of Tylenol and other consumer medicines forced Johnson & Johnson (JJ) to cut its 2010 profit forecast while the company said the repeated recalls were the subject of a US criminal probe.
J&J, which is also being investigated by Congress, said it was co-operating with a grand jury subpoena from the US attorney’s office in Philadelphia over the recalls. Officials at the company and the federal prosecutor’s office would not comment.
Shares in J&J fell 2.4 per cent as the recalls proved to be more damaging to the company’s bottom line than many analysts had predicted. Some investors may also be concerned that manufacturing problems at J&J’s consumer unit could draw wider regulatory scrutiny to its other, more profitable prescription drug and medical device divisions.
Standard Poor’s analyst Herman Saftlas yesterday cut his rating on J&J to “hold” from “buy”, saying the consumer products problems remained a major worry. In addition, he said, prescription drugs and medical devices are under pressure from government price controls in Europe and the weak economy.
The diversified healthcare company earned $3.45 billion, or $1.23 per share, in the quarter. That compared with $3.21 billion, or $1.15 per share, a year earlier.
Excluding items, J&J earned $1.21 per share, matching analysts’ forecast. Global quarterly sales edged up 0.6 per cent to $15.33 billion, below analysts’ projections.
Four recalls in the past year hurt the company, as did the late April closure of a plant in Fort Washington, Pennsylvania, where 40 children’s products were taken off the market.
The recalls crimped quarterly sales by $200 million, or about five US cents per share, and the plant closing will likely undermine full-year sales by $600 million, according to chief financial officer Dominic Caruso.
J&J cut its full-year 2010 profit view to between $4.65 and $4.75 per share, citing the closure of the plant – now undergoing an upgrade – and price pressures in Europe on its prescription drugs. The new forecast reflects profit growth of 0.4 per cent to 2.5 per cent. In April, the company cut its full-year forecast to a range of $4.80 to $4.90, due to costs for US healthcare reform.
Global sales of consumer products fell 5.4 per cent in the second quarter to $3.6 billion, while sales of prescription drugs rose 1 per cent to $5.6 billion. – (Reuters)
