gb540 unit6 final project bill justice
TRANSCRIPT
Johnson & Johnson
Bill JusticeGB 540 Economics for Global Decision Makers
International Economic and Emerging Economies - Final Project
November 23, 2010
Company History
Founded in 1885, New Brunswick, NJ
By the Johnson brothers Robert,
James, and Edward
Started with 14 employees in a
former wallpaper factory
First product was surgical dressings
Company Overview
The world's largest healthcare group
R&D, manufacture, and sale of a range of products in the healthcare field
Operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics
115,000 employees worldwide
More than 250 operating companies
Sell products in 60 countries throughout the world
Product Categories
AllergiesBaby Care
Dental Care
Diabetes Care
Feminine
Hygiene Gastrointestinal
Nutritional OrthopedicsPrescription Drugs
Vision Care
Wound Care
Colds and FluCardiology
Denture CareFamily Planning
First Aid Medial
Devices/Diagnostics Oncology
Pain RelieverSkin and Hair Care Women’s Health
Corporate Leadership
Management
Weldon Williams- (1971) CEO Joined the company in 1971 Served in several sales, marketing and international management positions
Dominic Caruso - (1999) CFO & Vice President of Finance Previously VP of the Finance for the Medical Devices and Diagnostics KPMG Joined in October of 1999 through the acquisition of Centocor (has been with that
company since 1985)
Russell C. Deyo - (1985) Vice President, Human Resources and General Counsel
Joined the company in 1985 as a general attorney Previously VP of Administration, named to post in 1996 Appointed to General Counsel in April 2004 Given additional responsibility for Human Resources in 2009
Strong Sense of Seniority
Current Financial Status
Highlights
A stable and strong company that meets all the needs of a stock an investor should have going into a recession
DIVERSIFICATION-not only produces medication, but also medical equipment, and human staple goods
Unlike many other pharmaceutical companies, they
are not in big trouble with patents Proven successful during the recent recessions
Performance in 2001 Recession
Had a 2:1 stock split during the recession
Performance in Past Recession
JNJ Adjusted CloseDJIA
Track Record of Performance
Exceptionally consistent performance 75 consecutive years of sales increases 24 consecutive years of earnings increases 45 consecutive years of dividend increases
Few, if any companies, can claim this
JNJ Common Stock
Johnson & Johnson Common Stock(NYSE: JNJ ) After Hours: 63.85 0.02 (0.03%) 7:58PM EST Last Trade: 63.83 Trade Time: Nov 19 Change: 0.00 (0.00%) Prev Close: 63.83 Open: 63.89 Bid: 63.72 x 300 Ask: 63.95 x 200 1y Target Est: 67.84
Day's Range: 63.65 - 64.22
52wk Range: 56.86 - 66.20
Volume: 12,890,323 Avg Vol (3m): 10,326,100
Market Cap: 175.29B P/E (ttm): 13.11 EPS (ttm): 4.87 Div & Yield: 2.16 (3.40%)
Source: Yahoo Finance
JNJ Common Stock
Source: Yahoo Finance
Financial Highlights
Fiscal Year Fiscal Year Ends: Jan 3 Most Recent Quarter (mrq): Oct 3, 2010 Profitability Profit Margin (ttm): 21.76% Operating Margin (ttm): 26.56% Management Effectiveness Return on Assets (ttm): 10.93% Return on Equity (ttm): 25.26% Income Statement Revenue (ttm): 62.49B Revenue Per Share (ttm): 22.68 Qtrly Revenue Growth (yoy): -0.70% Gross Profit (ttm): 43.45B EBITDA (ttm): 19.51B Net Income Avl to Common (ttm):
13.60B Diluted EPS (ttm): 4.87 Qtrly Earnings Growth (yoy): 2.20%
Balance Sheet Total Cash (mrq): 22.13B Total Cash Per Share (mrq): 8.06 Total Debt (mrq): 12.02B Total Debt/Equity (mrq): 20.99 Current Ratio (mrq): 2.45 Book Value Per Share (mrq): 20.85 Cash Flow Statement Operating Cash Flow (ttm): 17.85B Levered Free Cash Flow (ttm): 9.99B
Source: Yahoo Finance
Q3 and Fiscal 2010 Earnings
Sales declined 0.7% to $15 billion compared to prior year
Domestic sales declined by 2.5% due to recent successive recalls
International sales increased by 1.1%
Slight growth over 2009 results with net earnings up 2.2%
after 3rd Qtr results
Consumer sales of $3.6 billion for 3rd Qtr, down 10.6% from prior year
along with 10.6% operational decline
Pharmaceutical sales of $5.5 billion for 3rd Qtr, up 4.7% from prior year
along with operational growth of 5.9% realized
Medical Device and Diagnostic sales achieved $5.9 billion for 3rd Qtr,
up 1.3% over prior year along with slight operational increase of 1.3%
Q3 and Fiscal 2010 Earnings
Pharmaceutical segment:
Has returned to growth and has a promising pipeline lined up for the
future
Newly launched products have shown strong performance
Weaker dollar and growth in Pharmaceutical and Medical
Device & Diagnostic off-setting decline in the Consumer
segment
Various recalls of Tylenol and other OTC drugs impacting
domestic sales, decrease of 24.5% realized
Economic, Social, and Political Forces
JNJ Current IndicatorsEconomic Indicators
Unit 2006 2007 2008 2009
Sales U.S. dollars, millions % change over previous year
53,3245.6
61,09514.6
63,7474.3
61,897(2.9)
Net Earnings U.S. dollars, millions % change over previous year
11,0539.9
10,576(4.3)
12,94922.4
12,266(5.3)
Share Price (end of calendar year)
U.S. dollars 66.02 67.38 58.56 64.41
Operating Companies
Number (approximate) 200 250 250 250
Employees Number (approximate) 122,200 119,200 118,700 115,500
R&D U.S. dollars, millions As % of sales
7,12513.4
7,68012.6
7,57711.9
6,98611.3
Effective Income Tax Rate
% of income 24.2 20.4 23.5 22.1
Advertising Costs
U.S. dollars, billions As % of sales
1.93.6
2.74.4
2.94.5
2.43.9
Charitable Contributions
Total U.S. dollars, millionsAs % of pretax income Non-cash
544.83.7419.4
509.93.8370.3
510.33.0365.5
588.13.7461.5
Global Economic Indicator Impacts
Weak dollar resulting in fav earnings forecast for 2010, from $4.70 to $4.80 per share
Industrial Product Index results from September 2010 signal manufacturing is recovering slowly
Pricing pressures are in control with CPI and PPI slightly up in September 2010 causing Federal Reserve Bank to be concerned with risk of inflation
Labor market continues to be weak with employers remaining reluctant to add new employees as unemployment rate remains at 9.6%.
Recent drops in stock market and China’s decision to increase benchmark on interest rate has lenders confidence levels down
Pharmaceutical Plague
Many companies are not showing any positive signs in R&D
Blockbuster drugs are lacking
Even if they do break through, they are being shut down by the FDA for undesired and dangerous side effects
Pharmaceutical Plague
2007-2010: Disappointing, dissipating, and decaying time for many pharmaceutical companies around the world
Key drugs that provide profit and revenue will be losing their patent protection Allows these medications to go generic which will
provide the consumer with the same medication at a cheaper and more reasonable price
Medications(Top Sellers)
RISPERDAL CONSTA and INVEGA, both antipsychotic medications
TOPAMAX, an antiepileptic and a treatment for the prevention of migraine headaches
REMICADE, for the treatment of a number of immune mediated inflammatory diseases
VELCADE, a treatment for multiple myeloma
CONCERTA, a treatment for attention deficit hyperactivity disorder
LEVAQUIN, an anti-infective
Newly Acquired
Introduced 600 products and line
extensions under its consumer business in
recent years Rolaids, Rogaine, Sudafed, Visine, Neosporin, Listermint,
Listerine, Bengay, and Benadril just to name a few
Always evaluating licensing and acquisitions
Highly respected for making business
deals/buying/selling operating companies
In the Pipeline
9 drugs in early FDA approval stages
14 drugs in Phase III of FDA approval Could be as soon as 12 months before
release
4 drugs have received FDA approval for releases in 2009
Competition
Competition
JNJ vs. Industry Leaders
Statistic Industry Leader JNJ JNJ Rank
Market Capitalization BYR.L N/A 175.29B 12 / 159
P/E Ratio (ttm) BYR.L N/A 13.11 70 / 159
PEG Ratio (ttm, 5 yr expected)
BMY 4.90 2.18 8 / 159
Revenue Growth (Qtrly YoY)
IPXL 368.10% -0.70% 91 / 159
EPS Growth (Qtrly YoY) BRAWN.BO 1300.00% 2.40% 61 / 159
Long-Term Growth Rate (5 yr)
PVCT.OB 116.00% 6.17% 14 / 159
Return on Equity (ttm) RHO5.DE 219.46% 25.26% 22 / 159
Long-Term Debt/Equity (mrq)
20.989 N/A
Dividend Yield (annual) LLY 5.70% 3.40% 7 / 159
Source: Yahoo Finance
SWOT
Strengths
• Diversified product offerings: company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics
• Company covers the almost the full spectrum of the supply chain (research and development, manufacture and sale of products)
• Support from non-pharmaceutical business divisions• Brand recognition• Strong drug pipeline
Weaknesses
• Conglomerate of relatively independent companies that can sometimes go off the corporate plan or directive
• Big drugs like Risperdal have lost or will lose patent protection• Generic drug's exposure• Private label exposure
Opportunities
• Leverage experience and development of new drugs• Integrate recent acquisitions • Global expansion of companies with complementary products
Threats
• Healthcare regulations • Private label growth; generic drugs growth• Weaker consumer environment expected in the US• Spreading too thinly - made investments in non-core areas, like
social media• Stiff competition in markets like stents where competition is gaining
ground
Financial Forecast
Analyst Estimates
Earnings Est
Current Qtr Dec 10
Next Qtr Mar 11
Current Year Dec 10
Next Year Dec 11
Avg, Estimate
1.03 1.30 4.75 4.99
No. of Analysts
18.00 6.00 22.00 17.00
Low Estimate
0.99 1.26 4.70 4.84
High Estimate
1.07 1.35 4.80 5.10
Year Ago EPS
1.02 1.29 4.63 4.75
Revenue Est
Current Qtr Dec 10
Next Qtr Mar 11
Current Year Dec 10
Next Year Dec 11
Avg Estimate
16.09B 15.88B 62.06B 64.22B
No. of Analysts
17 5 19 14
Low Estimate
15.68B 15.62B 61.62B 62.72B
High Estimate
16.48B 16.10B 62.44B 65.76B
Year Ago Sales
16.55B 15.63B 61.90B 62.06B
Sales Growth (year/est)
-2.80% 1.60% 0.30% 3.50%
Earnings & Revenue
Source: Yahoo Finance
Analyst Estimates
EPS Trends
Current Qtr Dec 10
Next Qtr Mar 11
Current Year Dec 10
Next Year Dec 11
Current Estimate
1.03 1.30 4.75 4.99
7 Days Ago
1.03 1.29 4.75 4.99
30 Days Ago
1.05 1.30 4.70 5.02
60 Days Ago
1.05 1.30 4.71 5.03
90 Days Ago
1.05 1.30 4.71 5.03
EPS Revisions
Current Qtr Dec 10
Next Qtr Mar 11
Current Year Dec 10
Next Year Dec 11
Up Last 7 Days
0 0 0 1
Up Last 30 Days
0 0 3 2
Down Last 30 Days
1 0 0 0
Down Last 90 Days
N/A N/A N/A N/A
Earnings Per Share
Source: Yahoo Finance
Analyst Estimates
Growth Estimate
JNJ Industry Sector S&P 500
Current Qtr 1.00% 41.90% 89.50% 61.70%
Next Qtr 0.80% 62.90% -70.70% 38.60%
This Year 2.60% 55.60% 47.00% 41.00%
Next Year 5.10% 34.10% 34.80% 13.10%
Past 5 Years (per annum)
7.47% N/A N/A N/A
Next 5 Years (per annum)
6.17% 12.33% 15.14% 10.82%
Growth
Source: Yahoo Finance
Accelerating Growth in 2010
“Back Up Products” Patients getting used to certain drugs,
especially antipsychotic RISPERDAL CONSTA and TOPAMAX Prevents generics from taking over
Make their own generics Will continue to pull in a strong profit from
loss of patent protection
Investment Rationale
Diversity
Stability (low Beta)
Profiting acquisition
Determination for consistent
improvement
Strong pipeline
“Safe Haven”
“A safe haven away from volatility” Goldman Sachs
“JNJ certainly could be a haven in a
bear market because of its diversity” Raymond James & Associates
Recommendation: BUY
JNJ Global Growth Strategy
Continue to diversify within only one industry –
“Healthcare”
Hedge aggressively on the future, thinking 10-20 years out,
while creating large sums of cash reserves for difficult
years
Remain decentralized and let local managers run their own
companies
Maintain disciplined approach and not allow themselves to
get in bidding wars with competitors
Keep its reputation that they have a purpose beyond profits
– remain true to their “Credo”: “We believe our first
responsibility is to the doctors, nurses, and patients, to
mothers and fathers and all others who use our products
and services.”
Questions?
References
Alazraki, M. (2010). Johnson & Johnson earnings hurt by children’s medicine recall. Retrieved November 14,
2010, from http://www.dailyfinance.com/story/company-news/johnson-and-johnson-earnings-hurt-by-
childrens-medicine-recalls/19679865/
Business Day. (2010). Johnson & Johnson. Retrieved November 14, 2010, from
http://topics.nytimes.com/top/news/business/companies/johnson_and_johnson/index.html
Carnevale, C. (2009). Johnson & Johnson: Well positioned for growth. Retrieved November 7, 2010, from
http://seekingalpha.com/article/164353-johnson-johnson-well-positioned-for-growth
CNN Money. (2010). Fortune 500 2010: Top 1000 American companies – Johnson & Johnson. Retrieved November
7, 2010, from http://money.cnn.com/magazines/fortune/fortune500/2010/snapshots/235.html
ecPulse. (2010). Companies earnings lead financial markets to fluctuate heavily as economic data proves
insignificant to investors. Retrieved November 13, 2010, from
http://www.fxstreet.com/fundamental/analysis-reports/top-fundamental-stories/2010-10-23.html
Investor. (2010). Johnson & Johnson our responsibility – 2009 sustainability report. November 7, 2010, from
http://www.investor.jnj.com/2009sustainabilityreport/economic/index.html
Investor. (2010). Johnson & Johnson reports 2010 third quarter results. Retrieved November 7, 2010, from
http://www.investor.jnj.com/releasedetail.cfm?releaseid=520146
References
Lens Shopper. (2009). Johnson & Johnson – Information and history about the world’s most comprehensive and
broadly. Retrieved November 7, 2010, from http://www.lensshopper.com/johnson-johnson.asp
Molina, I. (2009). Henry fund research: Johnson & Johnson. Retrieved November 13, 2010, from
http://tippie.uiowa.edu/henry/reports09/jnj_sp09.pdf
Mueller, J. (2010). Johnson & Johnson: Strengths, weaknesses, opportunities, threats. Retrieved November 7,
2010, from http:// http://www.fool.com/investing/dividends-income/2010/06/08/johnson-johnson-strengths-
weaknesses-opportunities.aspx
Norup, K. (2009). The secret of J&J’s success. Retrieved November 7, 2010, from
http://www.msquared.com/blog/category/life-sciences
Pierson, R. (2009). J&J profit rises, ’09 profit view disappoints. Retrieved November 7, 2010, from
http://in.reuters.com/assets/print?aid=INTRE50J3DH20090120
Seeking Alpha. (n.d.). Johnson & Johnson (JNJ) description. Retrieved November 7, 2010, from
http://seekingalpha.com/symbol/jnj/description
U.S. Bureau of Labor Statistics. (2010). Major economic indicators. Retrieved November 13, 2010, from
http://data.bls.gov/cgi-bin/print.pl/bls/newsrels.htm
Yahoo Finance. (2010). Johnson & Johnson (JNJ). Retrieved November 20, 2010, from
http://finance.yahoo.com/q/ae?s=JNJ+Analyst+Estimates