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Johnson & Johnson (JNJ)
Johnson & Johnson Sales Fall, but Company is not Ailing
Johnson & Johnson, reporting the company's first quarter earnings this morning, was another interesting example of how a company can do worse than it had in previous quarters, and yet still satisfy its investors and surprise the analysts. The company's numbers were less than in previous quarters, but the immediate response was one of delight, sending the stock price up in early trading. And despite a number of problem areas, the company is still maintaining its yearly profit forecast. What exactly is causing the company to remain so optimistic?
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First of all, it's true that many of their numbers had fallen. Revenue fell 7% from $15.47 billion to $15 billion, and net income dropped from $3.6 billion to $3.5 billion. Sales fell across the board, with consumer sales falling from $4.96 billion to $3.71 billion, and prescription drug sales falling from $6.43 billion to $5.78 billion. Its prescription drug division was particularly affected by the availability of a generic version of its antipsychotic, Risperdal, as well as concerns about the safety of some other drugs including the anemia drug Procrit. Johnson & Johnson's medical devices division did the best, with sales slipping only about 3%.
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And yet, these numbers aren't as bad as they seem. For the sales figures, part of the decline was due to a drop in sales; however a large portion of it was due to the current exchange rate. With the strong dollar, overseas sales are hurt when converted back into United States currency. Analysts have estimated that without the effect of the currency exchange, revenue would have only fallen about 1% from last year.
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Another reason for investors reacting favorably is because Johnson & Johnson is staying positive, and making good choices. First, the company has been buying back shares over the past year, which allowed the earnings per share to stay steady at $1.26 per share, despite the fall in profit; analysts were expecting earnings per share to fall to $1.22. The company has also taken preventative measures to counteract the current economic situation, by reducing a variety of costs (in the areas of administration, research, and production) by approximately 10%.
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Finally, the company is optimistic for the future, maintaining its profit outlook for the year, estimating yearly earnings per share to fall between $4.45 and $4.55. Johnson & Johnson has also seen some bright spots, including strong sales coming from Mentor Corp. products, a recent acquisition, as well as growth with the Listerine brand, and also the company's skincare division, including brands such as Neutrogena. Although Johnson & Johnson is one of the members of the Dow Jones index, this news was not enough to help propel the entire index, which is currently trading in the red. So although the entire market has not entirely turned around, Johnson & Johnson may have found the remedy for itself.
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