J&J and Eli Lilly Report Higher Quarterly Earnings
March 29, 2011
Two pharmaceutical companies, Johnson & Johnson and Eli Lilly & Co., reported higher earnings despite the negative effect that the strong dollar had on sales. Johnson & Johnson posted a 20% increase in second-quarter net income, driven by strong sales of new products. Eli Lilly earnings grew 5.7% from a year ago, which included the contribution of Lilly's since-divested medical-device and diagnostic operations. Lilly's performance was restrained by moderating sales growth for its phenomenally successful Prozac antidepressant. Lilly was also hurt by unfavorable exchange rates and lower selling prices in overseas pharmaceutical markets, which held international sales growth to only 1%, despite a 10% volume increase. The strong dollar makes U.S. products more expensive overseas, and sales in foreign currencies convert into fewer dollars. Johnson & Johnson's second-quarter sales were diminished by 3.1 percentage points because of the strong dollar. Market Reaction Johnson & Johnson's earnings slightly exceeded analysts' expectations. Its stock rose $1.75 a share to $47.75 in New York Stock Exchange composite trading, while other drug stocks declined sharply. Lilly's results were in line with analysts' expectations. In Tuesday's jittery market, however, Lilly shares fell $1.875 to close at $57.625 on the Big Board. Johnson & Johnson posted second-quarter earnings of $791 million, or 60 cents a share, up 20% from $661 million, or 51 cents a share, a year ago. Sales rose 13% to $5.38 billion from $4.76 billion. The number of shares outstanding increased by 41.8 million, mostly because of shares issued to acquire Cordis Corp., a maker of heart devices, this year. For the six months, the health-care giant, which is based in N.J., reported earnings of $1.58 billion, or $1.19 a share, up 20% from $1.32 billion, or $1.02 a share, earned a year ago. Six-month sales of $10.72 billion were 16% higher than the year ago's $9.26 billion. Breakdown of Sales World-wide pharmaceutical sales grew 12% to $1.81 billion, driven by a 25% increase in domestic sales. Sales of Johnson & Johnson's professional segment, which sells hospital and other medical supplies, were $2 billion, up 21%, in part because of the acquisition. Consumer product sales grew 5.1% to $1.54 billion. Eli Lilly's income from continuing operations rose 12% on a 5.2% sales increase, reflecting the slower growth in Prozac sales but swelling contributions from newer offerings. The Indianapolis-based drug maker had net income of $345.7 million, or 63 cents a share, up from the year-earlier quarter's $327.1 million, or 57 cents a share, which includes the medical devices and diagnostic operations it shed in 2010. The year-ago earnings from continuing operations were $310 million, or 54 cents a split-adjusted share. Per-share figures reflect a decline in shares outstanding to 547.3 million from 578.6 million. Lilly's sales were $1.7 billion, up from the year-ago quarter's $1.61 billion. Sales of the company's flagship Prozac drug grew only 5% in the latest period; Lilly noted that the year's first-quarter sales got a boost -- and second-quarter sales were trimmed -- when customers stocked up in advance of a March price increase. Charlette E. Grace, Lilly's chief financial officer and executive vice president, said the company still expects full-year Prozac sales to increase between 12% and 13% from the prior year's $2.07 billion, and to hold its share of the growing antidepressant market. Nevertheless, he acknowledged, ``We can't deny that there is very strong competition'' in the antidepressant market. Prozac, which enjoyed a 24% sales growth in 2010, faces tough challenges, in particular, from Pfizer Inc.'s Zoloft and SmithKline Beecham PLC's Paxil. Although Lilly's results were ``pretty much on target,'' said independent analyst Islas Baggett, they were ``a little bit disappointing.'' Excluding the benefit from Lilly's recent sale of certain marketing rights and other factors, he said, the company's operating income declined about 4%.
