Johnson & Johnson Earnings Rise, but Guidance Lowered Due to Drug Recalls

Johnson & Johnson's (JNJ) earnings for the second quarter of 2010 rose 5.4% to $3.4 billion, or $1.23 per share, from $3.2 billion or $1.15 per share, the company announced Tuesday morning. Adjusted earnings, which exclude litigation costs, were $1.21 per share. Results were in line with analyst estimates.

J&J reported sales of $15.3 billion for the second quarter, an increase of 0.6% from the $15.2 billion the second quarter of 2009, but below analyst expectations for sales of $15.64 billion, according to Reuters. Domestic sales declined 2.8%, while international sales increased 4.1%.

Worldwide pharmaceutical sales increased 1% to $5.6 billion, and worldwide medical devices grew a disappointing 4.1% to $6.1 billion. Meanwhile, worldwide consumer sales decreased 5.4% to $3.6 billion in the second quarter, with domestic sales in that segment down 14.3%.

Last year, the company began a string of recalls for certain over-the-counter products at its McNeil Consumer Healthcare unit, which culminated in a massive recall at the end of April of 40 children's medicines, including liquid Tylenol and Motrin. The company also suspended operations at its McNeil plant in Fort Washington, Pa., after the Food and Drug Administration found severe manufacturing problems and unacceptable manufacturing conditions there. The recall has hurt sales and tarnished the company's reputation.

To reflect the impact of the voluntary recall and the suspension of manufacturing at the McNeil facility, the company lowered its earnings guidance for the full year to a range of $4.65 to $4.75 per share from an earlier outlook of $4.80 to $4.90 a share, excluding the impact of special items. The new lower guidance also reflects unfavorable changes in foreign currency exchange rates, the company said.

"Our second-quarter results include strong growth in a number of our recently launched products which contributed to solid earnings," said Chairman and CEO William Weldon. "Remedial actions to address the product quality issues at McNeil Consumer Healthcare are ongoing and of high importance. At the same time, we continue to make significant investments in acquisitions, strategic partnerships and in advancing our pipeline, positioning us well for future growth."

Johnson & Johnson shares, which initially seemed pretty resilient, despite the problems at the company's consumer healthcare unit, have since shown weakness compared to other pharmaceuticals. Shares were down some 2% to $58.35 in premarket trading Tuesday.