Bloomberg News

J&J’s Forecast Misses Analyst Estimates, May Sell Unit

January 22, 2013

J&J Provides Full-Year Forecast Less Than Analyst Estimates

Worldwide consumer sales declined in 2012 to $14.4 billion, a 2.9 percent decrease caused by a negative currency impact. Photographer: Daniel Acker/Bloomberg

Johnson & Johnson (JNJ:US), the world’s biggest maker of health-care products, may sell its $2.2 billion diagnostics unit for blood and cholesterol tests as the company focuses on genetic screening to complement its drug pipeline.

J&J is reviewing options for the Ortho Clinical Diagnostics division, Chief Executive Officer Alex Gorsky said today at an investor meeting in New York. The unit makes devices for screening blood bank donations and sells more than 120 tests for everything from high cholesterol to fertility hormones.

The business isn’t a market leader, a key objective for J&J, Gorsky said. Fourth-quarter sales for the unit, J&J’s only diagnostics division, fell 4.3 percent from a year earlier. The unit generates about 3.3 percent of the company’s revenue (JNJ:US), analysts estimate.

“While we certainly believe in the future of diagnostics, we think that will be more likely in an area outside of clinical diagnostics, such as molecular diagnostics, biomarkers or some of the other things we are already working on with some of our oncology programs,” Gorsky said.

It isn’t certain that any transaction may occur, the New Brunswick, New Jersey-based company said in a statement.

Possible Buyers

Companies that have been acquiring businesses and are large enough to absorb a sizable purchase in diagnostics include Roche Holding AG, Abbott Laboratories, Thermo Fisher Scientific Inc. (TMO:US) and Life Technologies Corp. (LIFE:US), said Michael Manns, a Bloomberg Industries analyst in Princeton, New Jersey. J&J may also spin off the unit, giving current shareholders access to broad potential demand, he said.

“There is a scarcity value for large diagnostic companies with proprietary products,” Manns said in a telephone interview. “This would be a very attractive property if it ended up coming to the market.”

Daniel Grotzky, a spokesman for Basel, Switzerland-based Roche, didn’t immediately return phone calls left after hours. Scott Stoffel, a spokesman for Abbott Park, Illinois-based Abbott, and Ron O’Brien, a spokesman for Waltham, Massachusetts- based Thermo Fischer, declined to comment. Suzanne Clancy, a spokeswoman for Carlsbad, California-based Life Technologies, wasn’t immediately available to comment.

J&J is very early on in the evaluation process and has not hired a financial adviser for the deal yet, said Karen Licitra, worldwide chairwoman of global medical solutions. She said it could take 12 to 24 months before any decision is made.

Spinoff Potential

It may be more beneficial to spin off the unit, rather than sell it outright, said Bill Smead, chief investment officer at Smead Capital Management in Seattle, which manages about $290 million of investments, including about 85,000 J&J shares. J&J doesn’t need more cash and spinning off the unit may create more opportunity, provided it is well-capitalized, he said.

“They have a large cash balance and they gush cash flow,” Smead said in a telephone interview. “Companies like J&J don’t earn enough interest on cash balances to make it attractive.”

Earlier today, J&J provided a full-year earnings forecast that was less than expected. Profit for 2013 will be $5.35 to $5.45 a share, J&J said in a statement. The guidance missed the $5.49 average of 23 analyst estimates compiled by Bloomberg.

“We believe J&J may be conservative -- potentially setting the bar low for 2013 to set up more consistent beat and raise quarters,” Danielle Antalffy, an analyst at Leerink Swann & Co. in New York, said in a note to investors today.

J&J dropped less than 1 percent to $72.69 at the close in New York. The shares (JNJ:US) have gained 11 percent in the past 12 months.

Mature Market

The clinical diagnostic business is “a mature and competitive market, with growth driven primarily by new product launches and emerging market expansion,” wrote Ross Muken, an analyst with ISI Group LLC in New York, in a note to investors today. “We also view the blood screening market as mature and likely to grow in-line with global gross domestic product, with potential upside coming from China.”

Sales of new drugs, which also included therapies for psoriasis and hepatitis C, helped fourth-quarter earnings excluding one-time items of $1.19 beat by three cents the average (JNJ:US) of 19 analysts’ estimates compiled by Bloomberg.

Net income climbed (JNJ:US) to $2.57 billion, or 91 cents a share, from $218 million, or 8 cents, a year earlier, when legal settlements and a hip recall hurt results, the company said. Sales of medical devices and diagnostics, the J&J’s biggest division, rose 14 percent after it exited the market for drug- coated stents.

J&J took $800 million in charges during the quarter, mainly litigation losses; money set aside for the DePuy hip recall; and costs related to the acquisition of Synthes Inc. The company, which is fighting more than 10,000 lawsuits over its recalled hip implants, is negotiating a potential settlement that may eventually total more than $2 billion, according to five people familiar with the matter.

To contact the reporter on this story: Michelle Fay Cortez in Minneapolis at mcortez@bloomberg.net; Shannon Pettypiece in New York at spettypiece@bloomberg.net

To contact the editor responsible for this story: Reg Gale at Rgale5@bloomberg.net


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Companies Mentioned

  • JNJ
    (Johnson & Johnson)
    • $99.8 USD
    • -0.42
    • -0.42%
  • TMO
    (Thermo Fisher Scientific Inc)
    • $114.53 USD
    • -4.86
    • -4.24%
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