Legal Costs Put the Pressure on Johnson & Johnson Earnings

On Tuesday, personal care product and healthcare giant Johnson & Johnson reported first-quarter earnings beat analyst expectations, though they were lower than those from the same period one year ago.  The slowing of business, of course, comes at a time when the company faces continued litigation over asbestos allegations linked to its famous talc-based baby powder. And of course, the company now faces more competition from generic drugs for things like prostate cancer. 

Specifically, the company reported first quarter net income was $3.75 billion. This is the equivalent of $2.10 per [adjusted] share.  Last year, net income for Q1 was $4.37 billion, or $1.39 per share.  Analysts had expected per share earnings of about $2.04 per share with flat sales, year-over-year, reaching approximately $20 billion.

With that, J&J narrowed its full-year earnings forecast to fall within the $8.53 to $8.63 per share range. This is slightly lower than the earlier estimate of $8.50 to $8.65 per share. However, the company did not alter its projected sales, which remains within the range of $80.4 to $81.2 billion.

Chief Financial Officer Joseph Wolk said, in a call with analysts on Tuesday, “The strength of our first quarter results reinforce the confidence we have in our broad-based business. We continue to manage our portfolio with discipline and make investments across the enterprise that position as well to achieve long-term sustainable growth across three vital aspects of health care.”

J&J, of course, is one of the most recognized and beloved brands in America.  Indeed you would be hard-pressed to find a home in the United States that does not have at least one of their products in the medicine cabinet:  from baby powder to shampoo to soap to cotton swabs.  

Unfortunately, though, any gains this company makes right now are heavily offset by growing litigation.  In fact, in just the most recent months Johnson & Johnson spent $423 million in legal expenses and that is in addition to the $1.29 billion they spent in the fourth quarter of last year.  

These cases cover thousands of lawsuits many of which regarding allegations that its talc powder causes cancer. In truth, though, the bulk of these legal costs came from the company’s settlement of more than 25,000 regarding what was supposed to be a blockbuster blood thinner, Xarelto.  This $775 million settlement—which was split with its European partner, Bayer—accounted for 10 percent of the company’s $1.29 billion legal costs.