J&J's Supplement Step With Zarbees Helps Drive A Leap For Consumer Health Growth
This article was originally published in The Pink Sheet & The Rose Sheet
Executive Summary
Supplement brand being marketed to compete with OTC drugs, including J&J's own brands, in cough and cold and other categories helped J&J overall consumer health sales grow 9.7% to $440m in Q3. Oral care brands showed 3.2% worldwide growth to $384m, benefiting from recent launch of chewable Listerine Ready! Tabs.
Johnson & Johnson introduced dietary supplements as part of its "OTC drug" business in its latest quarterly results, an addition that was key to its overall consumer health sales growing nearly 10%.
The Zarbees Naturals supplement brand is being marketed to compete with OTC drugs, including J&J's own brands, in cough and cold and other categories. It helped J&J's overall consumer health sales grow 9.7% to $440m in the third quarter. Still, sales of J&J's actual OTC drug brands with respiratory, analgesic and digestive health indications also were consumer business growth drivers during the July-September period, the New Brunswick, N.J.-based firm reported Oct. 17.
For its conventional OTC drugs, increased "consumption" – orders by distributors, retailers and other businesses – of Motrin (ibuprofen) and Tylenol (acetaminophen) analgesics and Imodium (loperamide) diarrhea remedy drove share growth of 0.6%, J&J said.
The OTC and supplement division, led by smoking cessation aids, also performed well internationally, with sales up 4.8% operationally (excluding currency-exchange impact) to $608m. Worldwide, OTC drug and supplement sales advanced 6.8% to $1.09bn, lifted globally by the Zyrtec (cetirizine) allergy brand, Motrin, Tylenol and Imodium.
J&J’s OTC drug sales have accounted for 30% of its total consumer revenues and grew 3.7% to $4.13bn in 2017. (Also see "Sensitivity To Flu Helped OTC Drug Firms End 2017 With Sales Boost" - Pink Sheet, 26 Mar, 2018.)
That percentage could increase after J&J’s July purchase of Zarbees Inc. brought the firm its first line of vitamins, minerals and supplements as a platform for growing a portfolio that caters to consumer self-care trends and their demand for natural health care products. The Zarbees line is part of J&J's OTC drug business even though the products are not pharmaceuticals. (Also see "Adding Zarbee's, J&J Gains Natural Market Footprint, Claims Credibility" - HBW Insight, 30 Jul, 2018.)
During an investor conference in September, J&J consumer Chairman Jorge Mesquita said the firm would look to grow the business unit with additional mergers and acquisitions in the natural products segment. (Also see "J&J’s Mesquita predicts market shift" - HBW Insight, 21 Sep, 2018.)
In the US, e-commerce sales drove consumer health category consumption and sales growth. In 2017, Mesquita said J&J would look to grow its e-commerce business by eight-fold in the next two years. (Also see "J&J plots path ahead for 2018" - HBW Insight, 2 Feb, 2018.)
US Consumer Health Up 6.6%
J&J’s Listerine mouthwash line and other oral care brands showed 3.2% worldwide growth to $384m on an operational basis. The unit benefited from the recent launch of Listerine Ready! Tabs, chewable tablets that quickly change from solid to liquid before users swish the liquid for 30 seconds and swallow, the firm says. Formulated with inactive ingredients xylitol, erythritol and isomalt, the tabs retail in an eight-pack for $2.99.
The company is supporting the launch of the tabs with 30-second online ads. In one, a woman is at a desk eating a tuna sandwich when she learns a meeting was moved up. She pops a Ready! Tab in her mouth, chews it and then starts swishing as a voiceover states, “she’s swishing away” and then “unleash the clean feel of Listerine, anytime, anywhere.”
In addition to Listerine products and other OTC drugs and Zarbees, beauty business 3.8% sales growth to $543m and a relaunch of the Johnson’s baby care care line propelled J&J’s US consumer health division up 6.6% to $1.37bn in the quarter, the firm said.
Abroad, the beauty and baby divisions helped pushed total international consumer health sales up 3.7% to $2.05bn and net sales of the sector up 4.9% to $3.42bn.
Analysts Cautiously Optimistic
In same-day research notes, analysts stated cautious optimism about the consumer health results while acknowledging the segment's importance to J&J's results.
“The consumer and medical devices turnaround is underscoring the power of diversification,” said BMO Capital Markets analyst Joanne Wuenson. She also pointed out consumer health revenue of $3.42bn was well above the analysts' consensus estimate of $3.34bn.
Leerink's Danielle Antalffy said that the consumer health division “rebounded nicely” and the results provide a “strong supportive data point” that a turnaround of the business “is in fact occurring.”
However, Damien Conover at Morningstar withheld projecting continued strong growth for the segment, saying he suspects “some of the strength in consumer was tied to stocking as well as aggressive discounting based on the negative margin trend in the group.”
"We need to see more consistency before increasing our long-term growth rate for the division of 3%,” Conover said.
Earlier in 2018, analysts estimated that J&J had turned a corner in its recovery from a consumer health downturn linked to manufacturing struggles as orders for OTC drugs increased and e-commerce boosted personal product sales. Analysts had said J&J's first-quarter consumers results were “encouraging” for its long-term outlook after its worldwide consumer adjusted operational sales – excluding the net impact of acquisitions and divestitures – were down 0.5% to $13.6bn in 2017. (Also see "J&J Consumer Health On Solid Footing With Help From Personal Care Sales " - Pink Sheet, 17 Apr, 2018.)
However, disappointment returned in the second quarter, when baby care sales slumped and overall US consumer health sales were down 21.2% on a reported basis.
From the editors of the Tan Sheet.