J&J Cites Neutrogena Among 20 Product Launches Planned For 2015

CEO Alex Gorsky says “20 key product launches” are targeted for 2015, including extensions of the Neutrogena Hydro Boost skin-care and Listerine Healthy White mouthwash lines. Skin care propelled U.S. growth of 2.5% in J&J’s consumer-health business during the fourth quarter, the firm reported.

U.S. growth helped drive a slight increase in Johnson & Johnson’s worldwide consumer product sales in the fourth quarter, providing momentum for a segment with plans for 20 product launches in 2015 following a full-year sales dip of 1.4%.

Skin care led U.S. consumer growth of 2.5% to $1.3 billion for the October-December period on a reported basis, according to J&J’s Jan. 20 earnings statement, which cited Aveeno and Neutrogena as standout contributors.

Global sales in the firm’s consumer health business increased 0.9% to $3.6 billion for the quarter, reported, with analgesics and upper respiratory products propelling OTC sales growth, J&J said.

“Remediating” its OTC drug brands in the U.S. has been J&J’s top consumer-business priority in recent years, but “we continue to look for ways to innovate, continue to look for ways to add scale and expand in the appropriate way,” CEO Gorsky said.

CEO Alex Gorsky acknowledges that the firm’s consumer division still is recovering from a 2011 consent decree in the U.S. that slowed production by its McNeil Consumer Healthcare subsidiary at two plants and shut down operations at another, but “recent market-share trends” show consumption of J&J’s OTCs “is growing at four times the market,” according to the exec.

During a same-day earnings briefing with analysts, Gorsky said there is “particular strength” behind sales of Children's Tylenol and Children's Motrin, which are among products J&J has returned to stores after being recalled due to quality-control problems that led to the consent decree (Also see "J&J Looks To Expand Consumer Biz After Consent Decree Obligations End" - HBW Insight, 29 Sep, 2014.).

And J&J expects additional growth drivers will reach U.S. stores in 2015. According to Gorsky, “20 key product launches” are targeted for 2015, including extensions of the Neutrogena Hydro Boost skin-care and Listerine Healthy White mouthwash lines.

The firm cited Listerine as another positive contributor to its consumer segment’s FY 2014 results.

J&J’s strategies for growing consumer-product sales in 2015 may go beyond returning recalled products to market and rolling out line extensions or other new products.

Asked about plans for the firm’s roughly $14.3 billion in net cash – approximately $33.1 billion of cash and marketable securities minus $18.8 billion of debt – on hand at the end 2014, Gorsky said J&J will consider acquisitions for its consumer and other businesses.

“Our top priority over the last several years [in consumer] frankly has been on remediating our over-the-counter brands, particularly here in the United States … [but] we continue to look for ways to innovate, continue to look for ways to add scale and expand in the appropriate way,” he said.

“We're also making sure that we're being very disciplined and decisive about businesses that we're choosing not to participate in. And I think we've made a number of moves over the last several years that also have allowed us to continue to invest,” the chief executive added.

Since the consent decree imposed in February 2011, J&J divested McNeil consumer-product properties including the North American portfolio for the Monistat yeast infection treatment line to Insight Pharmaceutical in September of that year and the Rolaids heartburn relief line to Sanofi subsidiary Chattem Inc. in 2013 (Also see "Chattem To Revive Rolaids Line Bought From J&J" - Pink Sheet, 14 Jan, 2013.).

Before the settlement, J&J sold the St. Joseph Aspirin brand in January 2011 to Ilex Consumer Products Group (Also see "St. Joseph Aspirin Is First J&J/McNeil Divestiture From 2010 OTC Recalls" - Pink Sheet, 10 Jan, 2011.).

The firm also has expanded its consumer-health footprint since the consent decree. In May 2011 it acquired a portfolio of products marketed in Russia and other Eastern European markets from J.B. Chemicals & Pharmaceuticals, including Doktor Mom herbal cough remedies, Metrogyl antibacterial gel and cough/cold brand Rinza (Also see "J&J Expands Russian OTC Foothold Via J.B. Chemicals Portfolio Acquisition" - Pink Sheet, 30 May, 2011.).

Analysts Expect Sluggish Consumer Biz

Noting Gorsky’s comments regarding possible M&A activity, Deutsche Bank Markets Research analysts tracking J&J speculated that “mega deals [are] not a high priority in the near term” for the firm, but “transformational technology-driven acquisitions and partnerships remain a key focus.”

With our without acquisitions, J&J should not count on its consumer business to drive marked overall growth in fiscal 2015, particularly given challenges facing its drug division, Morningstar Equity Research analysts say.

J&J’s pharmaceutical segment continued to see “robust growth” at 14% for the fourth quarter, but the segment faces increased generic and branded competition in 2015, which weigh on its prospects, according to the research note. While J&J may expect improving growth in its consumer and device units to help offset slowing drug sales, Morningstar analysts are skeptical.

“We don't see enough innovation in either group to lead to accelerating growth. For the past several years, the lagging performance of these divisions has been offset by a strong drug division, but the magnitude of strong drug sales growth will likely fade over the next few years.”

As consumer sales likely will remain “sluggish,” J&J’s consumer segment and medical-device business should help put the firm’s overall sales growth at around 1% for the year, excluding foreign exchange rate fluctuations, according to the Morningstar note.

Re-Launches Drive Consumer

For the quarter, international consumer-product sales were flat at $2.3 billion, representing 0.1% growth with a negative currency exchange impact of 7.2%, according to J&J.

Upper respiratory OTC sales increased 8% worldwide, driven by growth outside the U.S. Analgesic sales rose 16%, with 24% growth in the U.S., which J&J attributed to share gains and distributor and retailer inventory buildups from product re-launches.

Worldwide gains for the quarter were partially offset by lower sales of baby-care and skin-care offerings outside the U.S., due to competitive pressures and prior-year inventory stocking, J&J said.

For the year, J&J reported U.S. consumer-product sales down 1.4% to $5.1 billion and international also down 1.4% to $9.4 billion, including a 3.7% currency exchange hit.

Overall global sales for the year totaled $74.3 billion, an increase of 4.2% from 2013.

The firm’s net earnings were $2.5 billion for the quarter, with diluted earnings per share of 89 cents, while full-year net earnings and diluted earnings per share reached $16.3 billion and $5.70, respectively, J&J reported. The firm adjusted its 2015 full-year earnings guidance to $6.12 to $6.27 per share.