J&J Consumer Products Business Steers Toward Acquisitions For Growth
This article was originally published in The Pink Sheet
Executive Summary
Sales of Tylenol, Motrin and other analgesics increased more than 13% during the firm's latest quarter as total US OTC sales reached $389m. Sales of the Listerine line grew 7% to drive domestic oral care product sales up 8.2% to $159m.
Johnson & Johnson sees "a continuous stream of additions" as a likely accelerator for growth across its consumer product business, which reported more than 6% growth in US OTC drug sales in the firm's latest quarter.
Sales of Tylenol, Motrin and other analgesics increased more than 13% as total US over-the-counter sales reached $389m during the firm's fiscal 2016 second quarter, while sales of the Listerine line grew 7% to drive domestic oral care product sales up 8.2% to $159m, according to J&J's July 19 earnings statement.
CEO Alex Gorsky noted slumps in other consumer product areas – woman's health and baby, skin and wound care – as he commented on the firm's outlook for acquisitions in the consumer sector during a same-day earnings briefing with analysts.
Noting J&J's recent acquisitions of hair care firm [Vogue International Inc.] and dermocosmetics firm NeoStrata Co. Inc., Gorsky said "we think that those are great additions to our existing portfolio and will likely be part of a continuous stream of additions to that part of the portfolio." (Also see "J&J Affirms M&A Strategy For Consumer Biz With Vogue International Buy" - HBW Insight, 4 Jun, 2016.)
J&J has been a seller in the OTC drug merger and acquisitions marketplace for several years as it remediated quality control problems in its manufacturing and divested some brands to focus on its higher-selling lines. (Also see "J&J Heralds Year Of 'Good Momentum' For Consumer Health Business" - Pink Sheet, 27 Jan, 2016.)
J&J CEO Alex Gorsky
To boost growth in its OTC drug business, however, the firm could pivot to buying brands in deals. J&J "can create the most value" with tuck-in acquisitions for any of its businesses, but looks for deals of any size, the CEO said.
"Whenever we're looking at inorganic growth opportunities, we look at tuck-ins, we look at mid-size deals. We'll look at large deals," Gorsky said, adding, "we're going to be very disciplined. We're going to be very decisive about how we do it."
The New Brunswick, N.J.-based firm reported worldwide consumer product sales increased 1.5% to $3.4bn, with US sales up 2.1% to $1.4bn and international sales up 1% to $2bn. Excluding the net impact of acquisitions and divestitures, the consumer business operational sales growth was 3.9% worldwide, 6.8% in the US and 2% internationally, according to J&J.
Major drivers outside the US were smoking cessation aids, children's analgesics and digestive health products, along with product launches and the "bring out the bold" marketing campaigns spurring Listerine brand sales. (Also see "'Virtuous Circle' Cycles J&J Consumer From Consent Decree To Growth" - Pink Sheet, 30 May, 2016.)
With the three OTC drug manufacturing facilities either slowed and closed during remediation under a consent decree with FDA again in production, J&J can turn its attention to looking for opportunities to accelerate the segment's growth, which the firm says already is outpacing the market.
"Mission one was really focusing on the core business," Gorsky said when asked about M&A chances in the OTC space specifically.
J&J's McNeil Consumer Healthcare OTC drug business "made a lot of progress on the core," he said. "So we would expect, again, in a very thoughtful, disciplined way to continue to do additions when we think they're right."
He pointed out the baby care sector and the consumer product sales in China – places "where we need to do a better job" – as potential M&A areas. "It's something that we want to do and accelerate as we go forward."
Worldwide baby care sales were down 7.9% to $500m in the April-June period as international results were pummeled by foreign exchange rates, dropping 9.3% to $398m and US sales slipping 1.9% to $102m, according to the firm.
Oral care sales growth of 8.2% to $159m in the US were weighed down by a flat period internationally, $244m, as the sector's worldwide sales were 3.1% to $403m. US sales for the women's care sector were flat at $7m while an 11.8% stumble internationally to $276m forced worldwide sales down 8.6%.
In the skin care market, J&J's sales grew 13% in the US to $555m but slipped 1.2% internationally, limiting total global growth to 6.6%, reaching $953m. The firm reported sales for its wound care and other products were down 24.7% worldwide to $272m as US sales dropped 28.7% and international revenues slowed by 17.4%.
With company-wide worldwide sales growing 4% from the year-ago period to $18.48bn, J&J raised its full-year guidance for sales to $71.5bn to $72.2bn from a previous range of $71.2bn to $71.9bn. The pharmaceutical division accounted for $8.65bn of total sales and was driven by strength from brands in immunology and oncology.