J&J’s 7.7% OTC Sales Growth Drives Consumer Business Turnaround

Johnson & Johnson reports second-quarter OTC sales increased 7.7% to $1 billion, helping the firm’s overall consumer business sales grow 2.4% to $3.74 billion. CEO Alex Gorsky says J&J has a broad approach, including collaborations with other firms, for greater consumer sales growth.

Johnson & Johnsonhas plans to build on the 7.7% increase to more than $1 billion in OTC sales that helped drive 2.4% overall consumer business growth to $3.7 billion in its latest quarter, exceeding analysts’ expectations.

The OTC sales jump in the firm’s fiscal 2014 second quarter comes partly from the return to stores of Tylenol and Motrin products. U.S. analgesic sales increased 25% while worldwide sales of analgesics climbed 17% in the April-June period.

J&J expects to build on those increases and accelerate growth of its consumer business “through new innovations, brand building and strategic collaborations, working off a foundation that starts with deep consumer insights,” Gorsky said during the firm’s earnings call with analysts July 15.

He said J&J has defined 11 key “need states” for consumers, areas where the company can apply its expertise to grow its business. Gorsky provided scant details, but he noted these include reducing complexity for consumers at stores while also increasing visibility of its products through “innovative collaboration models with retailers across the globe.”

J&J also will continue to focus on its 12 “mega brands,” including Listerine oral care, Aveeno skin care and Johnson’s Baby products as well as Tylenol, “to ensure they are exceeding consumers’ expectations around the world,” Gorsky said.

J&J Consumer Segment Highlights
Johnson & Johnson’s consumer segment sales increased 2.4% to $3.7 billion in its fiscal 2014 second quarter. This chart, provided to analysts during J&J’s July 15 earnings call, breaks down the sales by division.
Segment	Total Worldwide Sales	Reported % Change	Operational % Change
Baby Care	$607 million	3.6%	7.2%
Oral Care	$413 million	1.7%	2.9%
OTC	$1.003 billion	7.7%	7.8%
Skin Care	$968 million	6.6%	6.8%
Women’s Health	$342 million	-16.8%	-13.5%
Wound Care/Other	$411 million	-1.2%	-1%
Total Consumer	$3.74 billion	2.4%	3.6%

“Good Progress” In U.S.

The CEO said J&J is “making good progress” in returning OTC brands to U.S. stores. The firm is “delivering above market growth, and [has] continued to meet each of our obligations under the consent decree” entered into with FDA in 2011.

New Brunswick, N.J.-based J&J entered the decree to resolve subsidiary McNeil Consumer Healthcare’s manufacturing quality-control problems that triggered multiple large-scale recalls, shuttered one McNeil facility and reduced production capacity at others (Also see "J&J Prioritizes OTC Return With McNeil Remediation End In Sight" - Pink Sheet, 4 Mar, 2013.).

“While we still have work to do, our goal is to ensure all of our U.S. OTC products are available every time a consumer is reaching for them, and I'm confident that we are on a good path to meet that goal,” Gorsky said.

Louise Mehrotra, J&J’s VP of investor relations, told analysts that upper respiratory products, digestive health aids and smoking cessation products also helped OTC sales increase.

Strong OTC sales helped pull up overall worldwide consumer segment sales 2.4% to $3.74 billion in the quarter compared to the year-ago period, J&J said. Within the consumer segment, international sales increased 3.9%, while domestic sales were flat, down 0.5%.

The domestic sales results reflect the divestiture of sanitary protection business in the women’s health division. If that were excluded, worldwide consumer growth would have been higher, reaching about 6%, Mehrotra said.

She noted other consumer segment drivers include skin care, with sales up 6.6% worldwide to $968 million thanks to Neutrogena and Aveeno product launches and robust marketing campaigns.

Oral care also contributed $413 million, a 1.7% increase, due mostly to Listerine product launches outside the U.S., according to J&J.

Overall Results Spur Increased Guidance

While Gorsky emphasized the consumer brands are “important for the equity of Johnson & Johnson,” the powerhouse for growth in the quarter was Rx pharmaceutical sales increasing 21.1% to $8.5 billion. The strong pharmaceutical sales mostly came from successful product launches.

These, combined with 0.7% increase to $7.2 billion in worldwide medical device and diagnostic sales, helped the firm’s total sales reach $19.5 billion for the quarter – a 9.1% increase compared to the second quarter of 2013. Net earnings for the quarter were $4.3 billion and diluted earnings per share were $1.51 for the period.

Based on these successes, J&J raised its 2014 earnings per share guidance to $5.85-$5.92 from $5.80-$5.90.

Leerink Partners LLC analysts, in a same-day note, said J&J’s guidance is “conservative.” The analysts said J&J’s OTC sales signal progress in its consumer business turnaround.