johnson & johnson justin quaglia analyst, non-cyclical sector madison investment fund
TRANSCRIPT
Objective
A stable and strong company that meets all the needs of a stock an investor should have going into a recession
DIVERSIFICATION-not only produces medication, but also medical equipment, and human staple goods
Unlike many other pharmaceutical companies, they
are not in big trouble with patents Proven successful during the recent recessions
Pharmaceutical Plague
2007-2010: Disappointing, dissipating, and decaying time for many pharmaceutical companies around the world
Key drugs that provide profit and revenue will be losing their patent protection Allows these medications to go generic which will
provide the consumer with the same medication at a cheaper and more reasonable price
Pharmaceutical Plague
Many companies are not showing any positive signs in R&D
Blockbuster drugs are lacking
Even if they do break through, they are being shut down by the FDA for undesired and dangerous side effects
Company Overview
The world's largest healthcare group
R&D, manufacture, and sale of a range of products in the healthcare field
Operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics
Not only produce pharmaceuticals but human staple goods as well
They have more than 250 operating companies
Sell products in 57 countries throughout the world
Key Stats
Market Cap: 177.86B52 Week High: 68.8552 Week Low: 59.72
Average Volume: 13.63MP/E: 17.12
F P/F: 14.94Beta: 0.12EPS: 3.63
Dividend: 0.41Yield: 2.67%Shares: 2.86B
Price: 62.15
Product Categories
AllergiesBaby Care
Dental Care
Diabetes Care
Feminine
Hygiene Gastrointestinal
Nutritional OrthopedicsPrescription Drugs
Vision Care
Wound Care
Colds and FluCardiology
Denture CareFamily Planning
First Aid Medial
Devices/Diagnostics Oncology
Pain RelieverSkin and Hair Care Women’s Health
New Release
Intelence- HIV drug for patients with resistance to other therapies (NNRTIs)
Patients need new options because HIV can mutate to resist existing treatments
Tens of thousands of patients worldwide have resistance to NNRTIs and could be candidates for Intelence
FDA approved Intelence for use with other AIDS drugs
Close to 40 million people are infected with HIV
Medications(Top Sellers)
RISPERDAL CONSTA (June) and INVEGA, both antipsychotic medications
TOPAMAX, an antiepileptic and a treatment for the prevention of migraine headaches (March 2009)
REMICADE, for the treatment of a number of immune mediated inflammatory diseases
VELCADE, a treatment for multiple myeloma
CONCERTA, a treatment for attention deficit hyperactivity disorder
LEVAQUIN, an anti-infective
Newly Acquired
Introduced 600 products and line extensions under its consumer business just this year Rolaids, Rogaine, Sudafed, Visine, Neosporin, Listermint,
Listerine, Bengay, and Benadril just to name a few
Always evaluating licensing and acquisitions Highly respected for making business
deals/buying/selling operating companies
In the Pipeline
8 drugs in early FDA approval stages
20 drugs in Phase III of FDA approval Could be as soon as 12 months before
release
4 drugs have received FDA approval for releases in 2008
CompetitorsStatistics JNJ MRK NVS
Market Cap 179.65b 101.62b 113.68b
Employees 119,000 60,000 98,200
Quarterly Rev Growth
16.60% 12.30% N/A
Revenues 61.10b 24b 38.95b
Gross Margin 70.94% 76.10% 72.50%
EBITDA 17.75b 8.08b 10.16b
Operating Margins
24.90% 25.22% 20.37%
Net Income 10.58b 5.38b 6.62b
EPS 3.63 2.46 5.13
P/E 17.12 18.98 9.79
PEG 1.58 1.49 .94
P/S 2.98 4.35 2.93Source: Yahoo Finance
1 Year Chart
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Price Performance Chart
JNJ Adjusted CloseS&P 500
Performance in 2001 Recession
Had a 2:1 stock split during the recession
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Performance in Past Recession
JNJ Adjusted CloseDJIA
Management
Weldon Williams- (1971) CEO Joined the Company in 1971 Served in several sales, marketing and international management positions
Dominic Caruso - (1999) CFO & Vice President of Finance Previously VP of the Finance for the Medical Devices and Diagnostics KPMG Joined in October of 1999 through the acquisition of Centocor (has been with that
company since 1985)
Christine Poon - (2000) Vice Chairman of the Board Served in various management positions at Bristol-Myers Squibb Company for 15
years, most recently as President of International Medicines before coming to JNJ
Strong sense of seniority
Track Record of Performance
Exceptionally consistent performance 75 consecutive years of sales increases 24 consecutive years of earnings increases 45 consecutive years of dividend increases
Few, if any companies, can claim this
Q4 and Fiscal 2007 Earnings
Announced record sales of $16.0 billion for Q4 2007, an increase of 16.6% YoY
Operational growth was up 11.9%
Domestic sales were up 9.1%, while international sales increased 25.8% in 2007
Worldwide sales for the year 2007 were $61.1 billion, an increase of 14.6% over 2006
Pharmaceutical sales- $25 billion, and increase of 7% MD&D sales- $21.7 billion, increase of 7.2% Consumer segment- $14.5 billion, increase of 48%
Q4 and Fiscal 2007 Earnings
Net earnings and diluted earnings for Q4 2007 were $2.4 billion and $.82 respectively, representing increases of 9.5% and 10.8%
Sales results reflect the strong performance of LISTERINE and the launch of whitening products; Baby and Kids Care products; the skin care lines of AVEENO, CLEAN & CLEAR, and NEUTROGENA; SPLENDA sweetener; ROGAINE hair regrowth treatment; and IMODIUM A-D
Significant progress in their pipeline
Successful integration of Pfizer Consumer Healthcare Increased profits 48%
Balance Sheet (in millions) 2007 2006 2005 2004 2003Dates 12/31 12/31 12/31 12/31 12/31 Cash and Short Term Investments $4,083 $16,055 $9,203 $5,377 $2,894
Trade Accounts Receivable, Gross $8,872 $7,174 $7,034 $6,766 $5,590Total Receivables- Net $8,712 $7,010 $6,831 $6,574 $5,399Total Inventory $4,889 $3,959 $3,744 $3,588 $3,303Other Curr. Assets, Total $2,094 $1,931 $1,737 $1,526 $1,419Total Current Assets $22,975 $31,480 $27,320 $22,995 $19,266 Buildings $7,347 $5,875 $5,907 $5,242 $4,364Machinery/Equipment $13,108 $10,835 $10,455 $9,638 $7,869Property/Plant/ Equipment-Net $13,044 $10,830 $10,436 $9,846 $8,710Total Assets $70,556 $58,864 $53,317 $48,263 $40,556 Accounts Payable $5,691 $4,315 $5,227 $4,966 $3,621Total Current Liabilities $19,161 $12,635 $13,927 $13,448 $11,449Total Long Term Debt $2,014 $2,017 $2,565 $2,955 $2,022Total Debt $6,593 $2,685 $2,845 $4,094 $4,139 Total Liabilities $31,238 $20,154 $21,504 $21,384 $17,859 Total Equity $39,318 $38,710 $31,813 $26,869 $22,697Total Liabilities & Shareholders' Equity $70,556 $58,864 $53,317 $48,263 $40,556
Income Statement (in millions)
2007 2006 2005 2004 2003
Dates 12/31 12/31 12/31 12/31 12/31
Total Revenue $61,095 $53,324 $50,514 $47,348 $41,862
Research & Development $7,680 $7,125 $6,462 $5,344 $4,684
Purchased R&D Written-Off $807 $559 $362 $18 $918
Restructuring Charge $745 $0 - - -
Unusual Expense (Income) $1,552 $559 $362 $18 $918
Total Operating Expense $47,812 $38,737 $37,398 $35,017 $31,554
Operating Income $13,283 $14,587 $13,116 $12,331 $10,308
Net Income $12,088 $11,053 $10,060 $8,180 $7,197
Cash Flow (in millions)
2007 2006 2005 2004 2003Dates 12/31 12/31 12/31 12/31 12/31 Net Income 12, 088 11,053 10,060 8,180 7,197
Purchased R&D 559 362 18 918 189 Inventories 210 396 11 39 109
Total Cash from Operations 14,880 11,799 11,089 10,595 8,176 Capital Expenditures 2,666 2,632 2,175 2,262 2,099Acquisition of Business 18,023 987 580 2,812 478Sale of Fixed Assets 511 154 237 335 156 Sale/Maturity of Investments 426 9,187 12,061 8,062 7,353 Total Cash from Investing 20,291 279 2,347 4,526 2,197 Total Cash Dividends Paid 4,267 3,793 3,251 2,746 2,381Short Term Debt, Net 3,752 483 777 1,072 1,799 Long Term Debt, Net 7 190 378 827 223Total Cash from Financing 6,109 4,443 5,106 3,863 6,953 Foreign Exchange Effects 180 225 190 277 110 Net Change in Cash 11,972 6,852 3,826 2,486 864
Accelerating Growth in 2008
“Back Up Products” Patients getting used to certain drugs,
especially antipsychotic RISPERDAL CONSTA and TOPAMAX Prevents generics from taking over
Make their own generics Will continue to pull in a strong profit from
loss of patent protection
2008 Forecast
Expects earnings per share for 2008 to total $4.39 to $4.44 Analysts have been looking for earnings of $4.42 a share for
2008
Benefit from the relatively weak US dollar
Expects at least 60% of its predicted 4-5% sales growth this year to come from foreign exchange gains
Investment Rationale
Diversity Stability (low Beta) Profiting acquisition Determination for consistent
improvement Strong pipeline