J&J Q2 results are a slight beat

Johnson & Johnson, one of the best known consumer brands globally, reported second quarter numbers before the market opened on Wall Street yesterday afternoon. Jozi time afternoon of course, I guess we are luckier that US markets are open whilst we are awake and not in the wee hours of the morning. Hmm... another reason not to live too far East of this time zone. JNJ reported revenue of 16.5 billion Dollars, which was actually lower than the comparable Q2 in 2011, mostly as a result of a negative currency translation, which had as much as a 7.5 percent impact. Excluding special items, EPS clocked 1.30 USD, slightly better than expected. The guidance for the full year however was lower than prior guidance with the range now expected to be between 5.00 to 5.07 USD for the current financial year. Prior guidance was 7 cents higher than the top end of the range given. The dividend was actually declared a day prior, 61 cents for the year. So, based on that guidance and 244 cents worth of dividends a year, the stock trades on a forward earnings multiple 13.8 times and a dividend yield of 3.8 percent. That is a huge attraction, that yield is really awesome when compared to that of US treasuries. Oh, and if you need reminding, the stock was higher than it is now in 2008, where it was a little above 71.50 Dollars. That looks like the all time high.


So what is compelling about owning this business? Well, the structure of the business for starters, first of all the consumer products divisions, a pharma division and a medical products division. Just recently that medical products division was boosted with the acquisition of Synthes for a whopping 19.7 billion Dollars in both cash and stock. AND, a smaller acquisition, the first of its kind in China, of a business called Guangzhou Bioseal Biotech Co. which is a manufacturer of controlled bleeding surgical product. Sounds like, I don't know, a life saver?

In the consumer division there are awesome products in the baby care segment that you would know well, the baby lotions, soaps and shampoos. Neutrogena is another global brand that you would be familiar with, perhaps it is something that you use too. Band-aid is another iconic brand, the American word for plaster. Listerine, you know that one too. Acuvue contact lenses and products, that is a household name too, for those short of sight. And then in terms of the OTC products, again, there are well known global brands, check them out, scroll down to OTC under Consumer Products. This division is strangely the smallest, revenue for the quarter clocked 3.619 Billion Dollars, lower than the comparative quarter in 2011.


Next, you have the Medical Devices & Diagnostics division, which is the biggest revenue contributor, this last quarter revenue was flat at 6.565 billion Dollars. Again, I am sure that if you are a medical professional, you can vouch for their product. Lastly, the Prescription Products, which contributes 6.291 billion Dollars to overall revenue.

This is one of the most compelling characteristics of the business, its diversity. And many have been calling for the business to be split up. As per an excerpt from the Jim Cramer show, and a note from Goldman Sachs, both parties think that either two or three separate business (that have VERY little other than the shared brand name) would unlock enormous potential for shareholders. We agree. Although this is not necessarily the reason to own them, rather than their absolute quality as one of the key healthcare stocks you can own anywhere in the world. We continue to add to the stock at these cheap levels, from a historic point of view.