J&J’s first-quarter earnings drop 14% as legal costs soar

Johnson & Johnson reported quarterly earnings and revenue that beat analysts' expectations even as it faces litigation over its talc baby powder and new competition against its prostate cancer drug Zytiga. Read more...

Johnson & Johnson‘s mounting legal costs ate into its first-quarter profits, which dropped 14% as it fights thousands of lawsuits over its talc baby powder.

Still, its earnings were better than expected, the company said Tuesday, and its shares rose 2.15% in premarket trading. J&J reported first-quarter net income of $3.75 billion, or $1.39 per share, down 14% from $4.37 billion, or $1.60 per share a year earlier. When adjusted, J&J earned $2.10 per share, above the $2.03 per share expected by analysts surveyed by Refinitiv.

J&J’s legal expenses have mushroomed in recent months as it defends itself in thousands of lawsuits accusing the company’s talc baby powder of causing cancer. The company spent $423 million on litigation expenses during the first quarter, on top of $1.29 billion during the fourth quarter. Its legal costs during the first quarter of 2018 rounded to zero.

Sales barely budged, rising to $20.02 billion from $20.01 billion during the first three months last year. Analysts expected a decline to $19.61 billion.

More than half of its revenue came from prescription drug sales, which rose to $10.24 billion from $9.84 billion in the year-ago quarter. Analysts were expecting revenue of $9.83 billion, according to estimates compiled by StreetAccount.

The company narrowed its full-year earnings forecast to a range of $8.53 to $8.63 per share from its previous estimate of between $8.50 and $8.65. It didn’t change its projected sales of $80.4 billion to $81.2 billion for 2019.

Prescription drug sales helped boost earnings, despite new generic drug competition against its Zytiga prostate cancer drug.

Zytiga lost its patent protection last year, and its sales during the first three months of the year fell 19.6% to $679 million from $845 million the year before. Anti-inflammatory drug Remicade sales also fell to $1.1 billion from $1.39 billion from the same period last year.

Two drugs stood out in boosting J&J’s results with better-than-expected sales. Anti-inflammatory treatment Stelara revenue increased to $1.41 billion from $1.06 billion, surpassing estimates of $1.36 billion. Multiple myeloma drug Darzalex increased to $629 million from $432 in the same time last year. Analysts had expected $627.7 million.

Consumer sales, which includes Aveeno lotions and over-the-counter drugs like Tylenol, dipped to $3.32 billion from $3.4 billion in the same period last year. They fell short of StreetAccount estimates of $3.41 billion. Medical device sales decreased to $6.46 billion from $6.77 billion in the year-ago quarter, though they came in better than the $6.34 billion analysts had expected.

A Reuters report in December claimed J&J knew for decades its talc baby powder contained asbestos, tanking the company’s usually stable stock. J&J has repeatedly denied any wrongdoing and stands behind its namesake baby powder.

The concerns threaten J&J’s namesake baby care brand, which J&J relaunched last spring. In the first quarter, baby care revenue fell to $394 million from $457 million in the same period last year.

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