Johnson & Johnson on Tuesday stuck with its 2007 earnings forecast despite surprisingly strong second-quarter results, sending shares down more than 1.7 percent.
Industry analysts cited concern over sharply lower quarterly sales of J&J's Procrit anemia drug amid safety concerns and continuing lower sales of the company's Cypher stent used to prop open heart arteries that have been cleared of plaque.
Despite the second-quarter upside, management left 2007 earnings guidance unchanged, JP Morgan analyst Mike Weinstein said, adding that Procrit and Cypher will likely hold back sales growth.
J&J has reliably posted double-digit annual profit growth until recently, helped by product diversification. But it is now forecasting single-digit gains, also due to generic competition for its Duragesic pain patch and rival copycats overseas for its Risperdal schizophrenia drug.
The diversified health-care company said it still expects earnings this year, excluding special items, of $4.02 to $4.07 per share. That translates into growth of up to 8.2 percent.
It earned $3.08 billion in the quarter, or $1.05 per share, compared with $2.82 billion, or 95 cents per share, in the year-ago period.
Analysts on average expected $1 per share, according to Reuters Estimates.
At first glance, the earnings look pretty strong, said Russell Croft, portfolio manager of Croft-Leominster Value Fund.
Noting that J&J's international sales rose 18 percent, Croft said: One of the reasons why we like the stock (is that) almost half of their sales come from outside the U.S.
Quarterly global sales rose 13.2 percent to $15.13 billion, in line with Wall Street expectations of $15.06 billion, with positive foreign exchange factors contributing 2.4 percent of the growth.
Global pharmaceutical revenue rose 5.8 percent to $6.1 billion, fueled by sales of epilepsy drug Topamax, arthritis treatment Remicade and Risperdal.
But U.S. sales of Procrit fell 14 percent to $449 million, following widely publicized reports of deaths among patients taking higher doses of such drugs that boost numbers of red blood cells.
Medical device sales rose 5.1 percent to $5.4 billion, as higher sales of disposable contact lenses, glucose monitoring devices and surgical and wound-care products offset continuing sales declines for Cypher.
J&J said the number of U.S. procedures involving its stents fell 13 percent in the quarter, and that prices of the tiny devices slipped 3 percent.
Global sales of consumer products jumped almost 49 percent to $3.6 billion, as J&J began selling an array of brands acquired from Pfizer Inc. in December, including Listerine mouthwash and the Sudafed allergy pill.
The company did a good job of keeping profitability relatively steady, said Heather Brilliant, an analyst at Morningstar.
But Brilliant said she expects the impact of generic competition and inroads into Procrit sales to accelerate throughout the year and beyond.
She said she expected combined sales of Procrit and Eprex - J&J's other anemia drug sold outside the United States - to decrease to around $3 billion this year from $3.2 billion in 2006, and then to decline about 20 percent the following year. Aside from safety concerns, the drugs have been hurt by competition from Amgen Inc.'s longer-acting Aranesp medicine.
Even as concerns linger about J&J's poorly selling anemia treatments and stents, the company is girding for U.S. generic competition in 2008 and 2009 for Risperdal and Topamax.
For generations, J&J has relied on acquisitions to bolster earnings growth. Even though the company earlier this month announced a $10 billion stock repurchase plan - the biggest in its history - Wall Street expects it to continue snapping up companies whose products can help ensure earnings gains.
J&J shares were down $1.12, or 1.76 percent, at $62.68 in morning trading on the New York Stock Exchange.