J&J Ends a Strong 1999
Fourth-quarter results healthy

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By Jeff Fischer (TMF Jeff)

ALEXANDRIA, VA (Jan. 25, 2000) -- Snow socked, and halted, much of the East Coast, but it couldn't stop Johnson & Johnson (NYSE: JNJ) from reporting fourth-quarter 1999 results. The jolly J&J giant bellowed out quarterly sales of $6.9 billion, up 6.3% from last year's fourth quarter, and earnings (before acquisition charges) of $0.56 per share, up 12% (topping estimates by a penny).

Today's results put a cap on all of 1999 as well. The year was strong in its entirety, from start to finish, but Johnson & Johnson had the advantage of comparing 1999's results to a less-than-stellar 1998 performance. The current year will prove more challenging for year-over-year growth.

Total sales climbed 14.5% in 1999 to $27.5 billion; consolidated net earnings jumped 13.8% to a record $4.2 billion; and earnings per share totaled $2.94 excluding special charges. The company achieved double-digit earnings growth in all three of its major divisions.

"The year 1999 was very good for Johnson & Johnson across all segments of the business," said Chairman and CEO Ralph Larsen. "[J&J] continues to deliver strong double-digit growth in both sales and earnings. Our investments in a broad range of innovative opportunities, both internally and outside the company, have allowed us to grow at an accelerated rate and provide a strong platform for growth in the future."

The biggest breadwinner at the company, the pharmaceutical division, saw sales rise 20.2% worldwide to $10.7 billion. Procrit for anemia (licensed from Amgen), Risperdal (an antipsychotic drug), Duragesic (a skin patch for chronic pain), and Levaquin (an anti-infective) are the company's largest sellers. Propulsid, the drug that came under fire from the U.S. Food and Drug Administration (FDA) yesterday, is a $1 billion drug for J&J. This heartburn medication is being blamed for 270 reports of severe side effects related to the drug, including 70 fatalities. Thankfully, at least, the side effects showed that 85% of the problems occurred in patients with identifiable risks.

As a result of a joint FDA-J&J decision, Propulsid's label will be changed to advise doctors to check for certain drug interactions and to give tests to patients, including electrocardiograms, before prescribing Propulsid. These extra tests (which cost both time and money) could cause sales of the drug to decline. Some estimate that sales will suffer as much as 20% (hence, J&J's stock declined several dollars yesterday). However, J&J's new ulcer drug, Aciphex, could help offset losses from lower Propulsid sales. Meanwhile, in April an FDA-appointed panel will discuss how to avert problems with Propulsid.

Overall, J&J's pharmaceutical sales were stronger than ever in 1999 and its largest-ever acquisition of biotech company Centocor "will enhance existing Johnson & Johnson growth platforms in biotechnology, cardiology, circulatory diseases and gastrointestinals."

J&J's professional products division (stents, laparoscopy, suture anchors, orthopaedics, etc.) achieved sales growth of 15.7% worldwide, to $9.9 billion. The 1998 DePuy acquisition helped, along with the launch of new Cordis stents. Meanwhile, worldwide consumer product sales (Neutrogena skin care, makeup, Tylenol, Band-Aids, and much more) rose 5.2% to $6.9 billion. Domestic sales in this division rose 10.4%.

For the year, the company's gross margin of 69.2%, operating margin of 20.9%, and net profit margin of 15.2% were all in the expected range, and are at the high end of the historic range.

Finally, J&J raised its dividend for the 37th consecutive year, increasing it a significant 12%, and the company also increased its research and development investment by 11.3%, to $2.6 billion. This investment represented 9.5% of 1999 sales. (Click here for the complete Q4 press release.)

Johnson & Johnson keeps nearly 100,000 people employed, offers products that primarily help humankind, and earned $4.2 billion in earnings for its tens of thousands of shareholders. This can make ya think: Too often, the amazing "goodness" of the world -- and the people and the organizations in it -- can be forgotten in a society that frequently focuses on the cynical or the negative. Really, that society works in the way that it does, for the majority (but not for all yet), is little short of a miracle.

At a recent $85 per share, J&J trades at 25.2 times year 2000 earnings estimates of $3.37 and yields 1.10%. The company is expected to grow earnings per share 14% this year. Everything looks solid regarding its long-term potential, so we'll be investing more money in J&J this year. (A reminder: We sent $100 to Mellon Financial (NYSE: MEL) on Monday.) To discuss Johnson & Johnson, please visit the Drip Companies message board linked below or the J&J board.

Fool on!

Drip Portfolio

1/25/00 Closing Numbers
Ticker Company Dly Pr Chg Price

  Day Week Month Year
To Date
Drip 2.54% .55% 5.31% 5.31% 36.82% 13.38%
S&P 500 .58% -2.17% -4.03% -4.03% 50.20% 17.69%
S&P 500(DA) .58% -2.17% -4.03% -4.03% 52.82% 18.51%
S&P 500(DCA) n/a n/a n/a n/a 25.57% 9.55%
NASDAQ 1.74% -1.61% 2.41% 2.41% 165.51% 47.86%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg

Trade Date # Shares Ticker Cost Value LT $ Val Ch
  Cash: $24.38  
  Total: $4,534.34  

• S&P 500 (DA) = dividend adjusted. Dividends have been added to the total return of the index.

Drip Port launched with $500 on July 28, 1997, adds $100 to invest every month, and the goal is to own $150,000 in stock by August of the year 2017. Due to the slow nature of dollar-cost-averaging and our relatively significant starting costs, we do not expect to seriously challenge the S&P 500 for the first three to five years as we build an investment base. The long-term advantages of dollar-cost-averaging still overcome the short-term disadvantages, however. Final note: our investment in Campbell Soup is frozen due to fees instituted in its investment plan. Click here for a history of all Drip Port transactions.