Watch a 40% Decline Disappear

The greatest thing going for Johnson & Johnson (NYSE: JNJ  ) is its diversity in product offerings.

Recall after recall led to U.S. sales of over-the-counter drugs and nutritional products plunging 40% in the third quarter. That would crush most companies. Johnson & Johnson? It just laughs it off.

The company sells other consumer products, so overall U.S. consumer sales were down just 24.5%. And Johnson & Johnson sells more consumer products overseas than it does stateside, so the entire consumer division was down just 10.6%. Add in sales of drugs and medical devices to complete the diversification magic, and total sales fell a measly 0.7%.

That's not to say everything is perfect with Johnson & Johnson. Even if you add back in the $300 million or so that OTC and nutritional products dropped in the third quarter, sales are only up 1.3%; that's nothing to get excited about.

The lackluster performance can be traced back to medical devices, Johnson & Johnson's largest division. Management blamed the paltry 1.3% sales increase there on the economy. While health care is somewhat recession-proof, patients often delay elective procedures, especially if they're out of work and don't have health insurance. We'll have to wait until Stryker (NYSE: SYK  ) , Zimmer (NYSE: ZMH  ) , and Smith & Nephew (NYSE: SNN  ) report to find out whether the theory is right or not.

Prescription drugs were the one bright spot, especially since the company had been dealing with difficult year-over-year comparisons after losing drugs to generic competition. Overall, sales of prescription drugs were up 4.7%, thanks in large part to sales of anti-inflammatory, Remicade, which increased 18.6%. Most of that increase was from exports to outside the U.S., where Merck (NYSE: MRK  ) sells the drug.

I'm inclined to chalk this up as a could-have-been-worse quarter. If you're a long-term shareholder, the exact timing of the turnaround in the consumer segment and the return of elective procedures shouldn't matter that much. Investors should keep an eye on the company, though, to ensure things don't get worse.

20% returns? Jeremy Phillips says to ignore them.

Motley Fool Options has recommended a diagonal call position on Johnson & Johnson, which is a Motley Fool Income Investor recommendation. Stryker is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of Johnson & Johnson and has a disclosure policy.


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