Drip Portfolio Report
Tuesday, November 04, 1997
by Jeff Fischer (JeffF@fool.com)

ALEXANDRIA, VA (Nov. 4, 1997) -- On October 14, JOHNSON & JOHNSON (NYSE: JNJ) reported third quarter earnings per share 14.3% above those of the same quarter last year on a 3.4% increase in sales. The strong dollar decreased sales by 4.8%. U.S. sales increased 6.2% while international sales were nearly flat due to a negative currency impact of 9.9%.

Third quarter revenue of $5.58 billion breaks down as follows:

$2.1 billion in professional products
$1.9 billion in pharmaceuticals
$1.6 billion in consumer products

Pharmaceutical revenue grew 15% in the domestic market and represents the strongest growth segment of the company. Johnson & Johnson is on track to sell over $8 billion in pharmaceuticals this year, and will spend over $1.7 billion on research and development, an increase of 15% from last year. Professional product sales grew 4.1% from last year, and consumer product sales were "steady." Steady is an attractive word for "flat," though flat consumer sales of $1.6 billion in a highly competitive market isn't anything to scoff at, due to both the pricing and currency pressures that the company faced. And actually, strong international sales growth in this division was hidden by the strong US dollar.

The numbers for the first nine months of this year follow:

              Johnson & Johnson
        Nine Months ended Sept. 1997
    (in millions, except per share figures)

  Revenue                     $16,999
  Cost of goods sold            5,271
  Gross income                 11,728
                     (so gross margin = 68.9%)

  SG&A expense                  6,429
  Interest income                 (47)
  Other expense                    39
  Total oper. expense          13,206
  Oper. income                  3,793
                     (operating margin = 22.3%)

  Taxes, etc.                    1,120
  Net income                     2,673
                      (profit margin = 15.7%)
  EPS                            $2.00

For the nine months ended in September, sales rose 5.5% to nearly $17 billion and net income rose 14.7% to $2.67 billion, or $2.00 per share. With these numbers we can easily see that net profit margins were 15.7% (obtained by dividing net income of $2.7 billion by total sales of $17 billion). The 15.7% net profit margin is a nice improvement from last year's 14.7%.

Working up from the bottom, with $3.79 billion in operating income, the company had operating margins of 22.3% ($3.79 billion divided by total revenue of $16.99 billion). This is an improvement over the first nine months of 1996, when J&J had operating margins of 20.5%. Next, subtracting the $5.27 billion in cost of goods sold from $16.99 billion in sales, we have gross income of $11.73 billion and gross margins of 68.9%. This is an improvement from 67.9% last year. It's surprising to see the company improve margins even while the international markets slapped all the numbers lower.

Johnson & Johnson is on track to end the year with $2.47 in earnings per share, a 14% increase over last year. Add the current 1.5% dividend yield and you have, again, annual growth that beats the market's average return of 10.5%. In fact, the 15.5% growth for the year is exactly what this portfolio must achieve annually in order to at least make its goal of $150,000 in less than twenty years from now. In the meantime, it appears that Johnson & Johnson is well into its 65th consecutive year of increased sales.

The granddaddy of all healthcare companies, Johnson & Johnson employs 90,200 people around the world (about 90,095 more than the Fool employs). To see the company's third quarter press release, click here, and to see JNJ's snapshot, click here.

We'll very likely send our $100 in November savings to Johnson & Johnson late this month, assuming that we can get our JNJ DRP account information within three weeks.

Fool on!

--Jeff Fischer


              Stock   Close    Change
               Intel  75 15/16  -2 11/16

            Day   Month Year  History
        Drip:    +0.00%   0.00%  0.00% 0.00%
        S&P:     +0.00%   0.00%  0.00% 0.00%
        NASDAQ:  +0.00%   0.00%  0.00% 0.00%

        Rec'd   #    Security         In At 
       9/8/97   1      Intel         $94.69

                        Base: $800.00
                    Expenses: $ 55.50 (Moneypaper)
                   Purchases: See above
                        Cash: $649.10**
                 Total Value: $735.00 apprx.

**Transactions in progress:
1. $81.00 sent on 10/17/97 to buy one share of JNJ and
   enroll in its DRIP.
2. $300.00 sent on 10/23/97 to buy more shares of INTC.