The recent earnings from Motley Fool Income Investor selection Johnson & Johnson
That's risk in two of Johnson & Johnson's big three businesses. The consumer products business carries less risk of this sort, but also fewer growth opportunities. In response to the potential profit risk, Johnson & Johnson is looking to tighten up its cost structure. That's an obvious move for many businesses, but for Johnson & Johnson the situation is a bit more unique, because it has allowed more autonomy in its different units and acquired businesses than many large companies allow. That means there is room to cut costs and consolidate different operations, but it also means a cultural shift, and it's something to pay attention to as the company heads down the cost-cutting path.
On the flip side, Johnson & Johnson also has a strong pipeline, with the possibility for 10 new drugs to hit the market over time. There is the risk of a timing mismatch, where new drugs take longer to come on stream and drugs rolling off patent protection get hit quickly by generics, which could add to the risk of falling profits. Some drugs could just fail to be approved or be scrapped if results disappoint. To see what happens in these situations, Johnson & Johnson need only look toward Pfizer
The balance of positives and negatives in Johnson & Johnson's medical devices and pharmaceuticals businesses is slightly more negative, but the cost-cutting measures will help to remedy the financial problem if they are successful. Going forward, the cost cuts should also create a more efficient base for the company to grow from. Shareholders haven't had much to cheer about lately here, but the potential benefits from this move could help cure some of the current softness in the business.
Read more Foolishness here:
- Diagnosing J&J's Product Diversity
- Johnson & Johnson's Pretty Pipeline
- Healthy Prognosis at Johnson & Johnson