Last Wednesday, Johnson & Johnson
The company recalled 100,000 boxes of its 1 Day Acuvue contact lenses sold outside the U.S. Customers in Japan complained about the lenses causing stinging after inserting them. The company traced the problem back to an issue with one of the machines that rinses the lenses during the manufacturing process.
Like its other recalls, this one won't have a major effect on earnings. Beyond the cost of fixing the rinsing machine, the only direct cost seems to be the cost of manufacturing the lots that will have to be destroyed.
The indirect costs of these ongoing quality control issues could be devastating, though. At some point, consumers are going to shun anything with a Johnson & Johnson logo on it for fear that it too has quality control issues. That's great news for GlaxoSmithKline
Because this latest recall occurred outside the U.S., it might not get much media play like earlier recalls of children's medicine. Still, Johnson & Johnson's consumer health segment gets more than half of its sales from outside the U.S., so tainting its image outside the U.S. could be costly as well.
When will Johnson & Johnson step up its quality control and stop this madness? I don't think we'll know the answer to that until after the fact. Warren Buffett seems to feel Johnson & Johnson is cheap enough, but I think cautious investors should consider looking elsewhere until management's focus is back on growing revenue and expanding margins.
Adam Wiederman suggests you avoid this bubble.
Pfizer is a Motley Fool Inside Value pick. GlaxoSmithKline is a Global Gains recommendation. Johnson & Johnson is an Income Investor pick, and Motley Fool Options has recommended a diagonal call position on its shares. Try any of our Foolish newsletter services free for 30 days.