Healthcare manufacturer Johnson & Johnson (NYSE: JNJ) announced it was restructuring some of its medical devices business to streamline operations and save $800 million to $1 billion over two years, but what it calls a "bold" move will come at a cost of 4% to 6% of the division's global workforce, or about 3,000 jobs.
Does it matter?
The changing face of healthcare generally and the medical device industry specifically necessitated Johnson & Johnson to respond. Where the business was once the manufacturer's premiere division, growth has turned to contraction, a decline that's now accelerating.
In its just reported 2015 earnings report, segment sales tumbled 8.7% to $25.1 billion, which is more than double the 3.4% drop it experienced a year ago when revenues were $27.5 billion.
It abandoned one-time money-printing businesses like artery stents, which once generated more than $2.5 billion in annual sales, leaving the field to rivals like Abbott Labs and Boston Scientific, and exited the U.S. feminine hygiene market and clinical diagnostic business too. Pharmaceuticals now represent J&J's biggest business, with $31.4 billion in revenues in 2015.
The job cuts won't impact J&J's consumer medical devices, vision care, and diabetes care businesses, but will hit the orthopedics, surgery, and cardiovascular operations. The Wall Street Journal suggests the move will let the healthcare manufacturer focus more on high-growth businesses like surgical robots and staplers as well as narrowing its operations geographically to regions like the U.S., China, and Japan.
With about $37 billion in cash on its balance sheet at the end of the third quarter, it's possible Johnson & Johnson could look to acquisitions to boost investment in those areas, though it may first want to work through the mechanics of the restucturing before adding on.
Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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