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Johnson & Johnson Beats Forecast, but 2013 View Lags Expectations

Scott Eells | Bloomberg | Getty Images

Johnson & Johnson reported better-than-expected fourth-quarter earnings on Tuesday, but took another big special charge for its recalled artificial hips and forecast 2013 earnings below Wall Street forecasts.

The health-care giant said it earned $2.6 billion, or 91 cents per share, compared with $218 million, or 8 cents per share, in the year-ago period when the company took charges of more than $3 billion, including $800 million for medical costs related to recalls of defective "metal-on-metal" hip replacement devices made by its DePuy Orthopedics unit.

Analysts had expected the company to report earnings excluding items of $1.17 a share on $17.67 billion in revenue, according to a consensus estimate from Thomson Reuters.

J&J on Tuesday said it took special charges of $800 million in the most recent quarter, primarily related to new charges related to the defective artificial hips.

All-metal hip implants were developed to be more durable than traditional implants but have failed at a high rate and shed metal fragments that have disabled patients. Traditional implants combine a ceramic or metal ball with a plastic socket.

As many as 500,000 Americans are estimated to have been implanted with metal-on-metal hip replacements in the past five years, with J&J the largest manufacturer.

The company withdrew its ASR hip system in 2010, and faces more than 2,000 lawsuits from patients claiming to have been harmed.

Excluding special items, J&J earned $1.19 per share. Analysts, on average, expected $1.17 per share.

Piper Jaffray analyst Matt Miksic said the profit beat came largely from favorable taxes, and that cost containment initiatives boosted results.

He also cited very strong growth in sales of J&J's more traditional artificial hips and of artificial knees, whose combined U.S. sales rose 7 percent despite disruptions from superstorm Sandy in the fourth quarter.

Global company revenue rose 8 percent to $17.56 billion, below Wall Street expectations of $17.7 billion.

Sales of prescription drugs jumped 7 percent in the quarter to $6.52 billion, helped by strong sales of its treatments for arthritis, psoriasis and HIV.

"By any measure, we have transformed our pharmaceuticals business," Chief Executive Alex Gorsky told analysts on a conference call. The business is bouncing back after several years of anemic sales due to generic competition for some of its top medicines.

Quarterly sales of medical devices rose almost 14 percent to $7.38 billion, in part due to the company's recent acquisition of trauma-device maker Synthes.

But J&J's array of consumer products fell almost 3 percent to $14.4 billion, hurt by the stronger dollar and recalls of Tylenol and other over-the-counter medicines that have curtailed availability of the brands.

The company forecast full-year 2013 earnings, excluding special items, of $5.35 to $5.45 per share. Analysts, on average, expected $5.49 per share, according to Thomson Reuters I/B/E/S. The company is known for making conservative forecasts at the beginning of the year.

J&J shares traded lower in pre-market trading following the announcement. (Click here to track the company's shares before the opening bell.)

Reuters contributed to this article.