Even Bigger Problems Coming for J&J?

Has CEO William Weldon ruined the once rock-solid image of Johnson & Johnson? Cramer thinks so.

Since taking the reins in 2002, Weldon has overseen the recall of the following products from Johnson & Johnson’s McNeil Consumer Healthcare: children’s and infants’ liquid Tylenol products, Tylenol Arthritis Pain Caplets, Benadryl Allergy, Tylenol Extra Strength, Tylenol, Tylenol PM, Children’s Tylenol Meltaway, Motrin IB, Rolaids and St. Joseph’s aspirin.

Shall we go on? OK, because the list is much longer: professional samples of Infants’ Tylenol, Infants’ Motrin and Children’s Zyrtec, along with regular consumer Children’s Tylenol, Children’s Zyrtec and Zyrtec Itchy eye-drops; another recall of children’s and infants’ Tylenol liquid products, Tylenol 8 Hour Caplets, Children’s Benadryl Allergy FASTMELT, Junior Strength Motrin Caplets, Rolaids Extra Strength Softchews, certain Tylenol Cold Multi-Symptom liquid products, as well as certain Mylanta liquid products and one AlternaGel Liquid product. (Head to the FDA website for more information on these recalls.)

Then on top of all this, Weldon has watched as the Food & Drug Administration suspended production at JNJ’s Fort Washington, Pa., plant for multiple production deficiencies. The suspension hit JNJ’s 2010 earnings for 11 cents to 14 cents a share, and we just found out on Thursday that the FDA has found still more problems at the plant. Now Cramer’s worried that another plant in Las Piedreas, Puerto Rico, could suffer a similar fate, as it, too, as received warnings from the FDA. If that happens, earnings for 2011 might fall 5 percent.

And get this: In 2008, JNJ’s McNeil division hired consultants to buy up 88,000 packages of Motrin as if they were regular customers in order to avoid telling regulators that there was a problem with the drugs. And in August, JNJ recalled its hip implants because they were failing much earlier than expected. Keep in mind, though, that already 93,000 had been implanted worldwide.

Cramer’s fear? That Wall Street just hasn’t—despite this lost resume of blunders and downright dangerous mistakes—caught onto how extensive this problem is for Johnson & Johnson. That’s why the stock is down less than $1 since Weldon took over. Still, Cramer thinks it’s time for Weldon to go. The problems have become so consistent the FDA could crack down on the company any time now, and that could do a lot more damage to sales and earnings than we’ve seen so far.

“And beyond the regulatory issues,” Cramer said, “Weldon is destroying JNJ’s once pristine image. Every time people read about these recalls, it makes them want to stop buying products from Johnson and Johnson, maybe pick-up the knock off brands made by a company like Perrigo instead. Why pay up for this tattered brand?”

Also, if you thought JNJ’s pharmaceuticals business would outweigh the problems at the consumer division, think again. Generic competition is cutting into profits from the company’s biggest trucks, Cramer said, and it’ll be a long time before new drugs are on the market to offset JNJ’s additional patent expirations.

The way Cramer sees it, the best way for Johnson & Johnson to recover is by getting rid of CEO Weldon. His performance has been so bad that he’s earned himself a place on Cramer’s Wall of Shame. Typically, the only way off is through resignation or retirement, and that often boosts a company’s stock price. In the case of JNJ, shareholders can only hope that happens—and soon.

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