Earnings Cheat Sheet: Is Johnson and Johnson FDA and Investor Approved?

Founded in 1886, Johnson and Johnson (JNJ) is one the world’s biggest health products company. The company operates in medical research, and is also responsible for consumer products such as Tylenol, Zyrtec, Band-Aid, and Neutrogena. Last year, JNJ saw its stock price slump to $46 due to the financial crisis and news that Warren Buffett had sold half of his stake in the company. Furthermore, JNJ has recalled Tylenol capsules 3 times in the past year.

In 2010, the stock price has recovered to $63, and Buffett has even increased his shares in the company by 73%, but how do the earnings stack up?

Earnings: Net income increased slightly from $3.35 billion ( $1.20/share) last year, to $3.42 billion ($1.23/share) in Q3 2010. Net income increased despite having 13 product recalls and an estimated loss of $600 million in 2010.

Revenues: Consumer products division decreased almost 11% in Q3 to $3.57 billion. However, sales for the entire company were only slightly down from $15.08 billion in Q3 2009 to $14.98 billion in Q3 2010. Worldwide Medical Devices and Diagnostics sales increased 1.3% to $5.9 billion versus prior year.

Actual versus Wall Street Expectation: Analysts were expecting earnings of $1.15 per share for the third quarter. JNJ beat estimates by 8 cents, reporting earnings of $1.23 per share.

Notable Stats: In the consumer division, sales decreased in every product line except baby care. The recession continues to force consumers to purchase store brands in order to reduce expenses. The company’s nutrition and nonprescription product lines saw sales in the US decrease by 40%.

Did You Hear That? The company’s McNeil Consumer Healthcare unit last year engaged in a so called “phantom recall” of Motrin. Tablets of Motrin did not dissolve as quickly as they were supposed to. CEO William Weldon, had the following to say, ” It is clear to me that in retrospect, McNeil should have handled things differently. J&J is investing more than $100 million in McNeil, which on Oct.4 will start shipping bottles of children’s medicine. The division will make about 4 million bottles of medication available to the public by the end of the year.”

Commentary: Johnson & Johnson will need to continue its efforts to repair its reputation with consumers if the company wants to continue growing. JNJ appears to be confident in its operations as the company increased full year guidance from $4.65-$4.75, to $4.70-$4.80 per share. Given the company’s strong Buffett approved balance sheet, investors should consider JNJ.

Disclosure: No positions.