Johnson & Johnson Earnings Call Nuggets: Managed Medicaid and Diabetes Blood Glucose Monitoring

Johnson & Johnson (NYSE:JNJ) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Managed Medicaid

Matthew Dodds – Citigroup: A couple of quick questions. First on the managed Medicaid, how far back does that accrual go and why in Q1, because you didn’t highlight in the fourth quarter call?

Dominic J. Caruso – VP, Finance and CFO: Sure. The Affordable Care Act was instituted in 2010, in March of 2010 and it’s only recently in the first quarter that we received sufficient information from the various states to true-up the estimates we had made leading from the time that legislation was passed till now. So hopefully that answers your question.

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Matthew Dodds – Citigroup: One more quick one for you, Dominic. On foreign exchange, it’s now up to negative 100 basis points in the top line but it’s positive $0.02 in the bottom, usually does it work that way with you? How come it’s a positive on the earnings this time?

Dominic J. Caruso – VP, Finance and CFO: Well the major swing in currencies, Matt that are negatively impacting sales are primarily currencies where although there may be significant sales growth there is lesser earnings impact. So for example the yen is dramatically weakened, however, the amount of money we earned in that currency is different than the level of sales in that currency. Whereas the euro, which is where most of the profitability of the Company resides, ex-U.S., has not been impacted as greatly as some of the other currencies like the yen. So there’s a different weighting factor of the currencies impact on sales as there is on earnings.

Diabetes Blood Glucose Monitoring

Larry Biegelsen – Wells Fargo: Dominic, could you just help us with the outlook on the diabetes blood glucose monitoring business. The Medicare cuts start I think in July 2013, so I assume the U.S. growth will probably get worse before it gets better. Maybe if you can just help us with some metrics to understand how to forecast that business, given what’s going on there and maybe a little bit about your strategy to address these issues? Then I have one follow-up.

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Dominic J. Caruso – VP, Finance and CFO: Great question, as I know you’ve all been following the recent legislation provides a pretty dramatic reduction in pricing for diabetes test strips. Of course, that legislation pertains to the Medicare portion of the business. I think roughly the Medicare portion of the business for us is in the 20% to 25% range. So, it’s not obviously the entire business. Then in terms of the strategy going forward, of course, I just described earlier that we replaced that file, an new application for a new blood glucose monitoring system, a continuous glucose monitoring system with the Dexcom Technology. So I think it’s important that we continue to innovate where we have the ability to provide patients and healthcare professionals with the tools to better manage their Diabetes Care. I think that will always be an important part of what we continue to do, although we’ll have to manage through the pricing impacts that pertains to the Medicare portion of our business that I just noted.

Larry Biegelsen – Wells Fargo: Then one more for you; more and more of your peers are excluding amortization from non-GAAP earnings. You mentioned I think $1.4 billion, by our math that potentially reduces your stock price by about $6. Do you think that impacts your evaluation? Is that something that you may be willing to revisit in the future, excluding it from your non-GAAP earnings?

Dominic J. Caruso – VP, Finance and CFO: So, we’re certainly aware of that. I think that if it was just as easy – if it was that easy, for me to just change our earnings by excluding amortization, and our stock would go up $6, I guess, we would do that in a heartbeat, but we think our Company is very well followed, understood and we try to be as transparent as possible with our earnings guidance, and hopefully the day that we give you provides you all enough data to model the Company appropriately.

A Closer Look: Johnson & Johnson Earnings Cheat Sheet>>