Johnson & Johnson beat Wall Street's quarterly profit estimates on sharply lower taxes, strong sales of prescription drugs and a revival of over-the-counter medicines that had been recalled over quality control problems.
But sales growth for J&J's medical devices fell short of expectations in the first quarter, and the diversified healthcare company said on Tuesday it took a big charge for product-liability litigation.
"Overall, the company's first-quarter performance was clearly a positive, with pharmaceuticals firing on all cylinders and more than making up for disappointment with medical devices," said Edward Jones analyst Judson Clark. He was also optimistic that over-the-counter medicines would continue to regain lost ground this year.
Shares rose 1.4 percent to $82.85 in early trading.
J&J earned $3.5 billion, or $1.22 per share, compared with $3.91 billion, or $1.41 per share, in the year-earlier quarter.
Excluding special items, including litigation expenses of $529 million, J&J earned $1.44 per share. Analysts, on average, expected $1.40 per share, according to Thomson Reuters I/B/E/S.
"It's a strong start to the year that increases the chances that J&J will meet its 2013 profit forecast," Morningstar analyst Damien Conover said.
Conover said the most striking aspect of the earnings report was that U.S. sales of over-the-counter (OTC) medicines, including painkillers Tylenol and Motrin, jumped 14 percent, allowing the broader consumer products business to eke out a 2.4 percent sales gain in the quarter.
Sales of OTC medicines such as Tylenol and Motrin have plunged over the past three years, hurting overall results, due to recalls sparked by deficiencies at manufacturing plants in Pennsylvania and Puerto Rico.
Although costly plant upgrades are still underway, Conover noted other factories have geared up production of OTC products in the meantime, allowing J&J to restock drugstore shelves.
Chief Financial Officer Dominic Caruso said on a conference call with analysts that a "strong flu season" bolstered sales of OTC products. He predicted 75 percent of recalled OTC brands would be back on the U.S. market by the end of 2013.
Global company sales rose 8.5 percent to $17.50 billion, slightly higher than the $17.42 billion expected by Wall Street. They would have risen by 9.8 percent, if not for the stronger dollar, which hurts the value of sales in overseas markets.
Prescription drugs sales rose 10.4 percent to $6.77 billion, with newer drugs making big contributions. Sales of psoriasis treatment Stelara leapt 57 percent to $346 million, while Incivo for hepatitis C rose 23 percent to $162 million. Sales of Zytiga for treating prostate cancer jumped 72 percent to $344 million.
Global sales of medical devices rose 10.2 percent to $7.06 billion, helped by an array of new trauma-treating products from its recent acquisition of device maker Synthes Inc. Total company device sales were about $350 million lower than expected, said Edward Jones' Clark, who cited weak demand for diabetes products.
J&J stuck to its earlier full-year 2013 profit forecast of $5.35 to $5.45 per share. It earned $5.10 per share last year.
(Reporting by Ransdell Pierson; Editing by Jeffrey Benkoe)