New Tylenol recall adds to maker's woes

NEW YORK (CNNMoney.com) -- Johnson & Johnson reported a sales drop in its third quarter Tuesday, saying that successive recalls of its over-the-counter drugs have "significantly impacted" its business.

New Brunswick, N.J.-based Johnson & Johnson (JNJ, Fortune 500) said total sales last quarter fell 0.7% over the same period last year to $15 billion.

The company said sales were significantly impacted by "previous announced recalls" of certain over-the-counter medicines such as Tylenol, Benadryl and Motrin, and the temporary shutdown of a manufacturing plant that makes those drugs.

Johnson & Johnson said its domestic sales fell 2.5% while international sales increased 1.1%.

Late Monday, Johnson & Johnson's McNeil Consumer Healthcare division, which makes the non-prescription drugs involved in this year's recalls, announced another recall of a Tylenol product sold in the United States and Puerto Rico.

McNeil recalled 127,728 Tylenol 8 Hour Caplets 50 -count bottles for an "odor" problem that led to consumer complaints.

The company said the odor was potentially caused by the presence of a chemical called 2,4,6-tribromoanisole.

Earlier this year, McNeil recalled several lots of Tylenol drugs for the same problem. The company said at the time that the chemical, which is applied to wooden pallets that are used to transport and store packaging materials, somehow leached into the products.

But the U.S. wooden pallet industry took issue with McNeil's explanation.

After an five month absence from stores, Johnson & Johnson restarted limited shipment some of its recalled over-the-counter children's drugs to retailers this month.

The company said its is on track to ship 4 million bottles of liquid Children's Tylenol, in the 3.38 fluid-ounce grape flavor, by the end of the year.

McNeil's plant in Fort Washington, Pa., which makes the children's medicine, is still shut for production following serious manufacturing violations. The plant is not expected to reopen until late next year.

In the meantime, the company has temporarily shifted production of its children's medicines to a plant in Canada and said it expects production of the recalled children's drugs to reach "normal" levels by the middle of 2011.

McNeil spokesman Marc Boston said Monday that the new recalled lot was not part of the lots manufactured and recalled earlier this year. He said the lot recalled this week was made this past March.

While the recalls have dented its non-prescription drugs business, Johnson & Johnson said the economy was also hurting performance of some of its other key consumer business units.

"There was a third-quarter deceleration in growth trend in the overall health spending that is related the economy," Johnson & Johnson's CFO Dominic Caruso told analysts during a call Tuesday to discuss the company's results.

The company said over-the-counter U.S. drug sales in the quarter fell 40.2% from a year earlier. Skincare product sales dropped 15.9%, while sales of oral care products declined 12.3%.

Total consumer products sales slid 24.5% in the United States and declined 10.6% internationally.

For the full-year, the company expects flat operational sales versus last year.

However, Johnson & Johnson upped its full-year earnings guidance, excluding items, to $4.70 to $4.80 a share, citing recent currency exchange rates.

Shares of Johnson & Johnson fell 1.6% in premarket trading.