Merck, J&J profits rise

January 23, 2001: 10:59 a.m. ET

Drugmakers post healthy quarterly gains on strong sales of key products

NEW YORK (CNNfn) - Merck & Co. reported a 12 percent increase in fourth-quarter earnings Tuesday, fueled by sales of several blockbuster drugs, while fellow Dow Jones industrials component Johnson & Johnson reported a 16 percent profit increase for the quarter.

Whitehouse Station, N.J.-based Merck (MRK: Research, Estimates), the nation's No. 2 drugmaker after Pfizer Inc. (PFE: Research, Estimates), posted net earnings of $1.76 billion, or 75 cents a diluted share, for the fourth quarter. That's up from $1.57 billion, or 66 cents a share, in the 1999 period.

The results matched Wall Street forecasts, but investors reacted coolly to the report. In the past two quarters, Merck has managed to beat estimates easily, leading many observers to hope that the latest figures also might exceed expectations.

In late morning trading, the stock fell $2.88, or 3.5 percent, to $79.44. Merrill Lynch cut its rating on the stock to "accumulate" from "buy," saying fourth-quarter revenue figures were strong but gross margins fell short of expectations.

Fourth-quarter sales jumped 28 percent to $11.5 billion, fueled by a 165 percent surge in sales of Vioxx, a potent painkiller for arthritis patients. The drug, which competes with Pharmacia and Pfizer's painkiller Celebrex, was introduced in mid-1999.

Sales of cholesterol-lowering drug Zocor, the company's biggest selling product, rose 14 percent to $1.5 billion.

The company posted a 29 percent increase in sales of blood pressure drugs Cozaar and Hyzaar, to $530 million. Sales of asthma medication Singulair surged 44 percent to $245 million.

"Income growth for the quarter and the year reflects strong worldwide sales volume gains, as well as manufacturing productivity improvements," Chairman Raymond Gilmartin said in a statement.

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The company also cited solid growth at its Merck-Medco pharmacy benefits management business, adding 15 million new customers through a contract with UnitedHealthcare Group and the acquisition of ProVantage.

For all of 2000, net income rose 16 percent to $6.82 billion, or $2.90 per share. Revenue jumped 23 percent to $40.4 billion.

Merck said it is comfortable with full-year 2001 earnings estimates of $3.15 to $3.25 per share.

J&J beats estimates
Johnson & Johnson (JNJ: Research, Estimates) reported that fourth-quarter profit totaled $924 million, or 65 cents per diluted share, up from $796 million, or 56 cents per share, in the year-earlier period, excluding one-time items.

The results beat the First Call consensus estimate by a penny per share.

J&J, the fourth-biggest U.S. drug maker, said sales rose 3.4 percent to $7.1 billion for the quarter.

The company credited the gains to sales of anemia treatment Procrit, antipsychotic medication Risperdal and other drugs. Consumer sales were led by Neutrogena, Aveeno and Clean & Care skin products and other brands.

Including special charges, net income fell to $891 million, or 63 cents per share, from $754 million, or 53 cents per share, in the 1999 period.

For the year, net income totaled $4.8 billion, or $3.40 per share, up from $4.2 billion, or $2.94 per share, in 1999.

Shares of the New Brunswick, N.J.-based company fell 56 cents to $93.75 in morning trading.

McKesson falls short
Drug distributor McKesson HBOC Inc. (MCK: Research, Estimates) posted a 14.5 percent increase in fiscal third-quarter profit.

The San Francisco-based company earned $69.3 million, or 24 cents per diluted share, up from $60.5 million, or 21 cents per share, in the year-earlier period, excluding one-time items. Analysts polled by First Call had expected earnings of 25 cents per share.

Revenue grew to $11 billion from $9.9 billion, including sales to customers' warehouses.

"McKesson HBOC's financial performance demonstrates continued progress against the objectives we set for the business units at the beginning of the fiscal year," CEO John H. Hammergren said.

Including special items and discontinued operations, net income plunged to $1.7 million, from $166.8 million in the 1999 third quarter.

The latest quarter included $101.7 million in pretax special charges, including a non-cash charge of about $100 million in investment write-offs. The company said the largest write-off was associated with its warrants for shares in WebMD Corp. (HLTH: Research, Estimates), an online health-care company that has seen its stock plunge.

McKesson has been struggling to recover from an accounting probe of its HBOC division, which forced the company to restate profits in mid-1999.

McKesson stock jumped $3 to $32 in morning trading.