Johnson and Johnson Analysis

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INTRODUCTION

Johnson and Johnson have revolutionized the way people think about health care, and has easily become the pinnacle of success by doing so. Pioneers of the health care industry and overall human health and well being, Johnson and Johnson is guided by its “Our Credo” and founding principle that “doctors and nurses should use sterile sutures, dressings and bandages to treat peoples wounds” (Johnson and Johnson - Our History).

Most of Johnson and Johnson's success can be attributed to its emphasis on decentralized management, which allows for greater focus as the company blankets 250 countries across the world (Johnson and Johnson - Strategic Planning). For the last 120 years, Johnson and Johnson have been on the forefront of innovation for each of its three divisions, but it must continue to develop and grow in order to maintain its position for the future. This report will investigate, assess, and put forth recommendations to ensure continued success for Johnson and Johnson.

FINANCIAL ANALYSIS

2009 Revenue

In 2009, Johnson and Johnson experienced its first sales decline in over 76 years (JNJ 2009 Annual Report). The decline was due to a worldwide recession which caused 2009 sales ($61.9B) to decrease 2.9 percent from 2008 figures ($63.7B).

Of the three business segments which make up Johnson and Johnson, only the Medical Devices and Diagnostics segment reported an increase in sales from 2008. This segment increased its sales by 1.9 percent from 2008’s figures to $23.6B. The Pharmaceuticals segment reported sales of $22.5B (down 8.3 percent), while the Consumer Products segment reported sales of $15.8B (down 1.6 percent) (JNJ 2009 Annual Report). Only the Medical Devices and Diagnostics US sales showed any increase from 2008’s sales levels. Figure 1 below represents the three business segments displaying US and International 2009 sales figures.

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Figure 1. 2009 Sales Figures For Business Segments (US & Int’l)

2009 Quarterly Revenue

In 2009, Johnson and Johnson showed flat revenue and cost expenses growth for the first three quarters, while the fourth quarter displayed increases in revenue and costs. Costs of Goods, Gross Profit, and Operating Expenses showed increases in the fourth quarter, while showing decreases in operating and net income (see table 1).

It should be noted that for the fourth quarter increase in Operating Expense, Johnson and Johnson recorded restructuring charges, factory closings, and currency reevaluations.

Table 1 Johnson and Johnson 2009 Quarterly Results
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Source: Johnson and Johnson, Mar 2010, Web.
Balance Sheet

The review of Johnson and Johnson's balance sheet shows a strong financial position that is easily able to service debt and finance ongoing operations. Table 2 shows a brief summary of the company's assets.

Table 2 Johnson and Johnson Assets

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Johnson and Johnson's liabilities and equity section further reinforces the company's strong position. Table 3 shows a consistent track record of long term debt and a low amount of accounts payable.

Table 3 Johnson and Johnson Liabilities/Equity

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This gives an indication that Johnson and Johnson has been able to fund its operational activities without the need for heavy financial leverage. This is an important attribute given the current economic conditions. These same conditions provide an excellent opportunity to borrow money at a very attractive rate. This ability to leverage debt at low rates might provide Johnson and Johnson even further opportunities to be able to expand and increase its market presence through new product developments and/or acquisitions.

2006 - 2009 Financial Review

The results of the worldwide recession have lead to Johnson and Johnson exhibiting flat revenue and expenses for the past three years. The increases between 2006 and 2007 in both categories were the result of acquiring Pfizer’s Consumer Healthcare...
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