No obvious China baby bump for J&J as one-child policy ends

Johnson & Johnson ($JNJ) executives had only a few words on China in the fourth quarter earnings call and even less on Asia outside of the predictable hit from foreign currency swings, with analyst attention focused on M&A moves.

But hidden in the numbers and the conversation on the Jan. 26 earnings call was possible insight into whether China's moves to end the one-child policy last year and allow two children flowed through to over-the-counter baby care and women's health products.

Joanne Wuensch, an analyst with BMO Capital Markets, said in a Jan. 26 note to clients that overall women's health segment sales of $283 million in the fourth quarter that rose 7.4% excluding foreign currency swings, came in below the expected level of $301 million, "despite healthy international sales."

At the same time, she noted baby care sales of $484 million, which rose 3.7% excluding foreign currency swings, "were below consensus's $510 million, also negatively affected by China."

To be sure, the one-child policy was lifted in late October. But more than a few analysts have speculated whether parents would rush to have another child, and how that might play out in demand for care products as well as related medical items from vaccines to contraceptives.

As the world's top healthcare company and the first to report quarterly earnings among the major firms, J&J often sets the tone on business trends in Asia. In the past few months the company's Janssen unit has been active in South Korea and China on collaboration fronts.

Bob Hopkins, an analyst for Bank of America Merrill Lynch, did ask on the call about the state of play in emerging markets and China specifically for the company.

J&J VP of investor relations Louise Mehrotra

Louise Mehrotra, vice president of investor relations, spoke specifically on emerging markets. "On the emerging markets growth, excluding the impact, of course, of Cordis and OCD, it was about 6.5% in the fourth quarter and on a year-to-date basis it's about 5.5%. Those are both operational numbers."

J&J does not break out China specifically in earnings, but the fourth quarter showed Asia Pacific and Africa down 21.9% on a currency-adjusted basis.

That left Dominic Caruso, vice president of finance and chief financial officer, to say that while there was a slowdown in China business, it needs to be kept in perspective.

"We did see a slowdown in China, primarily in the consumer business, because both medical device and pharma businesses still had high single-digit growth in China and we are optimistic about China going into 2016," he said. "Our plans are for improved growth in China in 2016.

"But I just want to put China in perspective. It's less than 5% of our sales. It's an important market for us longer term with 1.3 billion people and lots of healthcare needs, et cetera, but any short-term changes in their economy are unlikely to have any significant impact on our results."

- here's the release

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