Manufacturing issues continue to undermine J&J earnings

Manufacturing issues that have led to recalls and product shortages continue to be a drag on the earnings of Johnson & Johnson ($JNJ), but the company managed to offset that with enough cost-cutting to see its first quarter profits rise by double digits.

The pharmaceutical colossus today reported net income was $3.91 billion, or $1.41 per share, up from $3.48 billion, or $1.25 per share, in 2011's first quarter, a 12.5% jump, the Associated Press reports.

Revenue for prescription drugs edged up 1.2% to $6.13 billion but its consumer product sales fell to $3.6 billion, a decline of 2.4% because manufacturing problems have kept it from getting many of its most popular brands onto pharmacy shelves.

At J&J, manufacturing and quality issues have been ongoing for more than two years. A string of recalls began in late 2009, affecting such products as Tylenol, Benadryl, Motrin and Zyrtec (and prompting FDA intervention and congressional hearings). Its McNeil Consumer Healthcare immediately closed its Fort Washington, PA, plant after an April 2010 recall of more than 136 million children's and infants' products. Earlier this year it recalled 574,000 bottles of children's Tylenol because of possible problems with its dosing mechanism.

The company also has been hit by some manufacturing problems not entirely of its own making. A shortage of its cancer drug Doxil, caused by manufacturing issues at the Ben Venue Labs plant where it was made for J&J, was a factor in the 10.8 percent decline in pharmaceutical revenue generated in the U.S., Forbes reports.

The issues have cost it hundreds of millions of dollars in sales, plus the company is essentially gutting and rebuilding the plant to get earn back FDA approval. Those problems and problems with its medical device business, and really a slew of other things, are believed to have prompted the J&J board to "retire" CEO William Weldon this spring.

Revenue for medical devices and diagnostic equipment, its biggest business segment, fell 0.3 percent to $6.41 billion. Recalls and litigation related to its hip implants have been a big negative for the company in this category.

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