U.S. growth of 2.5% helps Johnson & Johnson consumer health product sales increase 0.9% to $3.6 billion worldwide in its fourth quarter, providing momentum for a segment that plans 20 product launches in 2015 after full-year sales fell 1.4%.

Analgesics and upper respiratory products drove global OTC sales growth in the October-December period, while skin care products lead U.S. consumer growth to $1.3 billion, J&J said in its Jan. 20 earnings statement.

CEO Alex Gorsky acknowledges the consumer business still is recovering from a 2011 consent decree that slowed production by its McNeil Consumer Healthcare subsidiary at two plants and shut down operations at another, but says “recent market share trends” show consumption of J&J’s OTCs “is growing at four times the market.”

During a same-day earnings briefing with analysts, Gorsky said there is “particular strength behind” sales of Children's Tylenol and Children's Motrin, which are among the products J&J has returned to stores after being recalled due to the firm’s quality-control problems that led to the consent decree Also see "Under Consent Decree, J&J Delays Full Return Of Recalled OTCs Until 2012" - Pink Sheet, 25 April, 2011..

And J&J expects additional growth drivers will reach U.S. stores in 2015. Gorsky said “20 key product launches” are planned for 2015, including extensions for the Listerine Healthy White mouthwash and Neutrogena Hydro Boost skin care lines.

J&J’s strategies for growing its consumer business in 2015 might include more than returning recalled products to market and rolling out line extensions or other new products.

Asked about the plans for the firm’s roughly $14.3 billion in net cash – approximately $33.1 billion of cash and marketable securities and $18.8 billion of debt – on hand at the end 2014, Gorsky said J&J will look at acquisition for its consumer and other businesses.

“Our top priority over the last several years [in consumer] frankly has been on remediating our over-the-counter brands, particularly here in the United States … [but] we continue to look for ways to innovate, continue to look for ways to add scale, and expand in the appropriate way,” he said.

“We're also making sure that we're being very disciplined and decisive about businesses that we're choosing not to participate in. And I think we've made a number of moves over the last several years that also have allowed us to continue to invest.”

Since the consent decree imposed in February 2011, J&J divested McNeil consumer product properties including the North American portfolio for the Monistat yeast infection treatment line to Insight Pharmaceutical in September that year and the Rolaids heartburn relief line to Sanofi subsidiary Chattem Inc. in 2013 Also see "Chattem To Revive Rolaids Line Bought From J&J" - Pink Sheet, 14 January, 2013..

Before the decree, J&J in January 2011 sold the St. Joseph Aspirin brand to Ilex Consumer Products Group Also see "St. Joseph Aspirin Is First J&J/McNeil Divestiture From 2010 OTC Recalls" - Pink Sheet, 10 January, 2011..

The firm also has expanded its consumer health footprint since the decree. In May 2011 it acquired from J.B. Chemicals & Pharmaceuticals a portfolio of products marketed in Russia and other Eastern European markets, including Doktor Mom herbal cough remedies, Metrogyl antibacterial gel and cough/cold brand Rinza Also see "J&J Expands Russian OTC Foothold Via J.B. Chemicals Portfolio Acquisition" - Pink Sheet, 30 May, 2011..

Consumer Outlook ‘Sluggish’

Noting Gorsky’s mergers-and-acquisitions comment, Deutsche Bank Markets Research analysts tracking J&J said “mega deals [are] not a high priority in the near-term” for the firm, but “transformational technology driven acquisitions and partnerships remain a key focus.”

J&J should not count on a strong year from its consumer business, with or without acquisitions, to lead strong overall growth, Morningstar Equity Research analysts say.

Johnson & Johnson CEO Alex Gorsky

Although J&J’s pharmaceutical segment continued “robust growth” at 14% for the quarter, the segment faces increased generic and branded competition in 2015, according to a Morningstar research note. Even as consumer sales likely remain “sluggish” during the year, the business and J&J’s medical device business should help the firm reach overall sales growth of 1%, excluding foreign exchange rate changes, for the year.

Morningstar analysts added that J&J expects improvement in the consumer and device segments growth in 2015 to help offset slowing drug sales, but they are skeptical.

“We don't see enough innovation in either group to lead to accelerating growth. For the past several years, the lagging performance of these divisions has been offset by a strong drug division, but the magnitude of strong drug sales growth will likely fade over the next few years,” according to the Morningstar note.

Re-Launches Drive Consumer

For the quarter, international consumer product sales were flat at $2.3 billion, 0.1% growth with a negative currency exchange impact of 7.2%, according to the firm.

Upper respiratory OTC sales grew 8% worldwide driven by growth outside the U.S. Analgesic sales growth was 16%, with 24% growth in the U.S. driven by share gains and distributors’ and retailers’ inventory buildups from product re-launches. The U.S. adult analgesic market share was 11%, up from approximately 9.5% in the year-ago period and pediatric share grew from 34% to nearly 42%.

Worldwide gains for the quarter were partially offset by lower sales of baby care and skin care outside the U.S. due to competitive pressures and prior-year inventory stocking, J&J said.

For the year, J&J reported U.S. consumer product sales down 1.4%$5.1 billion and international also down 1.4% to $9.4 billion, including a 3.7% currency exchange hit.

Overall global sales for the year were $74.3 billion, an increase of 4.2% from 2013. The firm’s net earnings were $2.5 billion and diluted earnings per share for the quarter were 89 cents, and for the year net earnings were $16.3 billion and diluted earnings per share were $5.70, J&J reported. The firm adjusted its 2015 full-year earnings guidance to $6.12 to $6.27 per share.

J&J Includes Listerine In 20 Consumer Product Launches Planned In 2015

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