Johnson & Johnson Earnings Up 14%; Schering-Plough Slides

The results of two major U.S. drug makers were a study in contrasts Tuesday, as Johnson & Johnson posted a 14% rise in earnings on strong sales of its most profitable drugs, while Schering-Plough Corp.’s profit slumped on drug manufacturing problems.

The news wasn’t all bright at Johnson & Johnson, however. The firm agreed to pay as much as $860 million to settle lawsuits that accused it of misleading consumers into prematurely throwing away disposable Acuvue contact lenses.

The suits claimed that the world’s largest medical device maker boosted sales of its 1-Day Acuvue soft lenses by advising consumers to use them just once, even though the product is identical to regular Acuvue lenses, which can be worn as long as two weeks.

Johnson & Johnson, which also makes personal-care products, said earnings rose to $1.5 billion, or $1.06 a share, in the latest quarter, from $1.31 billion, or 93 cents, a year earlier. Revenue rose 6.5% to $7.79 billion, driven by 15% sales growth for Risperdal and 28% growth for Procrit.

“Sales of all their key drugs were in line or better than we expected,” said Glenn Novarro, senior analyst with Credit Suisse First Boston.

Revenue at Johnson & Johnson’s Cordis unit, a maker of devices used in heart procedures, rose 25% to $310 million. Those high-margin products helped make up for the 89% drop in sales of Propulsid, a heartburn drug the firm stopped marketing in the U.S. last year after it was linked to heart problems.

Under the contact lens settlement, the New Brunswick, N.J.-based company will pay as much as $840 million in cash and coupons to consumers, according to papers filed in state court in New Jersey. The agreement also includes money for new eye exams, as well as $20 million in fees for consumers’ lawyers.

Johnson & Johnson said it is too early to determine the ultimate cost of the settlement, which will depend on how many consumers participate. The company already has set aside money for some of the case’s costs and doesn’t expect to take a future charge against earnings.

Under the settlement, Johnson & Johnson agreed to remove the words “Disposable” and “For Single Use” from the 1-Day Acuvue box, according to court papers. The company also pledged to revise its marketing materials to remove suggestions that the 1-Day lenses must be discarded after a single use.

Meanwhile, Schering-Plough said its quarterly profit fell 10% to $564 million, or 38 cents a share, from $628 million, or 42 cents, a year ago, on plummeting U.S. drug sales as it strives to correct quality-control problems at factories in New Jersey and Puerto Rico.

Analysts, on average, had expected earnings of 36 cents a share, after Schering-Plough warned in February that profit would be off as much as 15% as it tried to clear up manufacturing problems cited by the Food and Drug Administration.

The company warned that approval of Clarinex, the successor to its blockbuster allergy drug Claritin, would be put on hold by the FDA until the problems are fixed.

Revenue fell 3% to $2.3 billion in the quarter as the firm recorded lower sales in every major therapeutic category except its anti-infective and anti-cancer areas. U.S. drug sales were off 8%.

Especially hard hit by manufacturing problems were the company’s asthma drugs and other allergy medicines. Sales of Schering-Plough’s Vancenase, an anti-allergy steroid, dropped about 94% to $3 million. Sales of Vanceril, a steroid for asthma, tumbled about 69% to $11 million.

Combined sales of the company’s three medicines for hepatitis C--Rebetron, Intron A and PEG-Intron--fell 3% to $326 million. But sales of the allergy treatment Claritin, Schering-Plough’s best-selling drug, rose 8% to $718 million.

The company said it was continuing to revamp its manufacturing procedures but did not say when the problems would be resolved or when Clarinex might hit the market.

On the New York Stock Exchange, Johnson & Johnson shares rose $1.85 to $94.45 while Schering shares added 33 cents to $36.78. Both companies reported results early in the day.

At a Glance

Other earnings, excluding one-time gains or charges unless noted, include:

* DeVry Inc. said profit rose 21% in its fiscal third quarter to $16 million, or 23 cents a share, on a 16% increase in sales to $149.2 million. The chain of business and technical schools said enrollment for the spring term was up 14% from last year.

* Fannie Mae, the No. 1 buyer of U.S. mortgages, said first-quarter earnings rose 16% to $1.23 billion, or $1.20 a share, as lending boomed and borrowing costs fell.

* Gannett Co. said first-quarter profit fell 14% to $174.5 million, or 66 cents a share, because advertising sales dropped at its community newspapers and the company’s national paper, USA Today, and because newsprint expenditures rose. Sales grew 19% to $1.57 billion, boosted by acquisitions. The results were a penny lower than the consensus forecast.

* Eastman Kodak Co. announced plans to fire 3,000 to 3,500 workers as it reported a 48% drop in quarterly profit and said earnings projections for the year are no longer valid because film sales are falling faster than expected. Earnings fell to $157 million, or 54 cents a share, on a 4% decline in revenue to $2.98 billion. The results exceeded the consensus estimate of 51 cents. Kodak has cut profit estimates three times since September as the economy slowed. In January, the firm said sales would improve in the second half of the year, but it doesn’t see such a recovery now.

* Marriott International Inc.’s first-quarter earnings rose 29% to $121 million, or 47 cents a share, exceeding expectations by 2 cents, as higher room rates offset a decline in occupancy. Revenue rose 13% to $2.44 billion. The hotel giant said occupancy rates were particularly disappointing in San Francisco and New York as technology and financial companies canceled meetings.

* Maytag Corp. reported a 55% drop in first-quarter earnings to $34.3 million, or 43 cents a share, missing forecasts by a penny, and said second-quarter results could be significantly below estimates because of economic and competitive conditions. The appliance maker had cut prices and increased ad spending in its first quarter and was hurt by higher manufacturing costs. Sales fell 1.7% to $1.08 billion. For its second quarter, Maytag said profit could meet or exceed the first quarter’s 43 cents. Analysts on average had expected 62 cents.

* Philip Morris Cos. said first-quarter earnings rose 4% to $2.09 billion, or 94 cents a share, matching forecasts, as the biggest tobacco company raised prices and sold more cigarettes overseas. Revenue rose 12% to $22.4 billion. Earnings at Kraft North America rose 25% to $1.14 billion, driven mainly by the purchase of Nabisco. Profit at Miller Brewing Co. fell 19% to $124 million as marketing costs increased.

* Sprint Corp. reported a 29% decline in quarterly earnings and said profit for the full year might fall 15% below Wall Street’s already reduced forecasts because of falling long-distance rates, slowing data sales and expansion costs. First-quarter earnings from continuing operations fell to $316 million, or 36 cents a share, including a gain of 1 cent from investing activities. Analysts on average expected 37 cents. Revenue edged down 1% to $4.36 billion, slightly below Wall Street expectations of $4.4 billion. The Sprint PCS unit’s loss narrowed to $393 million, or 40 cents a share, from $528 million, or 56 cents, on a 68% rise in sales to $2.05 billion. Analysts expected a smaller loss of 37 cents.

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Earnings Reports

Asampling of companies reporting quarterly earnings Tuesday, ranked by year-over-year earnings-per-share (EPS) growth, compiled by First Call/Thomson Financial.

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Analysts’ % above/ Year- Year- Ticker est. Actual below ago over-year Company symbol EPS EPS estimate qtr. NCR NCR $0.08 $0.11 +38% $0.06 Tekelec TKLC 0.10 0.13 +30 0.08 Capital One COF 0.66 0.66 0 0.51 Westamerica WABC 0.57 0.57 0 0.52 Mellon Financial MEL 0.53 0.54 +2 0.50 Robert Half RHI 0.25 0.26 +4 0.24 Bard BCR 0.65 0.65 0 0.61 Pitney Bowes PBI 0.52 0.53 +2 0.50 Genuine Parts GPC 0.53 0.52 --2 0.52 Public Serv Ent PEG 1.19 1.22 +3 1.25 AmSouth ASO 0.34 0.34 0 0.39 Parker Hannifin PH 0.73 0.80 +10 0.97 Huntington Bancshares HBAN 0.27 0.27 0 0.42 FMC FMC 0.56 0.57 +2 1.05 Caterpillar CAT 0.48 0.47 --2 0.73 Weyerhaeuser WY 0.62 0.61 --2 1.04 Timken TKR 0.05 0.05 0 0.43 Parametric Tech PMTC 0.07 0.07 0 --0.02

Analysts’ Ticker Company % change NCR +83% Tekelec +63 Capital One +29 Westamerica +10 Mellon Financial +8 Robert Half +8 Bard +7 Pitney Bowes +6 Genuine Parts 0 Public Serv Ent --2 AmSouth --13 Parker Hannifin --18 Huntington Bancshares --36 FMC --46 Caterpillar --36 Weyerhaeuser --41 Timken --88 Parametric Tech NM

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Notes: NM = not meaningful. A loss in any period makes percentage change not calculable.

Year-over-year growth and percentage changes are based on earnings-per-share figures and may differ from percentage changes based on total profit.

For more information on First Call, check www.firstcall.com.