Another Product Recall for JNJ - Analyst Blog

Johnson & Johnson’s (JNJ) McNeil Consumer Healthcare division recently announced yet another product recall. This time round, the company recalled 21 lots of certain over-the-counter (OTC) medicines that are sold in the United States, Fiji, Guatemala, Dominican Republic, Puerto Rico, Trinidad & Tobago, and Jamaica.
 
The recalled medicines include Benadryl, Tylenol (including children’s Tylenol) and Motrin. This recall is the latest in a series of product recalls announced by the company over the past few months. In 2010 itself, Johnson & Johnson has announced four product recalls involving the same drugs as well as other OTC liquid products meant for children and infants.
 
Johnson & Johnson said that the latest product recall is a follow-up to the product recall that was announced in Jan 2010. The Jan 2010 product recall involved Tylenol, Motrin and Benadryl that were sold in the US, the United Arab Emirates (UAE), and Fiji. The product recall was initiated following complaints from customers regarding an unusual smell.
 
We believe these back-to-back product recalls will adversely affect sales of Johnson & Johnson’s consumer healthcare segment. In fact, some effect of the Jan 2010 product recall was felt in the first quarter performance of the consumer segment with OTC product sales declining 15% on an operational basis. Sales were affected by the OTC product recall as well as a less severe cold and flu season.
 
We currently have a Neutral recommendation on Johnson & Johnson with a Zacks #4 Rank. The Zacks #4 rank indicates that the stock is expected to under perform the overall US equity market for the next 1-3 months. The latest product recall is a setback for Johnson & Johnson and we expect the consumer segment to take a hit in the coming quarters as well. Moreover, the recently enacted US healthcare reform will also impact the company’s results.
 
Meanwhile, our long-term Neutral recommendation on the stock is based on the belief that Johnson and Johnson’s diversified business model, lack of cyclicality and strong financial position will help the company pave its way through tough situations. Moreover, Johnson & Johnson has been entering into deals which should help boost its revenues in the long-term.