For anyone playing a drinking game, taking a sip each time the phrase “the new Johnson & Johnson,” was uttered during the company’s fourth-quarter earnings call on Tuesday, hopefully—for health reasons—the beverage was water.
But who could blame J&J for obsessing over its new direction as it sheds its consumer health business to concentrate on its higher risk-reward enterprises—pharmaceuticals and medical devices.
“As independent companies, the new Johnson & Johnson and the new consumer health company will each be better positioned to exercise more focused, strategic and capital decisions,” Joe Wolk, J&J’s chief financial officer said.
Before the end of the second quarter, J&J will have leadership in place for the new consumer health company, Wolk said, with a new name and location of its headquarters to be revealed in the middle of this year.
In the second half of 2022, J&J will divulge its updated path forward, complete with numbers on spinoff costs and any new expenses the spun-off company will have to take on when it’s independent, said Wolk, who added that the company still expects to complete the split in 2023.
One big reason for the excitement over the company’s new direction is its ability to wheel and deal. New CEO Joaquin Duato said that the “workstream” of the separation will not deter the company from pursuing its altered mission. Nor, he pointed out, would it interfere with dividends.
“We have no intention of sitting on the sidelines,” Duato said in his first earnings call as CEO. “We’ll have the flexibility to continue to invest in innovation and maintain our track record of growing our dividend” while chasing deals that fit “the new Johnson & Johnson” and its growth ambitions.
For the first time in four years, Duato said, the company will transition from a “net debt to a net cash position.” He pointed out that J&J has been proficient in identifying opportunities that have a high probability of success early on, such as its $350 million acquisition of Legend in 2017, and others that are more post-proof-of-concept opportunities, such as its $6.5 billion deal for Momenta in 2020.
“We are constantly looking at M&A as a key source of growth for our business,” Duato said. “We’ll be more aggressive in that area.”
Aside from the “new J&J,” the company reported $93.8 billion in sales in 2021, a 13.6% increase from 2020, with the pharmaceutical business producing $52.1 billion, a 14.3% increase from last year, and its medical devices sector contributing $27.1 billion in sales, up 17.9% from 2020.
Those growth numbers point up just why J&J wants to hive off its consumer business: That unit brought in $14.6 billion in 2021, up just 4.1% over 2020.
It was a tumultuous year for the company’s COVID-19 vaccine, but it still rang up $2.4 billion in sales, including $1.8 billion internationally. J&J projects sales of between $3 billion and $3.5 billion for the shot this year.