Investors know Johnson & Johnson (NYSE:JNJ) for many things.
It's arguably health care's biggest name. The company's pharmaceutical segment boasts billions of dollars in sales annually from its largest drug, immunology star Remicade, alone. It has a number of up-and-coming drugs ready to fuel the company's future, and the firm's orthopedics device division isn't looking too bad recently, either, with the acquisition of medical device producer Synthes last year.
Yet many investors often forget about Johnson & Johnson (NYSE:JNJ)'s powerhouse consumer health business. It's a business that demands your attention, however: With the volatile nature of health care today, strong consumer sales just might be Johnson & Johnson's reliable foundation.
Grit, not glamour
Compared to J&J's two other major businesses, its consumer health segment might not seem like much. It only posted sales of around $7.3 billion over the first half of the year. That's a sizable sum to be sure, but it was only just over half of what the company's medical device business sold in that same time span.
Compared to both devices and pharmaceuticals, consumer products also grew slowly. Sales for the segment climbed only 1.6% year-over-year over 2013's first six months, far below the 9.9% and 11% from medical devices and pharmaceuticals, respectively.
So, why is this segment important to Johnson & Johnson (NYSE:JNJ) and its investors? Take a look inside its medical device and pharmaceuticals sales, and you'll see that not every product or drug is hitting high marks for growth. Generic drug competition has torn down top neuroscience drug Concerta's sales by more than 16% in the year's first half.
While many of J&J's drugs are showing strong growth, a quick look around the company's big pharma rivals shows just how hard the patent cliff has hammered firms' sales. AstraZeneca plc (ADR) (NYSE:AZN), one of big pharma's top companies, saw sales decline by more than 15% last year with patent expirations hammering both the company's top and bottom lines. As more drugs fall off patent in the near future, AstraZeneca plc (ADR) (NYSE:AZN)'s outlook remains murky -- and its stock's in a state of flux. While big pharma can mean big profits, the industry's boom-or-bust nature can lead to serious investor disappointment.
Volatility doesn't end with pharmaceuticals, either. J&J's medical device segment might have grown strongly, but without its Synthes acquisition, the division's performance so far this year hasn't been quite as illustrious as a first glance might have suggested. Three of the division's top five specialties by sales saw revenue fall over the year's first half, part of a slowdown that's affected many of the device industry's leaders.
Adding stable growth
Up-and-down sales are the nature of health care, but that's the beauty of Johnson & Johnson (NYSE:JNJ)'s consumer segment: It's the cash cow that investors can count on. While growth may be elusive, this segment -- accounting for more than 20% of the company's overall revenue -- is a reliable, if not glamorous, revenue producer.
It's a trend symptomatic to the consumer health industry: Rival The Procter & Gamble Company (NYSE:PG)'s health care division, a consumer-focused business, has posted 3% sales growth in each of the last three years, emerging as the conglomerate's most reliable business in a time when other, higher-selling segments have seen revenue fall recently.
Consumer sales aren't geographically exclusive, either: Johnson & Johnson (NYSE:JNJ)'s division posted similar growth in both the U.S. and internationally over the first six months of the year. This business likely won't become an emerging market superstar, but as middle classes develop in growing economies such as India and Latin America, Johnson & Johnson is well-positioned to take advantage of basic health needs of consumers in such developing nations.