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`Johnson & Johnson CEO Discusses Q4 2013 Results - Earnings Call Transcript | Seeking Alpha
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`Johnson & Johnson CEO Discusses Q4 2013 Results - Earnings Call
`Transcript
`
`Jan. 21, 2014 2:48 PM ET
`by: SA Transcripts
`
`Q4: 01-20-14 Earnings Summary
`
` 10-K
`
` Analysis
`
` News
`
`EPS of $1.24 beats by $0.04 | Revenue of $18.4B (+ 4.8% Y/Y) beats by $450M
`
`Johnson & Johnson (NYSE:JNJ)
`
`Q4 2013 Results Earnings Call
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`January 21, 2014, 8:30.m. ET
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`Executives
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`Louise Mehrotra – VP, IR
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`Alex Gorsky - Chairman of the Board and CEO
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`Dominic Caruso – VP, Finance and CFO
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`Analysts
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`Matthew Dodd - Citigroup
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`Mike Weinstein - JPMorgan
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`Larry Biegelsen - Wells Fargo
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`Rick Weiss - Stifel Nicolaus
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`Bruce Nudell - Credit Suisse
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`Derrick Sung - Sanford Bernstein
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`3/7/2017
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`Johnson & Johnson CEO Discusses Q4 2013 Results - Earnings Call Transcript | Seeking Alpha
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`Tony Butler - Barclays Capital
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`David Lewis - Morgan Stanley
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`Kristen Stewart - Deutsche Bank
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`Louise Mehrotra
`
`Good morning, and welcome. I’m Louise Mehrotra, Vice President of Investor Relations for
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`Johnson & Johnson, and it is my pleasure this morning to review our business results for
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`the fourth quarter and full year of 2013.
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`Joining me on the podium today are Alex Gorsky, Chairman of the Board and Chief
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`Executive Officer, and Dominic Caruso, Vice President, Finance and Chief Financial
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`Officer. A few logistics before we get into the details.
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`This review is being made available to a broader audience via a webcast accessible
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`through the Investor Relations section of the Johnson & Johnson website. I’ll begin by
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`briefly reviewing highlights of the fourth quarter and full year of 2013 for the corporation
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`and highlights for our three business segments.
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`Following my remarks, Alex will comment on the 2013 results and provide a strategic
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`outlook for the company. Dominic will then provide some additional commentary on
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`financial results and guidance for 2014. We will then open the meeting to your questions.
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`We expect the meeting to conclude at approximately 10:15.
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`Included with the press release that was issued earlier this morning is a schedule of sales
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`for key products and/or businesses to facilitate updating your models. These schedules
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`are available on the Johnson & Johnson website as is the press release. Also, please note
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`that the presentation of today’s remarks is available on our website.
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`Before I get into the results, let me remind you that some of the statements made during
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`this review may be considered forward-looking statements. The 10-K for the fiscal year
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`2012 identifies certain factors that could cause the company’s actual results to differ
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`materially from those projected in any forward looking statements made today. The
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`company does not undertake to update any forward looking statements as a result of new
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`information or future events or developments. The 10-K is available through the company
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`or online.
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`Johnson & Johnson CEO Discusses Q4 2013 Results - Earnings Call Transcript | Seeking Alpha
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`During the review, non-GAAP financial measures are used to provide information pertinent
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`to ongoing business performance. These non-GAAP financial measures should not be
`
`considered replacements for GAAP results. Tables reconciling these measures to the
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`most comparable GAAP measures are available in the press release and on the Investor
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`Relations’ section of the Johnson & Johnson website at investor.jnj.com.
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`A number of the compounds and products discussed today are being developed in
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`collaboration with strategic partners or licensed from other companies. This slide
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`acknowledges those relationships.
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`Now I would like to review our results for the fourth quarter of 2013. If you would refer to
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`your copy of the press release, let’s begin with the schedule titled “Supplementary Sales
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`Data by Geographic Area.”
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`Worldwide sales to customers were $18.4 billion for the fourth quarter of 2013, up 4.5% as
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`compared to the fourth quarter of 2012. On an operational basis, sales were up 6.3% and
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`currency had a negative impact of 1.8%.
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`In the U.S., sales were up 7.4% and in regions outside the U.S., our operational growth
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`was 5.6%, while the effect of currency exchange rates negatively impacted our reported
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`results by 3.2%.
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`The Asia Pacific/Africa region grew 7% operationally. Both Europe and the western
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`hemisphere, excluding the U.S., grew by 4.8% operationally. The success of new product
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`launches made strong contributions to the results in all regions.
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`If you’ll now turn to the consolidated statement of earnings, net earnings were $3.5 billion,
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`up 37.1% compared with the 2012 results. Earnings per share were $1.23 versus $0.91 a
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`year ago. Please direct your attention to the box section of the schedule, where we have
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`provided earnings adjusted to exclude special items.
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`As referenced in the accompanying table reconciling non-GAAP measures, 2013 fourth
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`quarter net earnings were adjusted to exclude a net charge of $42 million for after tax
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`special items. Fourth quarter 2012 net earnings included a net charge of $809 million for
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`after tax special items. Dominic will discuss special items in his remarks.
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`Excluding these special items for both periods, net earnings for the current quarter were
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`$3.6 billion and diluted earnings per share were $1.24, representing increases of 5.5%
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`and 4.2% respectively as compared to the same period in 2012.
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`I would now like to make some additional comments relative to the components leading to
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`earnings before we move on to the segment highlights. For the fourth quarter of 2013,
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`cost of goods sold at 32.5% was 170 basis points less than the same period last year. In
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`the prior year, we recorded an inventory step up charge related to the Synthes acquisition
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`that increased cost of goods sold by 130 basis points.
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`This charge was treated as a special item. Excluding the impact of this prior year inventory
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`step up charge, cost of goods sold was 40 basis points lower than fourth quarter 2012,
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`primarily due to positive mix lower costs associated with strong volume growth in our
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`pharmaceuticals business, and cost improvement initiatives across many of our
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`businesses.
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`This was partially offset by costs associated with the agreement with Vertex for Incivo
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`related to royalties that was announced in the fourth quarter, inventory adjustments and
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`the impact of the medical device excise tax.
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`Fourth quarter sales and marketing and administrative expenses were 32.2% of sales, in
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`line with the fourth quarter of 2012. Our investment in research and development as a
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`percentage of sales was 13.1%, down 20 basis points due to timing of milestone
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`payments in the pharmaceuticals business.
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`Interest expense, net of interest income of $116 million, was up $27 million versus the
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`fourth quarter of 2012, due in part to a higher average debt level. Other expense, net of
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`other income, was $868 million in the fourth quarter of 2013, compared to $319 million in
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`the same period last year. Excluding special items, other expense net of other income of
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`$47 million compares to $420 million of other income net of other expense. 2012 included
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`a higher level of gains on divestitures.
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`Excluding special items, the effective tax rate was 8.9% in the fourth quarter of 2013,
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`compared to 18% in the same period last year. Dominic will provide some commentary on
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`taxes in his remarks.
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`Now turning to the consolidated statement of earnings for the full year of 2013,
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`consolidated sales to customers for the year 2013 were $71.3 billion, an increase of 6.1%
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`as compared to the same period a year ago. On an annual basis, sales grew 7.7%
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`operationally and currency had a negative impact of 1.6%. Synthes, net of the impact of
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`the divestiture of the legacy DePuy trauma business, contributed 2.5 points to the
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`worldwide operational sales growth.
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`On the consolidated statement of earnings, I’d like to draw your attention to the box
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`section. For the year, 2013 adjusted net earnings were $15.9 billion, and adjusted
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`earnings per share were $5.52, up 10.7% and 8.2% respectively, versus the 2012 results.
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`Turning now to business segment highlights, please refer to the supplementary sales
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`schedule highlighting key products or businesses for the fourth quarter of 2013. I’ll being
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`with the consumer segment.
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`Worldwide consumer segment sales for the fourth quarter of 2013 of $3.8 billion increased
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`2.8% as compared to the same period last year. On an operational basis, sales increased
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`4.4%, while the impact of currency was negative 1.6%. U.S. sales were up 5%, while
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`international sales grew 4.1% on an operational basis.
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`Excluding the impact of divestitures net of acquisitions, operational growth was
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`approximately 6%, driven by strong U.S. growth of nearly 10%. Baby care products
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`increased on an operational basis by 6.2% when compared to the fourth quarter of 2012.
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`Strong operational growth of 7.1% outside the U.S. drove the results, due to double digit
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`growth of hair care and baby cleansers, complemented by the impact of the Elsker
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`products acquired earlier this year.
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`Sales in the oral care business increased 2.3% operationally. Excluding the impact of the
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`divestiture of manual toothbrushes in North America, fourth quarter operational sales grew
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`approximately 4.5%, led by strong growth of 8.6% outside the U.S. with Listerine new
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`product launches and new marketing campaigns.
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`For the fourth quarter of 2013, sales for OTC pharmaceuticals increased 6.6% on an
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`operational basis, compared to the same period in 2012. U.S. sales were up 21.6%,
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`driven by strong growth in analgesics and other key brands as we continue to make
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`progress in returning a reliable cup of products to the marketplace.
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`Our skincare business grew 9.5% on an operational basis in the fourth quarter of 2013.
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`Very strong results for Neutrogena and [unintelligible] with new product launches
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`supported by robust marketing campaigns drove results in the quarter.
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`Women’s health declined 11.5% on an operational basis, due primarily to the impact of the
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`divestiture of the North America sanitary protection business. Women’s care other sales
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`increased 2.6% on an operational basis, due to strong growth for BAND-AID brands.
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`That completes our review of the consumer segment, and I’ll now review highlights for our
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`pharmaceuticals segment. Worldwide net sales for the fourth quarter of $7.3 billion
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`increased 11.8% versus the same period last year. On an operational basis, sales
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`increased 13.1%, with a negative currency impact of 1.3%. Sales in the U.S. increased
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`17.9%, while sales outside the U.S. increased on an operational basis by 9%.
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`Now reviewing sales for major therapeutic areas. Immunology products grew 22.6%
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`operationally, with sales in the U.S. up 19.2% and sales outside the U.S. up 31.9%
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`operationally. Earlier this year the company made certain supply chain changes for
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`REMICADE, resulting in sales to distributors, previously recorded as U.S. export sales,
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`now being recorded as international sales. Adjusting the base to reflect this impact, the
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`fourth quarter 2013 U.S. immunology growth was approximately 26% and operational
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`growth outside the U.S. was approximately 14%.
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`In the U.S., REMICADE, excluding export sales, was up 12.7%. SIMPONI was up 65.6%,
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`and STELARA was up 67.7%. Results were driven by strong market growth,
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`complemented by increased market share for both STELARA and SIMPONI, with new
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`indications and formulations introduced in 2013. With the strength of our portfolio, we
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`continue to be the U.S. market leader in immunology.
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`REMICADE, outside the U.S., adjusted for the supply chain change just mentioned, was
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`up approximately 2% operationally, with strong growth in Canada, partially offset by the
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`lower sales in Latin America due to pricing pressure and timing of shipments.
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`STELARA made significant contributions to growth outside the U.S., through the market
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`share gains and market growth across the major regions, while SIMPONI’s strong growth
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`was due to increased shipments to our distribution partner and strong growth in Japan and
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`other markets.
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`Sales of infectious disease products increased 9.9% on an operational basis. INCIVO
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`declined 23.6% on an operational basis, reflecting lower sales in Europe, impacted by a
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`combination of patient warehousing and patient enrollment in clinical trials in certain
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`countries, partially offset by strong sales in other countries as we obtain reimbursements.
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`PREZISTA grew 30.3% on an operational basis due to continued momentum in market
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`share growth in the major markets, while INTELENCE grew 12.7% operationally, due to
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`double-digit growth in Europe.
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`The combined sales of [comblarent] and EDURANT also contributed to the results, as did
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`sales of our newly launched hepatitis C product called OLYSIO in the U.S. and SOVRIAD
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`in Japan.
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`Neuroscience product sales increased 0.7 operationally and were impacted negatively by
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`generic competition. U.S. growth was 1.7% and sales outside the U.S. were flat on an
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`operational basis. The long-acting injectable antipsychotics, RISPERDAL CONSTA and
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`INVEGA SUSTENNA or XEPLION achieved operational growth of approximately 15% due
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`to an increase in combined market share.
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`Sales of oncology products increased 37.4% on an operational basis, primarily due to the
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`strong results for ZYTIGA. In the quarter, ZYTIGA achieved operational sales growth of
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`over 85%, with similar results both in and outside the U.S.
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`In the U.S. very strong market growth of over 18% and increased market share in the
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`combined metastatic castration resistant prostate cancer market drove results. ZYTIGA
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`has captured nearly 34% of that market. Additional country rollouts and expansion of the
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`label to chemo-naïve patients drove the strong results outside the U.S. ZYTIGA is
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`approved in more than 80 countries.
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`VELCADE sales increased 7.4% on an operational basis. Strong performance and patient
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`in the frontline setting, and the launch of the subcutaneous version, continued to drive
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`sales growth, partially offset by the timing of tender business in the fourth quarter of 2012
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`as we discussed last year. Other oncology sales increased due to CAELYX sales.
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`Regarding DOXIL/CAELYX, ensuring a sufficient supply for physicians and their patients
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`remains our urgent priority. In the U.S., we are experiencing a supply outage of DOXIL
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`due to issues at our third-party manufacturer. We continue our discussions with the FDA
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`regarding short term plans and other long term options for manufacturing.
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`The FDA has approved a generic doxorubicin hydrochloride liposome injection, which is
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`currently available for patients. In Europe, we are continuing to supply CAELYX. In the
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`third quarter of 2013, the Committee for Medicinal Products for Human Use, or CHMP,
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`approved manufacturing of CAELYX from an alternate supplier as part of our long term
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`transition to a new manufacturer.
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`Other pharmaceutical products increased 0.5% on an operational basis, with strong
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`results for XARELTO and INVOKANA, partially offset by lower sales for ACIPHEX.
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`XARELTO nearly tripled compared with the same quarter last year and grew 10% on a
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`sequential basis, reaching over 38% of the new to brand scripts, or NBRX, in cardiology in
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`December, surpassing warfarin by over 7 points.
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`Total prescription share in the broader anticoagulant market grew 1.5% on a sequential
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`basis to 10.5%. INVOKANA contributed 2 points to the U.S. pharmaceutical growth rate
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`and at the end of the quarter achieved 19% NBRX with endocrinologists, within the
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`defined market of type II diabetes, excluding insulin and metformin. INVOKANA holds the
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`number one position for branded non-insulin NBRX in that market.
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`Some updates of note for our pharmaceuticals business. During the quarter, the FDA
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`granted approval of OLYSIO (simeprevir) for combination treatment of chronic hepatitis C.
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`Simeprevir was also approved in Japan and Canada. In Japan, it is marketed as
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`SOVRIAD, and in Canada as GALEXOS.
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`The FDA also approved IMBRUVICA to treat mantle cell lymphoma, or MCL, for patients
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`who received at least one prior treatment. The European commission approved
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`INVOKANA for the treatment of adults with type II diabetes and we expect INVOKANA to
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`be available in Germany and in the U.K. this quarter.
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`A complete response letter, or CRL, was received from the FDA regarding the fixed dose
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`combination of Canagliflozin and immediate release metformin to treat adults with type II
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`diabetes. The CRL requests additional information to support the comparability of twice-
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`daily dosing and the once-daily dosing of Canagliflozin as a single agent. We believe we
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`can supply this information based on available clinical data.
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`In addition, SIRTURO received a positive opinion from the European CHMP for use as
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`part of combination therapy to treat adults with pulmonary multidrug resistant tuberculosis.
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`A marketing application was submitted to the European Medicines Agency for ibrutinib for
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`the treatment of adult patients with relapsed or refractory chronic lymphocytic leukemia,
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`small lymphocytic lymphoma, or relapsed or refractory MCL.
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`The [DLA] for [unintelligible] received a priority review designation in the U.S., and
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`esketamine was granted breakthrough therapy designation by the FDA for treatment
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`resistant depression.
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`And last week, the FDA Cardiovascular and Renal Drugs Advisory Committee voted
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`against the approval of the use of XARELTO in patients with acute coronary syndrome.
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`We will work with the FDA to address the questions raised.
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`In addition, the rights for DORIBAX were returned to Shinogi earlier this year and the U.S.
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`exclusivity period for ACIPHEX expired in the fourth quarter and the copromotion
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`agreement with Eisai was terminated. Eisai will continue to market and produce ACIPHEX
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`in the U.S. The copromotion agreements in certain international companies were also
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`terminated.
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`That completes the review of the pharmaceutical segment. I’ll now review the medical
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`devices and diagnostic segment as well.
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`Worldwide medical devices and diagnostic sales of $7.3 billion decreased 1% versus the
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`same period last year. On an operational basis, sales increased 1.5%, with a negative
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`currency impact of 2.5%. Sales in the U.S. declined 1.4%, while sales outside the U.S.
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`increased on an operational basis by 3.7%. Adjusted for divestitures and exits from certain
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`businesses, underlying operational growth was approximately 2%.
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`Starting with cardiovascular care, sales were up 8.3% operationally, with the U.S. up
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`12.9% and sales outside the U.S. up 5.7% operationally. Biosense Webster achieved
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`worldwide operational growth of over 13% in the quarter. The success of a number of
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`catheter launches and market expansions made strong contributions to the results.
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`Diabetes care declined 11.9% on an operational basis in the fourth quarter of 2013, with
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`the U.S. business down 25.8% due to the impact of lower price, primarily related to
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`competitive bidding. The business outside the U.S. was flat operationally, with increased
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`sales related to the launch of [Animas Five], offset by lower sales on meters and strips.
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`The diagnostics business declined 9.4% on an operational basis, impacted by the
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`divestiture of the [unintelligible] business, while infection prevention increased 5% on an
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`operational basis with similar results both in and outside the United States.
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`Orthopedics sales were up 4.2% on an operational basis when compared to the same
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`period in 2012, with the U.S. up [4.9]% and sales outside the U.S. up 3.5% on an
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`operational basis. Strong growth for knees and hips drove results this quarter, partially
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`offset by slower sales for spine products. Growth was positively impacted by trauma
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`results versus the fourth quarter last year.
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`Operationally, hips were up 5% worldwide, driven by 8% growth in the U.S. due to strong
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`results in primary same platform sales, partially offset by continued pricing pressure. Hips
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`outside the U.S. were up 2% on an operational basis.
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`Knees worldwide increased 8% on an operational basis, with 9% growth in the U.S. and
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`6% operational growth outside the U.S. The successful launch of the ATTUNE fixed
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`bearing knee drove the results, partially offset by pricing pressure.
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`Trauma was up 7% on an operational basis with the U.S. up 10%. Results in the fourth
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`quarter last year were impacted by a [nail] recall. Outside the U.S., sales were up 4%
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`operationally, driven by growth in Asia Pacific, with new product launches.
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`Worldwide spine was down 2% on an operational basis with the U.S. down approximately
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`5%, impacted by pricing pressure, the continued softness in the market, as well as the
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`disruption in the commercial sales organization as we integrate the businesses. Outside
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`the U.S., sales were up approximately 2% operationally, due to growth in Asia Pacific.
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`Specialty surgery operational growth was 6.3% in the fourth quarter of 2013. U.S. sales
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`were up 1.8%, and sales outside the U.S. were up 10.7% on an operational basis.
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`International sales of energy products, and strong sales of biosurgical products, were the
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`major contributors to growth, complemented by U.S. growth from market expansion for our
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`[clearance] products.
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`Surgical care worldwide sales were up 1% on an operational basis, with the U.S. down
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`3.1% and sales outside the U.S. up 3.4% operationally. U.S. sales were impacted by lower
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`sales of women’s health and mechanical products. Outside the U.S., suture sales and
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`strong demand for EndoCutter products with the ECHELON FLEX powered [endocut]
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`stapler were the important drivers of growth.
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`Rounding out the review of the medical devices and diagnostics segment, our vision care
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`business achieved operational sales growth of 2.6% in the fourth quarter, with the U.S.
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`down 0.4% and sales outside the U.S. up 4% operationally. Growth was driven by daily
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`lenses and astigmatism lenses, partially offset by lower sales of reusable lenses in the
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`U.S.
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`That completes highlights of the medical devices and diagnostics segment, and concludes
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`the segment highlights for Johnson & Johnson’s fourth quarter of 2013. It is now my
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`pleasure to turn the meeting over to Alex Gorsky. Alex?
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`Alex Gorsky
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`Well, thank you very much, Louise. I’d like to welcome all of you participating in today’s
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`meeting, especially those, recognizing that we’ve got this big weather storm forecast, at
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`least for those of us here on the East Coast. It’s great that you were all still able to make it.
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`And for all of those of you who are on webcast, welcome. I hope your weather is better,
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`and we’re glad that you could also join us for the event today.
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`When we look back on it, I think and hope you’ll agree, 2013 was really a significant year
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`for Johnson & Johnson. In fact, it’s pretty hard for me to believe that it’s only been a year
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`since we met in a hotel not too far from here in 2012 to review our performance in 2012
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`and also set out the goals for 2013.
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`And while I think time has passed relatively quickly, I’m also very proud to report just how
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`much we’ve accomplished since last year’s meeting. So let’s start first with our near term
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`priorities.
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`Number one, we’ve exceeded our financial commitments. We continue to restore a
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`reliable supply of the majority of our over the counter products here in the U.S., and we’re
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`working very closely with our trade partners to get product back on the shelves and really
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`relaunch these great brands.
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`We’ve also made substantial progress on the integration of Synthes, and we’re creating
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`not only the world’s largest, but the most comprehensive, orthopedics platform in business
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`in the industry. And very importantly, as you heard Louise talk about, we’ve continued
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`building on our strong momentum in our pharmaceutical business, which is leading the
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`industry on so many different fronts.
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`We’ve made a lot of progress against the short term drivers, but we’ve also advanced our
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`long term growth drivers as well, things like creating value through innovation, having a
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`global reach with a local focus, excellence in execution in everything we’re doing, and
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`leading with a purpose to really make a difference for patients, for customers, around the
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`world.
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`At the same time, we are focused hard on leveraging the power of our enterprise in a
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`number of ways that are serving to increase the overall effectiveness and efficiency of
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`Johnson & Johnson. Let me give you just a few examples.
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`Number one, we’ve improved our quality programs, but we’ve also strengthened and
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`streamlined our supply chain to ensure that we can reliably meet demand around the
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`world. We’ve also bolstered our postmarket surveillance and safety teams. We’ve acted
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`decisively to prioritize our product portfolios, focusing on areas where we really think we
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`can apply our energies to make the greatest opportunities to lead the industry and
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`ultimately make a real difference for patients. And we’ve worked hard to resolve certain
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`complex legal matters.
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`Johnson & Johnson CEO Discusses Q4 2013 Results - Earnings Call Transcript | Seeking Alpha
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`Meetings like this, these types of forums, we believe provide us with a great opportunity to
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`update you on our progress, as well as our plans and our perspectives about how we think
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`things are going to unfold in the future. Dominic and Louise - and you all know Louise, she
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`always has that big binder - she’s going to take us through a lot of information today. Any
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`really tough questions we’ll make sure she can find the answer somewhere in there.
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`But I personally believe that while you’re going to hear a lot of different information, the
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`most important takeaway from today is for you to better understand why all of us at
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`Johnson & Johnson remain so optimistic about our future and our ability to positively
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`impact the lives of patients and consumers, in spite of so many global challenges facing
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`healthcare delivery around the world.
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`So let me start the way I always do. Let’s talk about our credo. 2013 was the 70th
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`anniversary of this document, so our management teams around the world did a credo
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`challenge, and really spent time considering what it means today to our business, what it
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`means to us as leaders. And we collectively confirmed that it is as essentially as ever.
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`Now, as we’ve grown to more than 128,000 associates around the world, this brief but
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`very powerful document really unites us with a common purpose. And I believe it remains
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`as important and as relevant today as ever, and its principles are very deeply embedded
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`in the way we conduct our business and the way we do everything.
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`As you all know, the most important driver of success is ultimately the people who make
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`these strategies come alive. And I’m really proud of our executive management team.
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`When you look at this group, they have a wide range of diverse backgrounds and
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`experiences, and it’s a nice combination of long, tenured, seasoned Johnson & Johnson
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`executives and newer additions to the leadership team with strong and diverse industry
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`backgrounds.
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`And together, I believe we’re poised to lead and frankly to shape the evolving healthcare
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`industry and market, and really bringing new ways of doing business, coming together
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`with customers, governments, and payers.
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`We’re proud of our strong foundation, but we’re also embracing changes that we think are
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`demanded by a healthcare landscape that’s changing in so many different ways. We’re
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`decisive, we’re disciplined and focused against executing on our near term priorities, but
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`also staying focused on our longer term growth strategies.
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`Johnson & Johnson CEO Discusses Q4 2013 Results - Earnings Call Transcript | Seeking Alpha
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`So with that as a bit of a foundation, let’s take a look at our performance overall for 2013.
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`The advancements we’ve made by working with such a laser focus on our near term
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`priorities has had a direct impact on us being able to deliver our results. And the
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`enterprise grew 6.1% versus 2012.
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`As you heard earlier, that’s 7.7% operationally on strong sales of $71.3 billion. And if you
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`net things out for the Synthes acquisition operational sales growth was still a really solid
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`5.2%. With our continued focus on financial discipline, our adjusted earnings were $15.9
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`billion, up 10.7%. And adjusted EPS was $5.52, up 8.2% versus last year.
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`We also generated significant free cash flow, at $13.8 billion. As the largest healthcare
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`company in the world, our broad base of leadership is increasingly important in our ability
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`to deliver strong results in a sustainable way over time. As you can see, our consumer
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`segment accounted for 21% of our total sales by generating $14.7 billion, up 2.8% on an
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`operational basis versus 2012 and nearly 4% operational growth excluding the impact of
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`certain acquisitions and divestitures.
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`40% of our sales, or about $28.5 billion, come from our medical devices and diagnostics
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`group, with operational sales growth of 6.1%, which now includes Synthes for a full year. If
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`we exclude acquisitions and divestitures, underlying operational growth was
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`approximately 1%. Our pharmaceuticals segment generated $28.1 billion, an outstanding
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`12% operational growth versus 2012, and that accounts for the remaining 39%.
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`On the strength of this performance, we generated $19 billion in pretax operating profit,
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`excluding special items, a 90 basis point improvement versus the previous year.
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`Pharmaceutical pretax operating margin grew 370 basis points due to its strong sales
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`performance.
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`And we also saw a nice uptick in our consumer group. The decline, however, in MD&D
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`was driven by lower diabetes pricing and of course the medical device tax. And our
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`shareholders, they were rewarded with a return of almost 35%, which really outpaced
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`about nearly every major index we benchmark ourselves against.
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`If you look long term, we believe our shareholder have also done well, and we’ve
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`outpaced each of these indices over the past 10 years. We’ve delivered 30 consecutive
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`years of adjusted earnings increase