J&J takes $13.6 billion charge related to new U.S. tax law

By Michael Erman and Divya Grover

(Reuters) - Healthcare conglomerate Johnson & Johnson on Tuesday took a $13.6-billion charge related to the new U.S. tax law and plans to bring back billions of dollars from overseas immediately.

The company reported a quarterly loss due to the charge, but beat analysts' profit estimates excluding items, helped by growth in cancer drugs and treatments from its $30-billion purchase of Actelion last year.

Still, J&J shares fell 4.2 percent to $141.97 in afternoon trading as investors sold off after the shares closed just below their all-time high on Monday.

"It's just kind of a low-quality earnings beat," said Jeff Jonas, a portfolio manager at Gabelli Funds. He noted that the company's fourth-quarter tax rate was only 9 percent, "so maybe the beat wasn't as big as it looked on a headline basis."

Also on Tuesday, U.S. appeals court upheld a ruling that invalidated a crucial J&J patent on its blockbuster rheumatoid arthritis drug Remicade.

U.S. President Donald Trump signed the new U.S. tax law late last year, and many large U.S. corporations and drugmakers have said they will take advantage of its new, lower tax rate on repatriated foreign earnings and cash.

J&J reported a year ago that it had $66 billion in undistributed international earnings and on Tuesday said it had $16 billion in cash outside the United States.

The company, based in New Brunswick, New Jersey, plans to move $12 billion of that cash immediately, J&J CFO Dominic Caruso said during a conference call with analysts, and will be used to fund U.S. operations, primarily by paying down debt.

Caruso also expects the new tax law to lower J&J's 2018 tax rate by 1.5 percentage points to 2.5 percentage points, and forecast an effective tax rate of 16.5 percent to 18 percent.

He said that money generated from lower taxes would primarily be funneled towards more research and development spending.

J&J's tax hit is the biggest announced for the pharmaceutical industry so far. Drugmaker Amgen Inc , for instance, said it would take a charge of more than $6 billion, while Pfizer Inc has not yet given details on its tax plans.

QUARTERLY LOSS

International operations accounted for nearly half of J&J's total fourth-quarter sales of $20.20 billion, which were up 11.5 percent from a year earlier.

Cancer drugs Darzalex, Imbruvica and Zytiga helped drive a 17.6-percent rise in pharmaceuticals sales to $9.68 billion.

A U.S. administrative court recently invalidated Zytiga's patent, but J&J said it does not expect its competitors to launch a generic version of the drug this year.

High-margin treatments from Actelion, acquired by J&J for $30 billion in 2016, accounted for about a quarter of the pharmaceutical unit's sales growth.

Sales at J&J's consumer products unit, which makes Band-Aids, Neutrogena beauty products and Tylenol, rose 3.1 percent to $3.5 billion.

Including the tax charge, J&J lost $10.71 billion, or $3.99 per share, in the quarter, compared with a profit of $3.81 billion, or $1.38 per share, a year earlier.

Excluding items, J&J earned $1.74 per share, slightly above analysts' average estimate of $1.72 per share, according to Thomson Reuters I/B/E/S.

J&J forecast an adjusted 2018 profit of $8 to $8.20 per share on revenue of $80.6 billion to $81.4 billion.

Analysts were expecting profit of $7.87 per share and revenue of $80.7 billion.

(Reporting by Michael Erman in New York and Divya Grover in Bengaluru; Editing by Anil D'Silva and Nick Zieminski)