"Challenging" Times at Johnson and Johnson

On the 2005 fourth quarter earnings conference call for Johnson and Johnson (JNJ), CEO William Weldon characterized the current environment as "challenging." Just as "bling" was the hot phrase last year and "in the loop" a few years prior, so "challenging" seems to be now. Providing depth to his analysis, CEO Weldon further commented that the people at JNJ were "hard at work." The defensive tone of management on the conference call was echoed by the frustrated sound of JNJ analysts. This misery reveals what excessive expectations do. JNJ finished the year as only one of six industrial companies with a triple-A rating and $13.5 billion of cash on the balance sheet. Even more, earnings increased by almost $2 billion (over 13%) to a record $10.5 billion. These numbers were not generated by simply cost-cutting, as JNJ increased research and development (r&d) expenses by 21%. So what's the problem? Apparently, the stock price - which has moved from a high of $70 last April to the upper $50s currently. Investors bid the price of JNJ up on the news of the Guidant (GDT) acquisition. When JNJ exercised discipline on the GDT purchase price, allowing Boston Scientific to "win" the bidding war, JNJ's stock price dropped, reflecting the apparently widespread lack of respect for money and monetary discipline.