Medical manufacturing giant Johnson & Johnson has announced plans to restructure its medical-device businesses after several quarters of declining sales.
Over the next two years, the New Brunswick, N.J.-based company will lay off about 4% to 6% of workers worldwide in its medical-device segment, or about 3,000 people. Restructuring is expected to save the company between $800 million and $1 billion before taxes, the majority of which is expected to be realized by the end of 2018.
The total cost of restructuring is estimated between $2 billion and $2.4 billion before taxes. Johnson & Johnson says it will use the money to fund investments in “new growth opportunities” and new products in the businesses, which include orthopedics, surgery and cardiovascular.
Johnson & Johnson faces ongoing pressure in the three device specialties. Dublin-based Medtronic acquired a heart-valve startup in August to expand its cardiovascular offerings and hospitals are increasingly pushing orthopedic-device makers to cut their prices, especially costs relating to sales technicians.
Like many other companies, unfavorable exchange rates have cut into Johnson and Johnson's sales figures in the past fiscal year. Currency has battered the company's international medical-device sales, which otherwise are just slightly positive on an operational basis.
Global medical-device sales were down 7.3% at $6.1 billion in the third quarter ended Sept. 27, while nine-month sales were down 10.4% at $18.7 billion. International sales during the quarter were down 14.8%, offset by a 2% gain in U.S. quarterly sales, while year-to-date sales declined in both segments. International numbers took the biggest hit.
The company's other two segments, pharmaceuticals and consumer products, have also seen declines, mostly due to currency. Third-quarter sales were $17.1 billion, down 7.4%, while quarterly earnings were down 29.3% at $3.4 billion. Nine-month sales were down 6.8% at $52.3 billion, while earnings were down 11.7% at $12.2 billion.
Johnson & Johnson said the moves will help “strengthen its go-to-market model, accelerate the pace of innovation, further prioritize key platforms and geographies and streamline operations while maintaining high quality standards." The changes do not affect the company's consumer medical-device businesses, which include vision care and diabetes care.
The manufacturer reaffirmed its previous full-year 2015 guidance that it provided in the third quarter of $70 billion to $71 billion in sales and adjusted full-year earnings of $6.15 to $6.20 per share, excluding special items like the restructuring charges. Johnson & Johnson is scheduled to report its fourth-quarter and full-year earnings on Jan. 26.