Johnson & Johnson said Tuesday it will cut up to about 8,000 jobs and streamline its operations in an effort to cut costs as it braces for changes in the health care industry.
The New Brunswick, N.J., company said the cuts will affect 6 to 7 percent of its global work force of roughly 118,700 workers.
The restructuring is one of Johnson & Johnson's biggest ever and will prompt a restructuring charge of up to $1.3 billion pretax in the fourth quarter.
Johnson & Johnson plans to simplify its business structure and projects that it will save between $800 million and $900 million next year and $1.4 billion and $1.7 billion annually after the restructuring is complete in 2011.
The company, the world's most diversified health-products maker, saw its revenue fall 5 percent in the third quarter as intensifying generic competition slashed sales of about a half-dozen of its prescription drugs, including the schizophrenia drug Risperdal and the epilepsy treatment Topamax.
Chairman and CEO William C. Weldon said the moves are meant to position the company for long-term growth amid an evolving, and sometimes turbulent, market.
"These types of changes are difficult under any circumstances, and will have a very personal impact on people who have been dedicated to the mission of Johnson & Johnson," he said. "We recognize their contributions to the achievements of our business, and are committed to treating them fairly and with respect throughout this process."
The new restructuring program comes on the heels of management's decision to reorganize its comprehensive care business in August. That unit was created under a 2008 restructuring program with the goal of boosting sales, though sales were down during the first half of 2009. The unit makes medical devices and tests.
In July 2007, the company set a restructuring program that reduced its work force by 4 percent, or about 4,800 jobs.
"When you look at the total economic environment, I don't think anybody knows what's going to happen," Weldon said Tuesday. "But nobody expects it to come back tomorrow."
He said the move is based on a broad, global view of the changing health care industry, taking into account national and international markets. As for health care reform, management has said it needs more clarity on what any future plan could look like before assessing a more concrete impact on the business. The restructuring program is also not a move to centralize J&J's operations, he added.
"We're trying to make sure we've really set ourselves up for the future," Weldon said. "We have such a rich portfolio that we have to make sure we have the resources to invest."
Johnson & Johnson confirmed its profit guidance excluding charges of between $4.54 and $4.59 per share for 2009. Analysts surveyed by Thomson Reuters forecast, on average, an annual profit of $4.58 per share.
Deutsche Bank analyst Tao Levy maintained his profit estimates, noting that "management gave lukewarm comfort with next year's numbers as the CFO said the restructuring appears to be reflected in operating leverage already in analyst models (i.e. don't raise numbers), which to us still seems somewhat conservative given the cost savings expected from the restructuring."