Diversified health care giant Johnson & Johnson (NYSE:JNJ) saw continued fallout from a flurry of product recalls and concerns over its manufacturing controls as investors sent the stock towards its lows over the past year. The company also didn't bother to provide a full balance sheet or cash flow statement during its fourth quarter results, leaving investors to wonder about its finances and cash flows until it files full-year financial statements with the Securities and Exchange Commission.

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Fourth Quarter Recap
The earnings press release did provide an income statement that detailed a 5.5% sales decline to $15.6 billion. Of the three operating divisions, the consumer unit was the notable laggard as sales fell 15% to account for 23% of sales. Product recalls of over-the-counter medicines hit the unit, as did a hip device recall in the DePuy medical device franchise, though total medical device sales eeked out 0.1% growth to account for just over 40% of total sales. The pharma unit saw sales decline a modest 4.7% to account for the remainder of the top line, as U.S. sales fell 5.7% and international decreased 1.6%.

Geographically, sales were strongest in Asia, rising 9.7% to account for 19.2% of sales. Sales fell 8.1% in the U.S. (46.2% of total sales), 10.5% in Europe (25.6%) and 4.5% everywhere else in the Western Hemisphere (9%). Product costs fell only 5.1% but management was able to reduce selling, general and administrative costs by 8%. However, $1.1 billion in recall and related expenses sent operating income down 14.4% to $2.2 billion. Net income fell 12% to $1.9 billion, or 70 cents per diluted share.

Year End Review and Outlook
Full-year sales fell 0.5% to $61.6 billion. The lack of a restructuring charge compared to last year helped push operating income ahead to $17 billion while net income rose 8.7% to $13.3 billion, or $4.78 per diluted share.

For the coming year, management said to expect earnings between $4.80 and $4.90 per share, though there again could be a number of "special items." At best, this would represent year-over-year growth of a couple of percent. Analysts project a similar level of full-year sales growth.

Bottom Line
At the current earnings valuation, shares of J&J are cheap at 12.4 times forward expectations. This represents one of the lowest multiples in the last 20 years, but it is warranted given the quality concerns and hits to the company's once solid image. Fortunately, none of the current issues appear to be serious and the company is still growing modestly. Overall though, a number of rivals, including Medtronic (NYSE:MDT), Teva Pharmaceutical (Nasdaq:TEVA), Roche (OTC:RHHBY), and Novartis (NYSE:NVS) trade at equally appealing valuations and have their acts together in terms of product manufacturing.

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