Johnson & Johnson says its McNeil Healthcare division's recall of over 40 infant and children's OTC medicines will hurt its sales, and thus its second-quarter bottom line. The company announced the recall of cold and allergy meds for kids last week because the products "do not meet quality standards," per the company.
The voluntary recall includes everything from infant and children versions of Tylenol and Motrin to children's formulations of Zyrtec and Benadryl. The company says it expects the recall to impinge on second-quarter earnings because of lower sales. The company says the sales shortfall will be due entirely to the self-imposed force majeure of the recall, rather than a consumer exodus.
Robert Passikoff, president of New York-based market research firm Brand Keys, agrees. He says that the only pain Johnson & Johnson feels will be from the volume constraints from the recall. He says Tylenol's proactive recall is burnished by the-barn-door-after-the-horse-has-escaped events like BP's deepwater disaster, and the revelations around Toyota's quality-denting problems.
"Not all recalls are equal, and in this case, McNeil was proactive, instituting the recall before anyone got hurt," he says. "And the very fact that they are doing it is likely to generate a 'yes, they are the brand that is doing the right thing at the right time' response." When the company announced the voluntary recall, it made a point of saying that there was little possibility of the products causing any harm or untoward side effects to people using them. "This recall is not being undertaken on the basis of adverse medical events."
"However, as a precautionary measure, parents and caregivers should not administer these products to their children," the company said, in a statement. The company said some of the products included in the recall: "May contain a higher concentration of active ingredient than is specified; others may contain inactive ingredients that may not meet internal testing requirements; and others may contain tiny particles."
Passikoff says that customer loyalty will also work in McNeil's favor. "They have always had an extraordinarily high level of brand loyalty, particularly with the kids' stuff," he says, adding that loyal customers are six times more likely to give a brand the benefit of the doubt in uncertain circumstances.
McNeil has had several recalls related to packaging this year, such as one for children's and infant's Tylenol, Motrin, and Zyrtec because of a label-printing error and for bottle defects. In January, the company instituted a recall for Tylenol because of the presence of trace amounts of a foreign chemical causing symptoms of gastroenteritis.