J&J Beats Q3 Earnings on Strong Drug Sales, Ups View
Johnson & Johnson (JNJ), the first among the large health care companies to report third quarter results, beat expectations yet again. The company’s third-quarter 2014 earnings (excluding special items) were $1.50 per share, well above the Zacks Consensus Estimate of $1.42 per share and 10.3% above the year-ago earnings.
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Johnson & Johnson recorded growth on the back of strong pharma product sales with newly launched products like Olysio performing well.
Johnson & Johnson’s third quarter sales jumped 5.1% year-over-year to $18.5 billion, beating the Zacks Consensus Estimate of $18.4 billion. While operational factors favorably impacted sales by 5.8%, currency fluctuations had a negative impact of 0.7%.
Including one-time items, Johnson & Johnson reported third quarter earnings of $1.66 per share, well above the year-ago earnings of $1.04 per share. The company recorded an after-tax net gain of approximately $1.1 billion from the divestiture of Ortho-Clinical Diagnostics.
Pharmaceutical Segment Drives Sales
Third quarter sales increased 11.6% in the domestic market. Meanwhile, international sales declined 0.3%, consisting of 1% operational growth and 1.3% negative currency impact. Once again, the Pharmaceutical segment drove sales with the remaining two segments recording a decline in sales.
Pharmaceutical segment sales increased 18.1% year-over-year to $8.3 billion (operational growth of 18.7%). Sales in the domestic market increased 33.1% to $4.7 billion, whereas international sales increased 2.8% to $3.6 billion.
New products like Zytiga, Invokana, Stelara, Xarelto and Invega Sustenna continued to perform well. More recent entrants like Olysio/Sovriad and Imbruvica also contributed to growth. Other growth drivers included Remicade, Simponi and Prezista. Third quarter Zytiga sales were $568 million, up 22.4% year-over-year. Launch in additional countries and label expansion for use in chemo-naïve patients should continue driving sales. Newly launched hepatitis C treatment, Olysio, put in an impressive performance with sales coming in at $796 million.
Meanwhile, sales were hampered to a certain extent by generic competition for products like Aciphex and Concerta.
The Medical Devices & Diagnostics segment posted sales of $6.6 billion, down 5.2% from the year-ago period comprising an operational decline of 4.6% and a negative currency movement of 0.6%.
Sales in the domestic market declined 6.5% year-over year to $2.9 billion; international market sales fell 4% year-over-year to $3.6 billion.
Several Medical Devices & Diagnostics markets have been facing challenges in the form of austerity measures, pricing pressure and a slowdown in elective surgeries, which have all contributed to more tempered growth rates. The Vision Care business was negatively impacted by competitive pricing dynamics.
The Consumer segment recorded revenues of $3.6 billion in the reported quarter, down 0.6% from the third quarter of 2013. Foreign currency movement negatively impacted sales in the segment by 0.9%. Sales in the domestic market declined 4.2% year-over-year to $1.2 billion, reflecting the Oct 2013 divestment of the sanitary protection business.
Meanwhile, the international segment recorded sales growth of 1.3% with currency having a negative impact of 1.3%. OTC sales increased 1% in the U.S. with some key products being re-launched. Johnson & Johnson has been working on ensuring reliable and consistent supply of products.
Ups Earnings Guidance Again
Following the release of better-than-expected third quarter results, Johnson & Johnson upped its 2014 earnings guidance again this year. The company now expects earnings in the range of $5.92 - $5.97 per share, up from the previous guidance of $5.85 - $5.92 per share (provided with second quarter results). The Zacks Consensus Estimate for 2014 is currently $5.92 per share, at the lower end of the new guidance range.
Our Take
Johnson & Johnson’s third quarter results were strong with the Pharmaceutical segment delivering again. The company raised its guidance again this year. Johnson & Johnson has been trying to offset the declining sales of some of its important products by bringing in new products through in-licensing deals and acquisitions. The diversity and strength of the company’s underlying businesses should continue to support strong growth in future.
Johnson & Johnson is a Zacks Rank #3 (Hold) stock. Companies that currently look attractive in the healthcare space include Shire (SHPG), United Therapeutics Corporation (UTHR) and Allergan (AGN). While Shire and United Therapeutics are Zacks Rank #1 (Strong Buy) stocks, Allergan is a Zacks Rank #2 (Buy) stock.
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