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J&J's (JNJ) Q4 Earnings Surpass Estimates, Sales Fall Short

Zacks Equity Research

Johnson & Johnson’s JNJ fourth-quarter 2019 earnings came in at $1.88 per share, which beat the Zacks Consensus Estimate of $1.86. Earnings, however, declined 4.6% from the year-ago period.

Adjusted earnings exclude after-tax intangible amortization expense and some special items. Including these items, J&J reported fourth-quarter earnings of $1.50 per share, up 33.9% from the year-ago quarter.

Sales of the drug and consumer products giant came in at $20.75 billion, which missed the Zacks Consensus Estimate of $20.79 billion. Sales rose 1.7% from the year-ago quarter, reflecting an operational increase of 2.6%, which offset an unfavorable currency impact of 0.9%.

Organically, excluding the impact of acquisitions and divestitures, sales increased 3.4% on an operational basis, less than 5.2% increase seen in the previous quarter.

Sales declined sequentially in Pharmaceutical and Medical Devices segments on an organic basis but improved slightly in the Consumer unit.

Fourth-quarter sales rose 1.4% in the domestic market to $10.77 billion and 2.1% in international markets to $9.97 billion. However, international sales reflected 4% operational growth, which was offset by 1.9% negative currency impact. Excluding the impact of all acquisitions and divestitures, on an adjusted operational basis, international sales rose 4.1% in the quarter.

Segment Details

Pharmaceutical segment sales rose 3.5% year over year to $10.55 billion, reflecting 4.4% operational growth, which was offset by 0.9% negative currency impact. Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales increased 4.5%, declining from 6.4% increase in the previous quarter.

The sales increase was led by the company’s oncology drugs Imbruvica and Darzalex as well as psoriasis treatment, Stelara.

Worldwide sales of J&J’s oncology drugs rose 9.1% in the quarter to $2.72 billion. Other core products like Stelara, Simponi/Simponi Aria and Invega Sustenna also contributed to growth. However, sales of new immunology medicine, Tremfya, disappointed in the quarter. Moreover, sales of some other key drugs like Xarelto were soft in the quarter. Sales of others like Zytiga, Remicade, Tracleer, Procrit/Eprex declined due to the impact of generic/biosimilar competition.

Darzalex sales rose 42.1% year over year to $830 million in the quarter. Stelara sales rose 17.7% to $1.7 billion in the quarter. Imbruvica sales rose 24.5% to $875 million in the quarter. Please note that J&J markets Imbruvica in partnership with AbbVie, Inc. ABBV. Invega Sustenna sales rose 14.2% to $871 million in the quarter.

Simponi/Simponi Aria sales rose 6.6% to $515 million in the quarter. Newly launched Tremfya recorded sales of $270 million in the quarter compared with $290 million in the third quarter.

Zytiga sales declined 13.8% to $677 million in the quarter. Sales of Invokana/Invokamet declined 22.2% to $177 million. Xarelto sales rose 0.4% in the quarter to $609 million. Sales of Procrit/Eprex declined 17% to $183 million in the quarter. Sales of Remicade were down 16.4% in the quarter to $1.04 billion. Please note that J&J markets Remicade in partnership with Merck MRK.

In the quarter, J&J recorded pulmonary arterial hypertension revenues of $623 million, down 6.7% year over year. Strong demand for Uptravi and Opsumit was offset by a decline in Tracleer sales. We remind investors that Teva Pharmaceutical Industries Limited TEVA launched a generic version of Tracleer in the United States in June 2019.

Medical Devices segment sales came in at $6.63 billion, down 0.5% from the year-ago period, reflecting an operational increase of 0.2% and negative currency movement of 0.7%.

Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales increased 2.7%, less than 5.3% in the previous quarter.

The Consumer segment recorded revenues of $3.57 billion in the reported quarter, up 0.9% year over year. On an operational basis, Consumer segment sales increased 2.1%, partially offset by unfavorable foreign currency movement of 1.2%.

Excluding the impact of acquisitions and divestitures, adjusted operational sales growth was 1.4% worldwide, a slight improvement from 1.3% in the previous quarter.

2019 Results

Full-year 2019 sales rose 0.6% to $82.06 billion, missing the Zacks Consensus Estimate of $82.17 billion. However, sales were within the guided range of $81.8-$82.3 billion

Adjusted earnings for 2019 were $8.68 per share, above the Zacks Consensus Estimate of $8.67 and up 6.1% year over year. Earnings were slightly more than the guided range of $8.62 - $8.67 per share.

2020 Guidance

J&J announced guidance for 2020.

Adjusted earnings per share in 2020 are expected in the range of $8.95 - $9.10. The Zacks Consensus Estimate stands at $9.08 per share. The guidance range indicates growth of 3.1%-4.8%. On an operational, constant currency basis, adjusted earnings per share are expected to grow in the range of 3.7%-5.4%. 

Revenues are expected in the range of $85.4-$86.2 billion, indicating year-over-year growth of 4%-5%. The Zacks Consensus Estimate stands at $85.56 billion. Operational constant currency sales growth is expected to be in the range of 4.5%-5.5%. Adjusted operational sales growth, (excluding currency impact, acquisitions/divestitures) is expected to be in the range of 5% to 6%.

Our Take

J&J fourth-quarter results were mixed as it beat estimates for earnings but missed the same for sales. Its 2020 financial guidance was also quite lukewarm. Shares were down around 1.7% in pre-market trading. The stock has returned 15.9% in the past year compared with an increase of 14.7% recorded by the industry.

 

J&J’s Pharma segment sales continued to be hurt by the impact of biosimilar and generic competition on sales of some key drugs like Remicade, Tracleer and Zytiga.

Meanwhile, J&J also faces a slew of lawsuits, which allege personal injuries to patients caused by the use of its medicines, mainly its talc and opioid products. These lawsuits have resulted in uncertainty lately. Nevertheless, J&J had said in the past that it expects its sales and earnings growth to accelerate in 2020, supported by above-market performance of its Pharmaceuticals unit as well as continued improvement in the Medical Devices segment. It also plans to improve the profitability of its Consumer unit while continuing to optimize its portfolio for competitive growth. J&J is also making rapid progress with its pipeline/line extensions with several pivotal data readouts and regulatory milestones expected in 2020. It gained FDA approval for two new drugs in 2019, Balversa and Spravato

J&J currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Johnson & Johnson Price, Consensus and EPS Surprise

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