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Johnson & Johnson Shares Fall Despite Earnings Beat

- By Sydnee Gatewood

Health care conglomerate Johnson & Johnson (JNJ) reported better-than-expected fourth-quarter and full-year 2017 earnings Tuesday morning, boosted by new drugs and its acquisition of Actelion.

The New Jersey-based company posted adjusted earnings per share of $1.74, beating Thomas Reuters' estimates of $1.72. Quarterly revenue of $20.2 billion beat expectations of $20.1 billion and increased 11.5% from the prior-year quarter.

For the year, the company posted adjusted earnings per share of $7.30 on $76.5 billion in revenue.

Despite the beat, shares fell over 2% on Tuesday morning.

The trend in Johnson & Johnson's revenue growth over the past decade is illustrated in the graph below.


As a result of the recently passed Tax Cuts and Jobs Act, Johnson & Johnson recorded a $13.6 billion charge. This one-time charge resulted in the company reporting a net loss of $10.7 billion, or $3.99 per share, for the quarter. After cutting amortization expenses and special items from the equation, however, adjusted earnings were $4.8 billion, or $1.74 per share.

Despite the impact of the charge, Chairman and CEO Alex Gorsky expressed in a statement that the company has a positive outlook.

"We are pleased with the passage of recent legislation modernizing the U.S. tax system, which enables Johnson & Johnson to invest in innovation at higher levels to help address the most challenging unmet medical needs facing health care today," he said.

Johnson & Johnson's pharmaceutical business recorded $9.7 billion in revenue for the quarter, an increase of 15.5% year over year. The company said results were driven by sales of its new blood cancer treatments, Darzalex and Imbruvica, and Tremfya, which treats plaque psoriasis. Results were slightly offset by Remicade, which recently lost patent protection.

The company also benefited from its acquisition of Swiss biotech company Actelion Ltd., which was completed in June. The company said the unit contributed 4.2% to the pharmaceutical segment's total operational sales growth for the year, which was 8.3%.

The consumer segment posted 0.4% operational growth to $3.5 billion in sales for the quarter. Its medical device unit grew 6.5% to $7 billion.

For fiscal 2018, Johnson & Johnson is expecting revenue between $80.6 billion and $81.4 billion. Earnings for the year are projected to range from $8 to $8.20 per share.

"As we enter 2018 and look beyond, we are experiencing an incredible pace of change in health care," Gorsky said. "Johnson & Johnson is uniquely positioned to lead during this dynamic era and deliver innovative solutions for patients and consumers that drive sustainable, long-term growth."

With a market cap of $389.79 billion, Johnson & Johnson was trading around $145.09 on Tuesday with a price-earnings ratio of 25.19, a price-book ratio of 5.27 and a price-sales ratio of 5.37. GuruFocus estimates the stock gained 21% in 2017. Year to date, it is up approximately 5%.


Disclosure: I do not own any stocks mentioned.

This article first appeared on GuruFocus.