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Johnson & Johnson's Legal Troubles Eat Into Earnings

- By Sydnee Gatewood

Health care conglomerate Johnson & Johnson (JNJ) reported better-than-expected first-quarter 2019 results before the opening bell on Tuesday, sending shares higher.

The New Brunswick, New Jersey-based company, which manufactures medical devices, pharmaceutical products and consumer packaged goods, posted adjusted earnings of $2.10 per share, topping Refinitiv's estimates of $2.03. Revenue grew a slim 0.01% from the prior-year quarter to $20.02 billion, but still beat expectations of $19.61 billion.


Despite the beat, Johnson & Johnson's net income declined 14% from a year ago to $3.75 billion as lawsuits regarding its talc baby powder and blood thinner Xarelto ate into earnings.

According to CNBC columnist Angelica LaVito, the company spent $423 million on litigation expenses in the first quarter, adding to the $1.29 billion spent in fourth-quarter 2018. While the company is still defending itself against accusations of its baby powder causing cancer, the bulk of the legal costs were from settling more than 25,000 Xarelto lawsuits. Plaintiffs claimed the blood thinner, which was jointly developed with Bayer AG (BAYN), causes uncontrollable and irreversible bleeding, leading to severe injuries and even death.

Johnson & Johnson's revenue during the quarter was driven by pharmaceutical sales, which grew 4.1% to $10.2 billion on strong performances from anti-inflammatory treatment Stelara, cancer therapy Imbruvica and multiple myeloma drug Darzalex, among others. Sales in its medical devices division, which manufactures products like Acuvue contact lenses, declined 4.6% to $6.46 billion. Sales in the consumer business, which includes over-the-counter drugs like Tylenol, baby products and lotion, fell 2.4% to $3.3 billion.

In a statement, Chairman and CEO Alex Gorsky said the results for the quarter reflect "continued underlying operational sales and adjusted EPS growth."

"At the same time, we remain focused on investing in innovative technologies and platforms that will make a meaningful difference in the lives of patients around the world," he added. "I am proud of our global colleagues' collective efforts to deliver on our long-term goals and our ability to create value for all of our stakeholders."

Looking ahead, Johnson & Johnson expects earnings for the full year to range from $8.53 to $8.63 per share, narrowing its outlook from the previous guidance of $8.50 to $8.65. Revenue is projected to be between $80.4 billion and $81.2 billion.

With a market cap of $372.15 billion, shares of Johnson & Johnson were up 2.37% at $139.76 on Tuesday morning. After retreating 8% in 2018, GuruFocus estimates the stock has gained 8% year to date.


According to the industry overview page, Johnson & Johnson is the largest drug manufacturer with a market weight of 22.8%. Other top players in the space include Pfizer Inc. (PFE), Merck & Co. (MRK), Eli Lilly & Co. (LLY) and AbbVie Inc. (ABBV).

Disclosure: No positions.

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This article first appeared on GuruFocus.