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Why Is Johnson & Johnson (JNJ) Down 1.8% Since Last Earnings Report?

·9 min read

A month has gone by since the last earnings report for Johnson & Johnson (JNJ). Shares have lost about 1.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Johnson & Johnson due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Q2 Earnings & Sales Beat Estimates, Guidance Lowered

J&J’s second-quarter 2022 earnings came in at $2.59 per share, which beat the Zacks Consensus Estimate of $2.57. Earnings increased 4.4% from the year-ago period.

Adjusted earnings exclude intangible amortization and some other special items. Including these items, J&J reported second-quarter earnings of $1.80 per share, down 23.4% from the year-ago quarter.

Sales came in at $24.02 billion, which marginally beat the Zacks Consensus Estimate of $23.91 billion. Sales rose 3% from the year-ago quarter, reflecting an operational increase of 8% and a negative currency impact of 5%.

Organically, excluding the impact of acquisitions and divestitures, sales rose 8.1% on an operational basis compared with a 7.9% increase seen in the previous quarter.

Second-quarter sales in the domestic market rose 2.3% to $12.2 billion. International sales rose 3.8% on a reported basis to $11.8 billion, reflecting an operational increase of 13.9% and a negative currency impact of 10.1%. Excluding the impact of all acquisitions and divestitures, on an adjusted operational basis, international sales rose 14.2% in the quarter.

Overall sales in the MedTech and Consumer segment in the second quarter were hurt by difficult comparison to a strong sales performance in the year-ago quarter. The second quarter of 2021 was last year’s strongest quarter.

Segment Details

Pharmaceutical segment sales rose 6.7% year over year to $13.3 billion, reflecting 12.3% operational growth and 5.6% negative currency impact. Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales rose 12.4%.

Sales in the domestic market rose 4.2% to $7.2 billion. International sales rose 9.8% to $6.2 billion (operational increase of 22.1%).

The year-over-year sales increase was led by higher penetration and new indications across key products, such as Darzalex and Stelara. Other core products like Invega Sustenna and relatively newer drugs, Erleada and Tremfya contributed significantly to sales growth. Also, contributing to growth was sales of J&J’s single-dose COVID-19 vaccine. The sales growth was, however, dampened by lower sales of key medicine, Imbruvica and generic/biosimilar competition to drugs like Zytiga and Remicade.

Darzalex sales rose 38.6% year over year to $1.99 billion in the quarter, driven by share gains across all lines of therapy.

Stelara sales grew 14.3% to $2.6 billion in the quarter, driven by strong share gains in Crohn's disease and ulcerative colitis. The sales growth benefited from favorable discounts, partially offset by unfavorable prior period adjustments.

Imbruvica sales declined 13.1% to $970 million due to increased competitive pressure in the United States from novel oral agents.
 
PAH revenues of $843 million declined 3.1% year over year. Invega Sustenna/Xeplion/Invega Trinza/Trevicta sales rose 2.9% to $1.05 billion in the quarter. Simponi/Simponi Aria sales declined 3% to $566 million while Prezista sales decreased 7.9% to $464 million.  

Xarelto sales rose 7.1% in the quarter to $609 million. Sales of Invokana/Invokamet declined 24.9% to $120 million.

Among the newer medicines, Erleada generated sales of $450 million in the quarter, up 49.5% year over year. Tremfya recorded sales of $597 million in the quarter, up 24.4% year over year due to growth in psoriasis and psoriatic arthritis indications.

Zytiga sales declined 10.3% to $505 million in the quarter due to generic competition. Sales of Remicade were down 27.2% in the quarter to $647 million.

Regarding its newly approved medicine, Carvykti, J&J said it recorded the drug’s first sales in the United States in the second quarter.

Its COVID-19 vaccine sales improved in the second quarter after a lower-than-expected contribution in the first quarter. The vaccine generated sales of $544 million in the second quarter compared with $457 million in the first quarter. International sales accounted for most of the COVID-19 vaccine sales. In April, J&J suspended the previously issued sales guidance for its COVID-19 vaccine due to global surplus supply and demand uncertainty.

Excluding COVID-19 vaccine, sales in the Pharmaceutical segment rose 3.7%, as an operational increase of 8.6% was offset by a negative currency movement of 4.9%.

J&J continues to expect its Pharmaceutical business to deliver market-leading adjusted operational sales growth in 2022 with sales modestly accelerating through the end of the year.

The MedTech segment sales came in at $6.9 billion, down 1.1% from the year-ago period, as an operational increase of 3.4% was offset by a negative currency movement of 4.5%.
 
Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales rose 3.4%.

Sales in the MedTech segment continued to improve driven by a recovery in surgical procedures, better commercial execution and new product launches. However, sales were partly hurt by COVID-related restrictions in countries like China and labor and supply constraints. Also, stronger-than-anticipated foreign currency headwinds hurt international sales in the MedTech segment.

Interventional Solutions grew 0.3% driven by electrophysiology products. In Surgery, Advanced Surgery declined 1% worldwide. General Surgery declined 4.5% worldwide. Worldwide orthopedics declined 3.5%. Worldwide Vision grew 4.9%, driven by the strong performance of contact lenses and surgical vision products.

Domestic market sales rose 1.6% year over year to $3.35 billion. International market sales declined 3.6% year over year to $3.55 billion, which included an operational increase of 5.1% and a negative currency impact of 8.7%.

In the Medical Devices segment, J&J expects second-half sales to be stronger than the first half, driven by continued recovery in worldwide procedure volumes, better execution and uptake from recently launched products. The fourth quarter is expected to be stronger than the third.

The Consumer segment recorded revenues of $3.81 billion in the reported quarter, down 1.3% year over year, reflecting a 2.3% operational increase and a 3.6% negative currency impact.

Excluding the impact of acquisitions and divestitures, adjusted operational sales rose 2.9% worldwide

The sales growth was driven by strategic price increases; growth in international OTC due to a strong cold, cough and flu season and digestive health category recovery. This growth was partially offset by a weaker allergy season and supply constraints in the United States (due to raw material availability and labor shortages). Meanwhile, COVID-19 related restrictions hurt sales in some countries in the Skin Health/Beauty segment.

Sales in the domestic market declined 3.6% from the year-ago period to $1.69 billion. The international segment rose 0.6% to $2.12 billion, which included an operational increase of 7.3% and a negative currency impact of 6.7%.

J&J is instituting price increases across its Consumer Health portfolio, implementing cost improvement initiatives and negotiating contract terms with external supply partners to mitigate the impact of inflationary pressure.

In the Consumer segment, J&J expects continued above-market growth in the over-the-counter medicines business, while overcoming industry-wide supply constraints and inflationary pressure that are primarily hurting the Skin Health business. However, the supply disruptions reduced in the second quarter from the first-quarter levels and management expects this to continue. This coupled with strategic price increases should benefit second-half results.

On the second-quarter conference call, management said that it will announce the new company name and headquarters location later in 2022.

2022 Outlook

J&J lowered its earnings and sales expectations for 2022 mainly due to greater-than-expected currency headwinds. J&J expects currency changes to hurt reported sales by $4.0 billion and adjusted earnings per share by 65 cents, much higher than $2.5 billion and 45 cents guided previously.

J&J expects to generate revenues in the range of $93.3 billion to $94.3 billion, lower than $94.8 billion to $95.8 billion guided previously. This guidance excludes any revenues from J&J’s COVID-19 vaccine. Revenue growth is expected in the range of 2.1% – 3.1%, lower than 3.8% – 4.8% expected previously.

Excluding the COVID-19 vaccine, operational constant-currency sales are expected to increase in the range of 6.5%-7.5%, the same as previous expectations.

The adjusted operational sales (excluding currency impact, acquisitions/divestitures) growth guidance is the same as the operational constant-currency sales discussed above.

The adjusted earnings per share guidance was lowered from a range of $10.15-$10.35 per share to $10.00-$10.10.

The earnings range indicates an increase of 2.1%-3.1%, lower than 3.6%-5.6% expected previously. On an operational, constant-currency basis, adjusted earnings per share are expected to increase 8.7% – 9.7% versus the prior expectation of 8.2%-10.2%.

Operating margins are expected be flat in 2022 versus 2021 due to the impact of inflationary pressure.

J&J expects supply constraints, inflationary pressure and rising input costs to continue to hurt margins in the second half of 2022 as well as in 2023.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Johnson & Johnson has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Johnson & Johnson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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