J&J (JNJ) Beats On Q3 Earnings As Sales Rise, Ups 2019 View

Johnson & Johnson’s (NYSE:JNJ) third-quarter 2019 earnings came in at $2.12 per share, which beat the Zacks Consensus Estimate of $2.00 and increased 3.4% from the year-ago period.

Adjusted earnings exclude after-tax intangible amortization expense and some special items. Including these items, J&J reported third-quarter earnings of $1.81 per share, up 25.7% from the year-ago quarter.

Sales of the drug and consumer products giant came in at $20.73 billion, which beat the Zacks Consensus Estimate of $20.08 billion. Sales rose 1.9% from the year-ago quarter, reflecting an operational increase of 3.2%, which offset an unfavorable currency impact of 1.3%.

Organically, excluding the impact of acquisitions and divestitures, sales increased 5.2% on an operational basis, higher than 3.7% increase seen in the previous quarter.

Sales rose in all the three segments on an organic basis. It accelerated in the Medical Device and Pharma units but decelerated in the Consumer unit on a sequential basis mainly due to lower sales of baby care products.

Third-quarter sales rose 1.2% in the domestic market to $10.79 billion and 2.6% in international markets to $9.94 billion. However, international sales reflected 5.4% operational growth, which was offset by 2.8% negative currency impact.

Segment Details

Pharmaceutical segment sales rose 5.1% year over year to $10.88 billion, reflecting 6.4% operational growth which was offset by 1.3% negative currency impact. Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales increased 6.4%, improving from 4.4% 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 6.7% in the quarter to $2.76 billion. Other core products like Stelara, Simponi/Simponi Aria and Invega Sustenna and new immunology medicines like Tremfya also contributed to growth. However, sales of some other key drugs like Xarelto were soft in the quarter. Sales of others like Zytiga, Remicade, Procrit/Eprex declined due to the impact of generic/biosimilar competition.

Darzalex sales rose 53.5% year over year to $765 million in the quarter. Stelara sales rose 29.6% to $1.7 billion in the quarter. Imbruvica sales rose 30.6% to $921 million in the quarter. Please note that J&J markets Imbruvica in partnership with AbbVie, Inc. (NYSE:ABBV) . Invega Sustenna sales rose 13.7% to $851 million in the quarter.

Simponi/Simponi Aria sales rose 9.6% to $586 million in the quarter. Newly launched Tremfya recorded sales of $290 million in the quarter compared with $235 million in the second quarter.

Zytiga sales declined 22.7% to $741 million in the quarter as growth outside the United States was offset by sales decline in the United States due to generic competition.

Sales of Invokana/Invokamet declined 5.8% to $179 million. Xarelto sales were almost flat in the quarter at $613 million. Sales of Procrit/Eprex declined 22.4% to $198 million in the quarter. Sales of Remicade were down 17.6% in the quarter to $1.14 billion. Please note that J&J markets Remicade in partnership with Merck (NYSE:MRK) .

In the quarter, J&J recorded pulmonary arterial hypertension revenues of $654 million, down 0.3% 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 (NYSE:TEVA) launched a generic version of Tracleer in the United States in June.

Medical Devices segment sales came in at $6.38 billion, down 3.1% from the year-ago period, reflecting an operational decrease of 2.0% and negative currency movement of 1.1%.

Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales increased 5.3%, better than 3.2% in the previous quarter.

The Consumer segment recorded revenues of $3.47 billion in the reported quarter, up 1.6% year over year. On an operational basis, Consumer segment sales increased 3.3%, partially offset by unfavorable foreign currency movement of 1.7%.

Excluding the impact of acquisitions and divestitures, adjusted operational sales growth was 1.3% worldwide, a deceleration from 2.3% the previous quarter.

2019 Guidance

J&J raised its full-year earnings and sales view on strong third quarter results.

Adjusted earnings per share in 2019 are expected in the range of $8.62 - $8.67, up from the prior range of $8.53 - $8.63. The guidance range indicates growth of 5.4-6% (previously 4.3-5.5%). On an operational, constant currency basis, adjusted earnings per share are expected to grow in the range of 8.1 - 8.7%, up from the prior expectation of 6.7-7.9%.

Revenues are expected in the range of $81.8-$82.3 billion, up from the previous range of $80.8-$81.6 billion, including currency impact.

Operational constant currency sales growth is expected to be in the range of 2.5%-3%, better than 1%-2% expected previously. Adjusted operational sales growth, (excluding currency impact, acquisitions/divestitures) is expected to be in the range of 4.5% to 5%, higher than 3.2% to 3.7% expected previously.

Our Take

J&J beat third-quarter estimates for both earnings and sales and raised its financial outlook for the year, which pushed its shares up more than 2% in pre-market trading. The stock has returned 1.3% this year so far against a decrease of 0.8% recorded by the industry.

J&J’s Pharma segment recorded a surprising sales increase despite currency headwinds and the impact of biosimilar and generic competition on sales of some key drugs like Remicade and Zytiga.

In 2019, J&J is witnessing significant generic/biosimilar headwinds in the Pharma unit. However, the company expects its sales and earnings growth to accelerate in 2020, supported by contribution from new drugs like Tremfya, Erleada and Spravato and successful label expansion of cancer drugs like Imbruvica and Darzalex and immunology drug, Stelara. J&J is also making rapid progress with its pipeline and line extensions.

However, J&J faces a slew of lawsuits, which allege personal injuries to patients caused by the use of its medicines, mainly its talc and opioid products. J&J faces more than 15,000 lawsuits for its talc-based products, primarily its baby powders. The lawsuits allege that its talc products contain asbestos, which caused many women to develop ovarian cancer. It also faces thousands of other lawsuits related to abuse of its opioid-based drugs. These lawsuits claim that J&J is one of the several companies whose opioid-based drugs were responsible for fueling the state’s opioid epidemic. Earlier this month, J&J settled with two counties of Ohio for $10 million plus other cost reimbursements, in connection with the multi-district opioid case in Ohio

J&J also faces more than 13,000 lawsuits alleging that use of its antipsychotic drug, Risperdal causes enlargement of breast tissues in boys. Last week, a Philadelphia jury ordered J&J to pay punitive damages of $8 billion to a man who claimed that the use of Risperdal caused him to develop gynecomastia (enlarged breasts).

These lawsuits have raised uncertainty about the company. A group of analysts, however, believe J&J is strong enough to handle the legal issues.

J&J currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.