Johnson & Johnson (JNJ - Free J&J Stock Report), the world's largest maker of health care products and a Dow-30 member, reported fourth-quarter GAAP share earnings of $1.38, versus last year's $1.15, and our estimate of $1.45. On an adjusted basis, which excludes hepatitis C drugs (we include this business because it is not classified as a discontinued operation) and other charges that the company's considers one-time expenses, such as write-downs in Venezuela and amortization, share earnings were $1.58, versus 2015's $1.44. For the full year, GAAP earnings per share totaled $5.93, well above last year's $5.48-a-share tally, which was depressed due to several unusual expenses. Revenues came in at $18.1 billion for the December period, 1.7% above 2015's figure, but $200 million short of expectations. Shares of JNJ have sold off since the report's release we suspect mostly due to management's less-than-expected guidance for 2017. Indeed, Wall Street estimates were for adjusted earnings per share of around $7.10 on revenues of $75.1 billion. The company indicated that next year's share earnings would be in the $6.93 to $7.08 range on sales of $74.1 billion to $74.8 billion. Johnson & Johnson also announced that it was evaluating alternative strategies for its Diabetes Care Companies, specifically LifeScan, Calibra Medical, and the Animas Corporation. We would not be surprised to see these operations sold off if anywhere near worthwhile bids were tendered.
The Pharmaceutical segment, which accounted for about 45% of Johnson & Johnson's fourth-quarter sales, turned in a decent performance as the top line rose 1.9% domestically and 2.4% in the international arena. Excluding the impact of currency translations this number increased to 3.7%. For the full year, the drug sector performed much better, as domestic sales grew a robust 9.8%, while international sales rose 1.8% (4.0% on an operational basis). Solid demand help drive sales for IMBRUVICA, an oral once-daily therapy for treating certain B-cell malignancies; DARZALEX, used in the treatment of patients with multiple myeloma; XARELTO, an anticoagulant; and INVOKANA, which is used by adults with type 2 diabetes. Drugs which saw sales decline were REMICADE, a biologic approved for the treatment for inflammatory diseases and the Hepatitis C drugs OLYSIO/SOVRAID. Due to competition from new entrants, sales continue to plummet (down 77% year-over-year in the December period) for these treatments and we would expect Johnson & Johnson to eventually exit the Hepatitis market.
In the fourth quarter, the Worldwide Consumer segment experienced strong 12.7% growth in the U.S., but had flat foreign sales that were down 2.1% after currency adjustments are factored in. The company claims iconic brands such as TYLENOL, AVEENO, and NEUTROGENA continued to sell well. In Johnson & Johnson's other main business, Medical Devices, revenues were basically flat. Impressive showings by the vision care (contact lenses) and cardiovascular devices businesses were offset by weakness in the Diabetes Care and certain Orthopaedics operations.
Over the past six months, shares of Johnson & Johnson have declined by more than 10%, compared to an almost 5% gain by the S&P 500 Index. Much of this can be attributed to the stock market's fears regarding increased government intervention in the pricing of pharmaceuticals. While some of this concern is justified, we think investors can now acquire JNJ at a relatively attractive price. Conservative accounts should note that in addition to carrying Value Line's Highest rank for Safety (1), and a low Beta coefficient, Johnson and Johnson is one of only two companies in the corporate bond universe that have a AAA rating. The 3.2% dividend yield is another plus.
About The Company:Johnson & Johnson manufactures and sells health care products. Its major lines consist of numerous household products. The company operates in a diverse number of segments, including Consumer (baby care, nonprescription drugs, sanitary protection, and skin care), Medical Device & Diagnostics (wound closures, minimally invasive surgical instruments, diagnostics, orthopedics, and contact lenses), and Pharmaceutical (contraceptives, psychiatric, anti-infective, and dermatological drugs).
