Johnson & Johnson (JNJ), the world's largest maker of health care products and a Dow-30 member, reported first-quarter GAAP share earnings of $1.61, versus last year's $1.54, and our estimate of $1.68. On an adjusted basis, which excludes intangible amortization costs and other charges that the company considers to be special items, share net was $1.83, compared to the prior year's similar figure of $1.73. Revenues came in below expectations, however. The top line only advanced 1.6% over 2016's March period number of $17.8 billion, $200 million short of our estimate, which was close to the consensus. Operational sales rose 2.0%, but were knocked back 0.4% due to currency translations. Excluding the net impact of acquisitions and divestitures, the picture is less favorable, as worldwide sales increased 1.2%, and domestic sales actually decreased 0.7% while international sales were a solid 3.4% higher.
Management has decided to start including the $30 billion acquisition of the Switzerland-based Actelion biopharmaceutical company into its 2017 earnings and sales forecasts, even though the merger has yet to be finalized. Based upon the number of shares tendered, this part of the transaction has been declared successful, and regulatory approval has already been granted in six of the seven jurisdictions where it filed for permission. Only an antitrust clearance from the European Commission is required. The transaction is expected to close in the second quarter of 2017, subject to the satisfaction of the remaining closing conditions. This purchase should provide JNJ access to higher-margined offerings that treat rare diseases and widen its portfolio of leading medicines and late-stage drugs. Moreover, Actelion's hefty price tag will not have a meaningful impact on the company's very strong finances. In any case, the new guidance for 2017 is for sales of $75.4 billion to $76.1 billion, and adjusted share earnings of $7.00 to $7.15. This replaces the previous forecast of sales and earnings per share of $74.1 billion to $74.8 billion, and $6.93 to $7.00, respectively.
The Pharmaceutical segment, which accounted for more than 46% of first-quarter sales, turned in a mixed performance. Domestically, sales fell 1.3%, while internationally they climbed a healthy 5.6% before currency adjustments. On an operational basis, worldwide sales rose 2.2%, domestic sales decreased 0.4%, and foreign sales were up 6.1%. DARZALEX, which is used in the treatment of multiple myeloma, and IMBRUVICA, an oral therapy used in fighting B-cell malignancies, experienced solid growth during the three-month term. It is noteworthy that management made no commentary regarding its Hepatitis C medications, which have been experiencing a dramatic plunge in demand.
The Worldwide Medical Devices business appeared to have had a good quarter, as sales in the U.S. and internationally rose 2.2% and 4.7%, respectively. On an apples-to-apples basis, domestic sales decreased 0.2%, while international sales rose 3.7%. Positive results were driven by strong demand for electrophysiology products in the Cardiovascular sector; ACUVUE contact lenses in the Vision Care subsidiaries; and endocutters in the Advance Surgery business. Declines in the Diabetes Care unit offset some of these gains. As we discussed in a previous report, JNJ has stated that it was reviewing alternate strategies for this business and we believe it will eventually be jettisoned.
The company's vaulted Consumer business, which includes a few of the most iconic brands in the world, once again showed signs of struggling. On an operational basis, worldwide sales declined 2.3%, with domestic and international sales falling 2.3% and 1.9%, respectively. Less-than-expected demand for products related to oral care (LISTERINE), baby care, and wound care, were the main reason for the subpar showing.
The market was obviously not enthused by JNJ's earnings release as the stock has sold off by about 4% since the release. Some shareholders were undoubtedly taking profits, as the equity had been on a good run relative to the market indices of late. Still, despite management raising the adjusted-earnings outlook for 2017, there was enough bad news spread among JNJ's operations to give Wall Street concern going forward. Though JNJ continues to remain among the bluest of the blue chip stocks based on its impressive balance sheet and numerous other financial metrics, we think that some conservative investors might want to see a better performance in several of the company's key business segments before making new commitments here.
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).
