Johnson & Johnson (JNJ - Free Johnson & Johnson Stock Report), the world's largest producer of health care products and a member of the Dow 30, reported a fourth-quarter GAAP share loss of $3.99. Most of the deficit was attributable to a one-time $13.6 billion charge related to the new tax law. On an adjusted basis, which excludes the large write off as well as amortization costs and other special items, share earnings came in at $1.74, a few cents higher than Wall Street's consensus estimate and well above last year's $1.58 figure. Revenues rose 11.6%, to $20.2 billion, compared with $18.1 billion in the final stanza of 2016. A good percentage of the top-line gain was due to last year's $30 billion acquisition of Actelion.
Turning in a solid performance was the company's key Pharmaceutical sector. Worldwide sales of $36.6 billion for the full-year 2017 represented an 8.3% increase versus the prior-year figure. Domestic sales increased 6.7%, while international sales rose 10.8%, which reflected an operational increase of 10.1% and a positive currency impact of 0.7%. Excluding the net impact of acquisitions and divestitures, worldwide sales increased a solid 4.2%. (Domestic sales were up 3.1% and international rose 5.8%.) Strong demand for new products included the oncology drug IMBRUVICA (+35.7% in the fourth quarter) and TREMFYA, which is used to treat adults living with moderate to severe plaque psoriasis. Additional drugs that contributed to the better-than-expected showing were STELARA, INVEGA, SUSTENNA, XEPLION, and TRINZA, all of which are injectable anti- psychotics used for the treatment of schizophrenia. Also chipping in was XARELTO, a medication used by men suffering from prostate-cancer. Partially offsetting this good news was a continued decline in demand for REMICADE, an agent used in immune-mediated inflammatory diseases, due to the entrance of biosimilars into the market place.
During the quarter, the FDA approved JULUCA (rilpivirine and dolutegravir), the first complete, single-pill regimen for the treatment of HIV-1; XARELTO, used for reducing the risk of venous thromboembolism; and SIMPONI ARIA, a medicine that treats people with psoriatic arthritis.
Responsible for more than a third of total revenues, the Medical Devices segment also turned in decent results in the quarter, as operational growth was 6.5% on a year-over year basis. Cardiovascular (+15.7%), Advanced Surgery (+10.8%), and Vision Care (+53.8%) provided the biggest boosts to revenues. Offsetting these positives were the performance of Diabetes Care (-18.7%) and Orthopedics, especially Spine & Other (-9.7%).
J&J's vaunted Consumer sector continued to struggle. Home to some of the most iconic brand names in the world (TYLENOL, NEUTRAGENA, JNJ's Baby Shampoo, etc.), operational growth was up 0.4% in the December period. Of the six divisions, four experienced sales declines, including Baby Care (-2.4%), Oral Care (-3.3%), and Women's Health (-4.4%). As we have mentioned in the past, we still are not sure if the softness here represents a secular shift in consumers' tastes away from higher-priced brand names to cheaper in-house store brands.
Management also announced 2018 full-year guidance for sales of $80.6 billion to $81.4 billion, reflecting operational growth of about 4%. This should translate into adjusted share earnings of $8.00 to $8.20. Despite the stock's recent run up, we think that conservative investors may want to consider JNJ as a core holding. It appears that about $16 billion domiciled abroad will be repatriated to the U.S. as a result of the new tax law. These funds could then be used to reduce debt, repurchase shares, or increase the dividend. In addition to its excellent financial condition, this stock has an attractive dividend yield, and JNJ's earnings prospects are well defined. The drug pipeline also appears promising.
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).
— James Flood
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
