Johnson & Johnson (JNJ – Free J&J Stock Report), the largest producer of health care products and a member of the Dow 30, reported fourth-quarter adjusted share earnings of $1.97, 13% higher than the year-ago figure. Total sales of $20.4 billion rose only 1%. Operating sales, however, increased 3.3%, mostly offset by a 2.3% negative impact of currency translations. Domestic and international sales increased 1.5% and 0.4%, respectively, reflecting operational growth of 5.1%, and a negative currency impact of 4.7%. Excluding the effect of divestitures and acquisitions, worldwide sales rose 5.3%, domestic sales increased 2.6% and international sales grew 8.3%. On a GAAP basis, which we use in our presentation, (with the exception of 2017), share earnings were only $1.12 due to an after-tax intangible amortization expense and an after-tax net charge for unusual items of about $1.4 billion.
The main Pharmaceutical segment's top line performed well even after deducting extra sales contributed from new businesses. On an operational basis, worldwide sales rose a healthy 8.4% (domestic +4.9%, international +13.5%). The strong numbers were driven by such drugs as STELARA and SIMPONI (immune-mediated inflammatory diseases), ZYTIGA (prostate cancer), and IMBRUVICA (blood and lymph node cancer). Gains here were partially offset by declines in demand for REMICADE (inflammatory-related diseases), which was hurt by the entry of biosimilars in the marketplace. In addition, several petitions were submitted to regulatory authorities in America and Europe to broaden the use of XARELTO (blood clots) and IMBRUVICA. This segment is now responsible for 50% of J&J's total business.
Results in the Medical Device sector were better once the effect of the Lifescan divestiture is taken into account, as worldwide sales rose 2.6%. The top performers in this area were electrophysiology products in the Intervention Solutions business; ACUVUE contact lenses in the Vision division; wound closure products in General Surgery; along with endocutters and biosurgical in Advanced Surgery.
Operational sales in the Consumer segment rose a decent 3.2% worldwide. Over-the-counter (OTC) products such as TYLENOL, MOTRIN, NEUTROGENA, and LISTERINE continued to perform well.
Management's guidance for 2019 calls for sales to be $80.4 billion to $81.2 billion reflecting operational growth of 0.0% to 1.0% and adjusted operational growth of 2% to 3%. As for adjusted share earnings, the company is expecting them to be in the range of $8.50 to $8.65 due to operational growth of 5.7% to 7.6%. (This forecast doesn't include the negative impact of the amortization of intangibles and special items.)
Investors did not have a major reaction to the earnings release as the fall in J&J's stock price has been on par with the decline in the Dow 30. Since JNJ fell 10% in one day as a result of the Reuters news service December report regarding talc, the equity has performed in line with the broader market averages. J&J executives have strongly disputed this report that stated its talc contained asbestos and that this was known to management at the time. The company is taking an aggressive stance making available an ample number of independent studies supporting its position. However, predicting how juries will react to individual cases, no matter what the evidence, remains problematic. What's an investor to do? Previously seen as one of the bluest of all the blue chip stocks, the pending talc-related litigation will probably remain an overhang on the company for quite some time. Therefore, though we still like the company's prospects, they are now not as well defined, and very conservative accounts may not sleep well at night owning JNJ. In any case, accounts willing to live with possible sell offs on talc-related jury awards, could do well holding this premium equity. In the past, the company has managed to get jury verdicts for large amounts greatly reduced or eliminated on appeal.
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
