Dow-30 member and healthcare conglomerate Johnson & Johnson (JNJ - Free Johnson and Johnson Stock Report) has reported better-than-expected second-quarter financial results today. However, Wall Street was unimpressed and bid the stock lower in intra-day trading. We think that the pullback is tied to the investment community's concerns regarding ongoing lawsuits regarding JNJ's talc baby powder. Increased industry probes into the country's opioid epidemic may be in the back of the minds of some, too.
The company posted GAAP earnings of $2.08 a share, 43% above the year-earlier figure and well ahead of our $1.71 estimate. While the top line was down 1.3% on a year-over-year basis, sales exceeded expectations as we, along with most in the investment community, were anticipating an even steeper decline. The sales beat was largely due to a stronger-than-expected performance from the Pharmaceutical business, which reported a 1.7% advance (4.4% on a constant currency basis and excluding the effects of M&A activity and divestitures). Pharmaceuticals are the company's main point of interest from a sales perspective at this time, accounting for over half of Johnson & Johnson's top line.
There were a few standouts that helped drive the momentum in the Pharmaceutical division according to management, including DARZALEX (for the treatment of myeloma), STELERA (inflammatory disease), and IMBRUVICA (B-cell malignancies).
The Consumer business (17% of sales) also had some success during the quarter, with sales advancing 1.2%. In contrast, Medical Devices (32%) did not fare as well, posting a nearly 7% sales decline.
Meantime, the company did a good job controlling costs, especially on the sales, marketing, and administrative side of things and was able to grow the operating margin. Below-the-line items, including share repurchases, also helped, further padding per-share figures in the quarter.
Following the June-quarter beat, leadership upped its operational sales guidance, but left intact its EPS expectation. As such, we are holding steadfast with our 2019 earnings estimate of $6.80 a share, despite raising our top-line forecast a bit, to $81.0 billion.
We continue to think that JNJ stock holds long-term investment appeal, especially on a risk-adjusted basis. The above-average, and well-covered yield, along with the company's solid finances, adds to our optimistic outlook. Finally, even with the aforementioned legal questions that are likely to remain an overhang, this stock is for most investor groups.
About The Company: Johnson and 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).
– Andre J. Costanza
