Johnson & Johnson, (JNJ – Free Johnson & Johnson Stock Report) the largest producer of health care products and a member of the Dow 30, reported better-than-expected third-quarter adjusted share earnings of $2.05, about 8% above the year-earlier tally. Sales of $20.05 billion rose 3.6% and were in line with our expectation, but higher than the Wall Street consensus of $20.03 billion. Operating sales increased 5.5%, partially offset by negative currency translations of 1.9%. International sales increased 3.5%, which reflected operational growth of 7.5% and a negative currency impact of 4%. Excluding the effect of divestitures and acquisitions, worldwide operational sales rose 6.1%, as domestic sales increased 3.9% and international sales grew 8.5%. On a GAAP basis, which we use in our presentation, share earnings were $1.44 due to $1.9 billion after-tax intangible amortization expenses, a $700 million non-cash charge attributable to write-downs associated with the Alios BioPharma acquisition, and $500 million after-tax costs related to special items.
The main Pharmaceutical segment (responsible for 51% of revenues), reached $10.3 billion in sales, an increase of 6.7% over the same period in 2017. Operational sales were up a solid 8.2%, but were reduced by 1.5% due to the strong U.S. dollar. The key drivers in this group included ZYTIGA, an oral medication used for treating prostate cancer, IMBRUVICA, a therapy used to fight certain B-cell malignancies, STELARA and SIMPONI, biologics used for the treatment of immune-medicated inflammatory diseases. Also contributing were DARZALEX a medicine used for multiple myelona, as well as INVEGA SUSTENNA (an antipsychotic), OPSUMIT and UPRRAVI (hypertension). In addition, New Drug Applications were submitted to the FDA for esketamine, a rapidly acting antidepressant, as well as supplemental NDAs to broaden the use of several existing drugs, including IMBRUVICA.
Results in the Medical Device segment were much better when the impact of acquisitions and divestitures are taken into account. On a constant-currency basis, worldwide sales rose 2.9%. Growth here was driven by the increased demand for electrophysiology products, ACUVUE contact lenses, and endocutters and biosurgicals in the Advance Surgery business. Softness in the Diabetes Care business offset some of these gains.
The renowned Worldwide Consumer segment posted a solid quarter as demand for over-the-counter products such as TYLENOL, MOTRIN, NEUTRAGENA, and IMODIUM, led to 1.8% top-line gain. Also helping was the recent revamping of the baby-care line. Many of its products were reformulated to reduce the number of ingredients by 50% while eliminating sulfates and dyes. On an operational basis, the performance was much better as domestic sales rose 6.4% and the international side rose 5.9%. This business has been struggling of late as have many companies involved in branded-consumer staples. Whether this means that the Consumer business is turning around, remains to be seen.
Other notable events that occurred during the quarter included the announcement that the sale of LifeScan to Platinum Equity for $2.1 billion was completed. Moreover, in early October, JNJ reached an agreement with Arrowhead Pharmaceuticals to develop its Hepatitis B treatment. JNJ would take a minority share of the company, which could be worth more than $3.5 billion.
Management's guidance was raised slightly for the full year. Expectations are that sales will be in the $81.0 to $81.4 billion range. Adjusted share earnings are now pegged to come in at $8.13 to $8.18, up from $8.07 to $8.17. Moreover, there were no major new developments regarding the status of lawsuits against the company by users of its talcum products. JNJ is appealing a $4.7 billion award granted by a Missouri jury earlier this year.
Wall Street seemed pleased with the earnings report, as JNJ is doing better than the average stock. After lagging the markets for much of the year, the equity has had a nice run over the past three months. Still, we think that conservative investors may want to consider this blue chip as a core holding in their portfolio. In addition, to a stellar balance sheet, JNJ offers a generous yield and well-defined prospects.
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
