Healthcare products outfit and Dow-30 member Johnson & Johnson (JNJ - Free Johnson & Johnson Stock Report) reported third-quarter financial results today, and they were better than expected. Meantime, management raised its top-and bottom-line guidance. That said, the stock has only nudged slightly higher in early morning trading as litigation fears continue to repress investor enthusiasm.
As for the September period, earnings tallied $1.81 a share, a near-26% year-over-year advance and similarly ahead of our estimate, despite a 300-plus basis point uptick in the tax rate. Meantime, the top line increased 1.9% over the year-earlier mark, despite a significant currency translation headwind. We, along with most on Wall Street, were looking for a 1% sales decline. Despite the modest sales beat, the bottom-line outperformance was primarily driven by better cost management, as operating expenses were down considerably from the prior-year level, giving way to a nice margin improvement.
The Pharmaceuticals business continued to be the company's best performer, reporting a 5.1% sales increase, following a 1.3% hit from foreign currency translation. On an operational basis, sales there improved 6.4%, up from the 4.4% advance logged in the like-2018 quarter, with oncology drugs leading the charge. Psoriasis treatment Stelera was another standout performer, boasting a near-30% jump in sales.
Management upped its expectations for the full year. It now looks for share-earnings growth of between 5.4% and 6.0%, up from its 4.3%-5.5% assumption. Too, the top-line growth forecast now stands at 0.2%-0.7%, up from its earlier call for sales to be flat to down 1%. Although we look for earnings growth to remain healthy in the fourth-quarter, the revisions appear to be more a result of the most recent outperformances. Still, margin improvement and the likelihood of ongoing share repurchases should result in a solid bottom-line growth in the coming quarter and next year.
Despite the aforementioned good news, investors seemed fairly unphased, and the stock only traded about 2% higher in today's early session. The company has continued to receive unfavorable news on the legal front in recent weeks, and we think that the investment community remains concerned. Most recently, a Pennsylvania jury ruled that JNJ was to pay a man claiming that one of its drugs had adverse side effects $8 billion. While the damages are likely to be scaled back considerably on appeal, the company's legal slate is full, with claims against its opioid and talc products firmly in the spotlight. Management has acknowledged the uncertainties surrounding future claims, but we think that costs will be considerable.
These shares hold decent total-return potential out to early next decade, but prospects are highly speculative, given the uncertain legal issues that remain. JNJ has robust finances, but only the most aggressive of investors will want to consider this stock until there is more clarity on the situation.
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).
– Andre J. Costanza
