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Johnson & Johnson (JNJ) Up 6% Since Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Johnson & Johnson (JNJ - Free Report) . Shares have added about 5.6% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
J&J Beats on Fourth Quarter Earnings, Sales Miss
Johnson & Johnson’s fourth-quarter 2016 earnings came in at $1.58 per share, beating the Zacks Consensus Estimate of $1.56 and increasing 9.7% from the year-ago period.
Including one-time items, J&J reported fourth-quarter earnings of $1.38 per share, up 20% from the year-ago period.
Sales came in at $18.11 billion, slightly missing the Zacks Consensus Estimate of $18.12 billion. Sales increased 1.7% from the year-ago quarter, reflecting an operational increase of 2.3% and a negative currency impact of 0.6%. However, a lower number of shipping days in the quarter hurt sales by 480 basis points (bps).
Fourth-quarter sales grew 2.6% in the domestic market to $9.54 billion and 0.6% in international markets to $8.57 billion, reflecting 1.9% operational growth, partially offset by a 1.3% negative currency impact.
Segment Details
Pharmaceuticals segment sales grew 2.1% year over year to $8.2 billion, reflecting 2.6% operational growth and a 0.5% negative currency impact.
Sales in the domestic market increased 1.9% to $5 billion, while international sales grew 2.4% to $3.23 billion.
New products like Imbruvica, Xarelto and Darzalex continued to perform well. Other growth drivers were Stelara, Invega Sustenna and Simponi.
Imbruvica gained seven points of market share in the U.S. across all lines of therapy, while outside U.S., the drug saw strong penetration in the G5 countries. Stelara also gained market share in the quarter backed by approval for the expanded indication of Crohn's disease in the U.S. and the EU. Xarelto was driven by continued total prescription market share gains.
However, the hepatitis C virus (HCV) treatment Olysio continued to feel the impact of additional competition with sales declining 77.3% from the year-ago quarter. Invega sales declined 50.4% due to generic competition. Invokana/Invokamet sales declined 0.3% due to a decline in U.S. market share while Zytiga sales fell 10.7%.
Sales of Remicade declined 3.3% in the quarter with U.S. sales declining 1.7%. While biosimilar competition continued to hurt Remicade sales outside U.S., management said that Pfizer’s at-risk biosimilar launch of Inflectra did not have any significant impact to date. J&J intends to defend Remicade patents while remaining competitive against at-risk biosimilar launches.
J&J’s Pharma segment also achieved some clinical milestones during the quarter including label expansion for products like Stelara and Darzalex
Medical Devices segment sales came in at $6.44 billion, up 0.2% from the year-ago period comprising operational growth of 0.6% and negative currency movement of 0.4%.
Sales in the domestic market declined 0.1% year over year to $3.15 billion. International market sales inched up 0.6% year over year to $3.29 billion.
Operational growth was driven by the priority platforms, which include Electrophysiology, Endocutters, Energy, Knees and Trauma.
The company is working on boosting the Medical Devices segment through new product launches and by transforming its commercial models.
J&J announced that it is evaluating “potential strategic options” for its Consumer and Medical Device, diabetes franchise including LifeScan, Inc., Animas Corporation, and Calibra Medical, Inc. It may form strategic partnerships and joint ventures or sell these businesses either separately or together.
The Consumer segment recorded revenues of $3.43 billion in the reported quarter, up 3.4% (up 4.9% on an operational basis) from the fourth quarter of 2015. Foreign currency movement negatively impacted sales in the segment by 1.5%. Sales in the domestic market grew 12.7% from the year-ago period to $1.39 billion.
Meanwhile, the international segment recorded a decline of 2.1% to $2.05 billion, reflecting an operational increase of 0.2% and a negative currency impact of 2.3%.
The Consumer segment sales improved sequentially on the back of global Beauty and OTC products. Management said some products saw strong consumption trends despite the global consumer category slowdown.
2016 Results
Full-year 2016 sales rose 2.6% to $71.89 billion, falling slightly short of the Zacks Consensus Estimate of $71.92 billion. Sales were also within the guidance range of $71.5 billion−$72.2.
Adjusted earnings for 2016 were $6.73 per share, above the Zacks Consensus Estimate of $6.71 and up 8.5% year over year. Earnings were in line with the guidance range of $6.68–$6.73 per share.
2017 Guidance
J&J expects adjusted earnings per share in the range of $6.93 to $7.08 in 2017, including currency impact. The earnings guidance reflects expected operational growth in the range of 4.8% to 7.0%.
The revenue guidance is in the range of $74.1 billion to $74.8 billion, reflecting operational growth in the range of 4.0% to 5.0%. Organic sales growth, excluding the impact of acquisitions and divestitures, is expected to be in the range of 3%-3.5% which is a sharp deceleration from 7.4% in 2016.
Currency fluctuations are expected to impact revenues by about 1% and earnings by $0.12 per share.
The guidance includes the impact of the Abbott Medical Optics acquisition as well as Remicade biosimilar. However, the company does not expect any biosimilar entrants for Procrit in the U.S. or generic competition for Zytiga, Risperdal Consta, or Invega Sustenna in 2017.
Management mentioned that the Pharma segment will see sluggish growth in 2017 than 2016 as a number of key growth drivers like Remicade and Concerta have slowed down and are facing competition. However, it expects growth to accelerate in both the Medical Devices and Consumer segments in 2017.
The company expects to maintain or slightly raise its adjusted pre-tax operating margins in 2017. Adjusted tax rate is expected to be approximately 19% to 20%.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to one lower.
At this time, Johnson & Johnson's stock has a subpar Growth Score of 'D', though it is lagging a bit on the momentum front with an 'F'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value based on our styles scores.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Johnson & Johnson (JNJ) Up 6% Since Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Johnson & Johnson (JNJ - Free Report) . Shares have added about 5.6% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
J&J Beats on Fourth Quarter Earnings, Sales Miss
Johnson & Johnson’s fourth-quarter 2016 earnings came in at $1.58 per share, beating the Zacks Consensus Estimate of $1.56 and increasing 9.7% from the year-ago period.
Including one-time items, J&J reported fourth-quarter earnings of $1.38 per share, up 20% from the year-ago period.
Sales came in at $18.11 billion, slightly missing the Zacks Consensus Estimate of $18.12 billion. Sales increased 1.7% from the year-ago quarter, reflecting an operational increase of 2.3% and a negative currency impact of 0.6%. However, a lower number of shipping days in the quarter hurt sales by 480 basis points (bps).
Fourth-quarter sales grew 2.6% in the domestic market to $9.54 billion and 0.6% in international markets to $8.57 billion, reflecting 1.9% operational growth, partially offset by a 1.3% negative currency impact.
Segment Details
Pharmaceuticals segment sales grew 2.1% year over year to $8.2 billion, reflecting 2.6% operational growth and a 0.5% negative currency impact.
Sales in the domestic market increased 1.9% to $5 billion, while international sales grew 2.4% to $3.23 billion.
New products like Imbruvica, Xarelto and Darzalex continued to perform well. Other growth drivers were Stelara, Invega Sustenna and Simponi.
Imbruvica gained seven points of market share in the U.S. across all lines of therapy, while outside U.S., the drug saw strong penetration in the G5 countries. Stelara also gained market share in the quarter backed by approval for the expanded indication of Crohn's disease in the U.S. and the EU. Xarelto was driven by continued total prescription market share gains.
However, the hepatitis C virus (HCV) treatment Olysio continued to feel the impact of additional competition with sales declining 77.3% from the year-ago quarter. Invega sales declined 50.4% due to generic competition. Invokana/Invokamet sales declined 0.3% due to a decline in U.S. market share while Zytiga sales fell 10.7%.
Sales of Remicade declined 3.3% in the quarter with U.S. sales declining 1.7%. While biosimilar competition continued to hurt Remicade sales outside U.S., management said that Pfizer’s at-risk biosimilar launch of Inflectra did not have any significant impact to date. J&J intends to defend Remicade patents while remaining competitive against at-risk biosimilar launches.
J&J’s Pharma segment also achieved some clinical milestones during the quarter including label expansion for products like Stelara and Darzalex
Medical Devices segment sales came in at $6.44 billion, up 0.2% from the year-ago period comprising operational growth of 0.6% and negative currency movement of 0.4%.
Sales in the domestic market declined 0.1% year over year to $3.15 billion. International market sales inched up 0.6% year over year to $3.29 billion.
Operational growth was driven by the priority platforms, which include Electrophysiology, Endocutters, Energy, Knees and Trauma.
The company is working on boosting the Medical Devices segment through new product launches and by transforming its commercial models.
J&J announced that it is evaluating “potential strategic options” for its Consumer and Medical Device, diabetes franchise including LifeScan, Inc., Animas Corporation, and Calibra Medical, Inc. It may form strategic partnerships and joint ventures or sell these businesses either separately or together.
The Consumer segment recorded revenues of $3.43 billion in the reported quarter, up 3.4% (up 4.9% on an operational basis) from the fourth quarter of 2015. Foreign currency movement negatively impacted sales in the segment by 1.5%. Sales in the domestic market grew 12.7% from the year-ago period to $1.39 billion.
Meanwhile, the international segment recorded a decline of 2.1% to $2.05 billion, reflecting an operational increase of 0.2% and a negative currency impact of 2.3%.
The Consumer segment sales improved sequentially on the back of global Beauty and OTC products. Management said some products saw strong consumption trends despite the global consumer category slowdown.
2016 Results
Full-year 2016 sales rose 2.6% to $71.89 billion, falling slightly short of the Zacks Consensus Estimate of $71.92 billion. Sales were also within the guidance range of $71.5 billion−$72.2.
Adjusted earnings for 2016 were $6.73 per share, above the Zacks Consensus Estimate of $6.71 and up 8.5% year over year. Earnings were in line with the guidance range of $6.68–$6.73 per share.
2017 Guidance
J&J expects adjusted earnings per share in the range of $6.93 to $7.08 in 2017, including currency impact. The earnings guidance reflects expected operational growth in the range of 4.8% to 7.0%.
The revenue guidance is in the range of $74.1 billion to $74.8 billion, reflecting operational growth in the range of 4.0% to 5.0%. Organic sales growth, excluding the impact of acquisitions and divestitures, is expected to be in the range of 3%-3.5% which is a sharp deceleration from 7.4% in 2016.
Currency fluctuations are expected to impact revenues by about 1% and earnings by $0.12 per share.
The guidance includes the impact of the Abbott Medical Optics acquisition as well as Remicade biosimilar. However, the company does not expect any biosimilar entrants for Procrit in the U.S. or generic competition for Zytiga, Risperdal Consta, or Invega Sustenna in 2017.
Management mentioned that the Pharma segment will see sluggish growth in 2017 than 2016 as a number of key growth drivers like Remicade and Concerta have slowed down and are facing competition. However, it expects growth to accelerate in both the Medical Devices and Consumer segments in 2017.
The company expects to maintain or slightly raise its adjusted pre-tax operating margins in 2017. Adjusted tax rate is expected to be approximately 19% to 20%.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to one lower.
Johnson & Johnson Price and Consensus
Johnson & Johnson Price and Consensus | Johnson & Johnson Quote
VGM Scores
At this time, Johnson & Johnson's stock has a subpar Growth Score of 'D', though it is lagging a bit on the momentum front with an 'F'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value based on our styles scores.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.