A month has gone by since the last earnings report for Johnson & Johnson (JNJ Quick QuoteJNJ - Free Report) . Shares have added about 1% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is JNJ 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 catalysts.

J&J Tops on Q2 Earnings & Sales, Lowers Sales View

J&J’s second-quarter 2018 earnings came in at $2.10 per share, beating the Zacks Consensus Estimate of $2.06 and increasing 14.8% from the year-ago period.

Adjusted earnings excluded amortization expense and some special items. Including these items, J&J reported second-quarter earnings of $1.45 per share, up 3.6% year over year.

Sales came in at $20.83 billion, beating the Zacks Consensus Estimate of $20.21 billion. Sales also increased 10.6% from the year-ago quarter, reflecting an operational increase of 8.7% and a positive currency impact of 1.9%.

Organically, excluding the impact of acquisitions and divestitures, sales increased 6.3% on an operational basis, better than 4.3% increase seen in the first quarter. This is because of double-digit growth in the Pharmaceutical segment and accelerating sales momentum in the Medical Devices segment. However, the Consumer unit lagged in the quarter.

Second-quarter sales grew 9.4% in the domestic market to $10.64 billion and 11.8% in international markets to $10.19 billion, reflecting 7.9% operational growth and 3.9% positive currency impact.

Segment Details

Pharmaceutical segment sales rose 19.9% year over year to $10.35 billion, reflecting 17.6% operational growth and 2.3% positive currency impact as sales rose in both domestic and international markets. Sales in the domestic market rose 17.7% to $5.9 billion. International sales grew 22.9% to $4.46 billion (operational increase of 17.5%).

New products like Imbruvica (cancer) and Darzalex (multiple myeloma) continued to perform well. Core products like Xarelto, Stelara, Zytiga, Simponi/Simponi Aria and Invega Sustenna also contributed to growth.

Organically, excluding the impact of acquisitions and divestitures, sales increased 11% on an operational basis, much better than 7.5% growth seen in the previous quarter. The strong performance was led by the company’s oncology portfolio. Worldwide sales of J&J’s cancer drugs rose 42.2% in the quarter.

Imbruvica sales rose 37.8% to $620 million in the quarter driven largely by higher market share across all lines of therapy.

Darzalex sales rose 70.9% to $511 million in the quarter. In United States, market growth and strong launch uptake in the first-line setting, for which approval was received in May, drove sales. In outside U.S. markets, increased penetration and share gains drove sales growth.
Zytiga sales rose 62.9% to $909 million in the quarter due to improved market share in a growing metastatic castration-resistant prostate cancer market. Zytiga was approved in the first-line setting in February, which has been a key driver of Zytiga’s strong performance in the first half of 2018.

Stelara sales rose 36.4% to $1.34 billion in the quarter. Stelara gained market share in the quarter driven by strong uptake in its new indication for Crohn's disease. Simponi/Simponi Aria sales rose 24.8% to $548 million in the quarter. Invega Sustenna sales rose 14.5% to $720 million in the quarter. Xarelto sales rose 5.8% to $679 million in the quarter.

In the quarter, J&J recorded pulmonary arterial hypertension (PAH) revenues of $665 million, better than $585 million in the previous quarter. Strong demand for Uptravi and Opsumit was partially offset by the expected decline of Tracleer outside the United States due to generic competition and the transition of patient assistance foundations. The Actelion acquisition added 6.6% to sales growth in the second quarter compared with 7.6% in the first quarter.

Sales of Invokana/Invokamet declined 27.1% to $215 million due to higher managed care discounting and market share decline due to competitive pressure.

Sales of Remicade were down 13.7% in the quarter to $1.32 billion with U.S. sales declining 13.7% largely due to price erosion and U.S. exports going down by 18.1%. Remicade sales declined 12.1% in international markets due to biosimilar competition.

Regarding newly launched Tremfya, J&J said that the product is seeing strong demand trends with more than 15,000 patients now on therapy. Tremfya recorded sales of $126 million in the quarter compared with $72 million in the first quarter.

J&J is quite confident that its Pharma segment will continue to perform better than the market this year despite the impact of biosimilars on Remicade sales.

Medical Devices segment sales came in at $6.97 billion, up 3.7% from the year-ago period. It included an operational increase of 1.9% and positive currency movement of 1.8%.

Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales increased 2.9%, better than 1.1% in the first quarter. This was Medical Device segment’s strongest growth since third quarter of 2016.

Operational growth was driven by continued strong performance in vision care, electrophysiology as well as the advanced surgery business, which made up for a weaker sales performance in the diabetes care and spine and knee products in the Orthopaedics business.

Domestic market sales rose 1.1% year over year to $3.27 billion. International market sales increased 6% (operational increase of 2.5%) year over year to $3.7 billion.

The Consumer segment recorded revenues of $3.5 billion in the reported quarter, up 0.7% year over year. However, on an operational basis, Consumer segment sales declined 0.4%. Foreign currency movement positively impacted sales in the segment by 1.1%.

Excluding the impact of acquisitions and divestitures, adjusted operational sales growth was 0.9% worldwide, a deceleration from the first quarter. Growth in beauty and over-the-counter products was offset by slower growth in domestic baby care products due to competitive pressure. Also, one time-events like a transportation strike in Brazil and retailer de-stocking ahead of a planned re-launch of the baby care brand in August hurt sales in the segment.
On the call, the company said that it is positioned for a strong performance in the second half of the year based on strong underlying consumption data and potential sales growth from the baby care products’ re-launch.

Sales in the domestic market declined 0.7% from the year-ago period to $1.48 billion.

Meanwhile, the international segment recorded an increase of 1.9% to $2.03 billion, coming entirely from positive currency impact while operational increase was flat in the quarter.

Regarding the St. Louis Talcum Powder lawsuit and verdict, J&J sounded confident on the call that the verdict will be reversed in the appeals process as its talc products do not contain asbestos and do not cause ovarian cancer. J&J intends to vigorously defend the franchise.

Costs Discussion

Selling, marketing and administrative expenses were down 60 bps year over year to 27.5% of sales despite investment behind new products in Consumer and Medical Devices businesses. This was due to lower cost relative to sales growth in the Pharmaceutical unit. Research and Development costs, as a percentage of sales, rose 50 bps from the prior-year quarter to 12.7%.

2018 Outlook Trimmed

J&J tightened its previously issued earnings guidance for 2018 while lowering its sales range. The guidance cut was due to less favorable currency impact owing to a strengthening dollar. However, J&J raised its 2018 operational sales and earnings growth guidance for the year.

J&J expects 2018 adjusted earnings per share in the range of $8.07 - $8.17 compared with $8.00 - $8.20 expected previously. The guidance range reflects an operational growth rate between 8.5% and 9.9%, up from 6.8% and 9.6% expected previously. Currency fluctuations are expected to favorably impact EPS by 15 cents, much lower than 20 cents expected previously.

Revenues are expected in the range of $80.5 to $81.3 billion, lower than $81.0 to $81.8 billion, reflecting operational constant currency sales growth rate in the range of 4.5% to 5.5%, higher than 4% to 5% expected previously.

Organic sales growth, excluding the impact of acquisitions and divestitures, is expected to be in the range of 3.5%-4.5% higher than 3 previously.

Currency fluctuations are expected to favorably impact sales by 80 basis points, much lower than 200 basis points, previously.

In the second half, J&J expects an acceleration of the Consumer and Medical Device businesses while the Pharmaceuticals segment is not expected to grow. The Pharmaceuticals segment will face difficult comparisons (as the segment began seeing improving trends from the second half of 2017) and a slightly more pronounced effect from generic launches for Procrit and Tracleer in the second half.
 
Adjusted pre-tax operating margins are still expected to increase approximately 150 basis points in 2018 despite expectations for increased R&D investments.

Adjusted tax rate is guided in the range of 17% -18% (16.5 previously).

The company does not expect any biosimilar entrants for Zytiga, Prezista, Risperdal Consta, or Invega Sustenna in the United States in 2018. However, the company is confident that it can absorb the impact of any potential Zytiga headwind should there be an earlier-than-expected generics launch in 2018.

However, the 2018 guidance includes the impact of generics for Procrit and Tracleer as well as Remicade biosimilars.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower.

Johnson & Johnson Price and Consensus

 

Johnson & Johnson Price and Consensus | Johnson & Johnson Quote

VGM Scores

At this time, JNJ has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value, growth, and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, JNJ has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.