Following the release of fourth quarter and full year 2011 results, most of the analysts covering Johnson & Johnson (JNJ - Analyst Report) have reduced their earnings estimates for 2012 and 2013. The revisions in estimates mainly reflect the guidance provided by the company.
Fourth Quarter and Full Year 2011 Recap
Johnson & Johnson posted fourth quarter 2011 earnings (excluding special items) of $1.13 per share, three cents above the Zacks Consensus Estimate of $1.10 and 9.7% above the year-ago earnings of $1.03..
Johnson & Johnson’s revenues for the fourth quarter increased 3.9% year-over-year to $16.3 billion. Revenues were in-line with the Zacks Consensus Estimate.
Full year 2011 earnings came in at $5.00, 5% above the year-ago earnings of $4.76 per share and 4 cents above the Zacks Consensus Estimate. Earnings came in at the top end of the company's guidance of $4.95 - $5.00 per share.
Meanwhile, revenues came in at $65 billion, up 5.6% from the year-ago period and in-line with the Zacks Consensus Estimate and the company’s guidance. (Read our detailed earnings report at: J&J Beats, 2012 Outlook Disappoints).
Agreement of Analysts
Estimates for 2012 indicate a significant negative bias. All 22 analysts covering the stock have cut their estimates for 2012 following the release of fourth quarter results.
Estimates are down for 2013 as well. 11 of the 19 analysts covering the stock have lowered their 2013 estimates in the last 30 days with only 1 analyst moving in the opposite direction. Over the last 7 days, 2 analysts have lowered their estimates with no movements in the opposite direction.
The downward revision in estimates reflects Johnson & Johnson’s disappointing outlook for 2012. The company expects earnings of $5.05 to $5.15 per share, reflecting 3.5% -5.5% operational growth. Currency fluctuations are expected to have a negative impact of about 2.5%. 2012 earnings guidance was well below expectations.
Moreover, the company expects to continue incurring significant costs in 2012 (higher than 2011) as it works on addressing its manufacturing issues and bringing back its McNeil Consumer Healthcare products to the market.
Meanwhile, pricing pressure is expected to continue in 2012. The company expects pricing pressure to negatively impact pretax operating margin by 0.5% - 1% in 2012.
Year-over-year revenue comparisons will also be tough in the first half of 2012 as Levaquin and Concerta started facing generic competition from mid 2011.
Magnitude – Consensus Estimate Trend
The significant downward bias has resulted in 2012 earnings estimates being trimmed by 11 cents to $5.11 in the last 30 days. Meanwhile, 2013 estimates have gone down by 16 cents to $5.44 per share in the last 30 days.
Neutral on Johnson & Johnson
We currently have a Neutral recommendation on Johnson & Johnson. The stock carries a Zacks #4 Rank (Sell rating) in the short run. We expect the stock to remain under pressure in the near term given the below-consensus guidance provided by the company.
Our long-term Neutral recommendation on the stock is based on the belief that Johnson and Johnson’s diversified business model, lack of cyclicality and strong financial position will help it in tough situations. Moreover, Johnson & Johnson has been signing deals, which should help boost its revenues in the long term.