Earnings Preview: Johnson & Johnson

Johnson & Johnson (JNJ - Analyst Report) is slated to report its second quarter 2012 earnings on July 17, 2012 before the opening bell. The current Zacks Consensus Estimate for the second quarter is $1.29 per share, representing year-over-year growth of 0.8%. Full year earnings are expected to be $5.14 per share, up 2.8%.

Johnson & Johnson has surpassed earnings estimates in each of the last four quarters with a trailing four-quarter average of 2.30%.

First Quarter Recap

Johnson & Johnson posted first quarter 2012 earnings (excluding special items) of $1.37 per share, a penny above the Zacks Consensus Estimate and 1.5% above the year-ago earnings of $1.35 per share.

Revenues, however, declined 0.2% year-over-year to $16.1 billion. Revenues were just shy of the Zacks Consensus Estimate of $16.3 billion. While operational factors favorably impacted sales by 1%, currency fluctuations had a negative impact of 1.2%.

Including one-time items, Johnson & Johnson reported first quarter earnings of $1.41 per share, 12.8% above the year-ago earnings of $1.25.

(Read our full coverage of the first quarter 2012 earnings report at Marginal Beat for J&J; Outlook Up).

Agreement of Analysts

There is a significant positive bias in estimate revisions for Johnson & Johnson for the second quarter as well as full year 2012. Second quarter estimates have been revised upward over the last 7 and 30 days by 2 and 4 analysts, respectively. While 2 analysts have raised their estimates over the last 30 days, there are no downward movements over the last 7 days.

Full year 2012 estimates too have a positive bias, with 8 of the 15 analysts following the stock raising their estimates over the past 30 days with just one downward movement during this time period. Meanwhile, one analyst has raised their estimate over the past 7 days with no downward movement being witnessed.

The upward revisions mainly reflect the accretive impact of the Synthes acquisition.

Magnitude of Estimate Revisions

While the Zacks Consensus Estimate for the second quarter remains unchanged at $1.29 per share, the full year 2012 Zacks Consensus Estimate has gone up by 3 cents over the last 30 days to $5.14 per share.

At the time of announcing the completion of its Synthes acquisition, Johnson & Johnson said that its wholly owned Irish subsidiary, Janssen Pharmaceutical, has signed a $12.9 billion accelerated share repurchase (ASR) programs with two investment bankers.

With the company announcing the share buyback program and the financial structure for the deal, Johnson & Johnson said that it now expects the Synthes acquisition to be accretive to earnings instead of dilutive as expected earlier.

With the financial structure in place, the company now expects the acquisition to boost 2012 adjusted earnings by 3-5 cents per share. Meanwhile, 2013 earnings are expected to be boosted by 10-15 cents per share due to the acquisition.

Neutral on Johnson & Johnson

We currently have a Neutral recommendation on Johnson & Johnson. The stock carries a Zacks #2 Rank (Buy rating) in the short run. Estimates have been on the rise ever since the company announced that it expects the Synthes deal to be accretive to earnings. We expect the company to increase its guidance while announcing its second quarter results. 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.