Earnings Scorecard: Johnson & Johnson

Following the release of second quarter 2012 results, most of the analysts covering Johnson & Johnson ( JNJ - Analyst Report ) have cut their earnings estimates for 2012. The revision in estimates mainly reflects the guidance provided by the company.

Second Quarter 2012 Recap

Johnson & Johnson posted second quarter 2012 earnings (excluding special items) of $1.30 per share, a penny above the Zacks Consensus Estimate and 1.6% above the year-ago earnings of $1.28 per share. Results were impacted by negative currency fluctuation.

Revenues declined 0.7% year-over-year to $16.5 billion, just shy of the Zacks Consensus Estimate of $16.7 billion. While operational factors favorably impacted sales by 3.5%, currency fluctuations had a negative impact of 4.2%. Results included the impact of the recently completed Synthes acquisition, which contributed 1.2% to global operational sales growth.

Including one-time items, Johnson & Johnson reported second quarter earnings of 50 cents per share, 50.0% below the year-ago earnings of $1.00.

(Read our detailed earnings report at: Currency Hits J&J; Outlook Down.).

Agreement of Analysts

Estimate revisions for 2012 indicate a significant negative bias. 12 of the 16 analysts covering the stock have cut their estimates for 2012 following the release of second quarter results with no analyst moving in the opposite direction.

Meanwhile, the estimate revisions for 2013 also show a similar trend with 9 of the 19 analysts covering the stock cutting their estimates.

Over the last 7 days, there have been no estimate revisions for 2012. However, 1 analyst has cut their 2013 estimate with no movements in the opposite direction.

The downward revision in estimates reflects Johnson & Johnson’s revised outlook for 2012. Following the release of second quarter results, Johnson & Johnson cut its earnings guidance and now expects earnings per share of $5.00 - $5.07 in 2012 (old guidance: $5.07 - $5.17 per share).

The guidance mainly reflects the negative impact of currency fluctuation, partially offset by the positive impact of the Synthes acquisition. The updated guidance was well below the pre-earnings Zacks Consensus Estimate of $5.14 per share.

Magnitude – Consensus Estimate Trend

With the significant negative bias in estimate revisions, estimates for both 2012 and 2013 have gone down by several cents. While 2012 estimates are down by 8 cents, 2013 estimates have been cut by 4 cents.

The Zacks Consensus Estimate for 2012 and 2013 now stands at $5.06 and $5.46 per share, respectively.

Neutral on Johnson & Johnson

We currently have a Neutral recommendation on Johnson & Johnson. The stock carries a Zacks #3 Rank (Hold rating) in the short run. Even though we expect Johnson & Johnson to continue facing headwinds in the form of EU and Japan pricing pressure, negative currency fluctuation and manufacturing issues, we believe Johnson & Johnson’s diversified business model, lack of cyclicality, strong financial position will continue helping Johnson & Johnson pave its way through tough situations.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/