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Johnson & Johnson (JNJ) Up 5.1% Since Last 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 5.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Johnson & Johnson 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 Beats on Q2 Earnings & Sales, Ups View

J&J’s second-quarter 2021 earnings came in at $2.48 per share, which beat the Zacks Consensus Estimate of $2.28. Earnings increased 48.5% from the year-ago period.

Adjusted earnings exclude intangible amortization and some other special items. Including these items, J&J reported second-quarter earnings of $2.35 per share, up 72.8% from the year-ago quarter.

Sales came in at $23.3 billion, which beat the Zacks Consensus Estimate of $22.31 billion. Sales rose 27.1% from the year-ago quarter, reflecting an operational increase of 23.0% and a positive currency impact of 4.1%.

Organically, excluding the impact of acquisitions and divestitures, sales rose 23.8% on an operational basis compared with 6% increase seen in the previous quarter driven by strong sales growth across all three segments. Its Pharmaceuticals unit continued to perform above market levels. The recovery in the Medical Devices unit continued while sales rebounded in its Consumer Health unit.

Second-quarter sales in the domestic market rose 24.9% to $11.9 billion. International sales rose 29.5% on a reported basis to $11.4 billion, reflecting an operational increase of 20.9% and a currency impact of 8.6%. Excluding the impact of all acquisitions and divestitures, on an adjusted operational basis, international sales rose 22.4% in the quarter.

Segment Details

Pharmaceutical segment sales rose 17.2% year over year to $12.6 billion, reflecting 13.6% operational growth and 3.6% positive currency impact. Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales rose 14.1%, almost double than 7.4% increase in the previous quarter.

Sales in the domestic market rose 12.2% to $6.87 billion. International sales rose 23.7% to $5.73 billion (operational increase of 15.4%).

The sales increase was led by higher penetration and new indications across key products, such as Darzalex, Imbruvica and Stelara. Other core products like Invega Sustenna and new drugs, Erleada and Tremfya contributed significantly to sales growth.

Moreover, improvement in sales of some other key drugs like Xarelto seen in the past few quarters continued in the second quarter of 2021. The sales growth was hurt by generic/biosimilar competition to drugs like Zytiga and Remicade.

Sales in the quarter also benefited from easy comparision as second-quarter 2020 sales were significantly hurt by access-related constraints due to COVID-19.

Imbruvica sales rose 17.7% to $1.17 billion driven by volume growth due to leading market share, which was partially offset by temporary COVID-19 impacts on new patient starts and modest share loss in the United States to new oral competition.

Darzalex sales rose 59.2% year over year to $1.43 billion in the quarter driven by share gains across all lines of therapy. The company also witnessed increased adoption of the subcutaneous formulation in Europe and United States.

Stelara sales grew 34% to $2.27 billion in the quarter driven by increased market growth and share gains.

PAH revenues of $870 million rose 10.4% year over year, driven by market penetration and share gains for Uptravi and Opsumit.

Invega Sustenna sales rose 16.4% to $1.02 billion in the quarter. Simponi/Simponi Aria sales grew 6.9% to $584 million while Prezista sales decreased 1% to $505 million.  

Xarelto sales rose 1.8% in the quarter to $569.0 million driven by demand growth. Sales of Invokana/Invokamet declined 10.9% to $160.0 million due to competitive pressure.

Among the newer medicines, Erleada generated sales of $302 million in the quarter, up 77.6% year over year driven by strong share growth, especially in the metastatic indication. Tremfya recorded sales of $479 million in the quarter, up 40.2% year over year due to share gains in the psoriasis market in the United States, expansion into new markets and continued penetration into the psoriatic arthritis indication for which approval was received in 2020.

Zytiga sales declined 0.8% to $563 million in the quarter due to generic competition. Sales of Procrit/Eprex declined 6.6% to $127 million in the quarter due to biosimilar competition. Sales of Remicade were down 5.1% in the quarter to $888 million. While U.S. sales declined 9.1%, sales in international markets rose 22.4%.

J&J’s single-dose COVID-19 vaccine, which was approved for emergency/conditional use in some countries this year, generated sales of $164 million in the second quarter compared with $100 million in the first quarter.

J&J continues to expect its Pharmaceutical business to deliver above-market growth in 2021. On the conference call, the company said that in the Pharma unit, most of its core categories are back to the pre-COVID level, with the exception of CLL business. Though there may be some volatility in the second half mainly due to the recent surge of the Delta variant, J&J’s overall outlook for the segment is quite strong.

Medical Devices segment sales came in at $6.98 billion, up 62.7% from the year-ago period, reflecting an operational increase of 57.2% and a positive currency movement of 5.5%.

Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales rose 58.7% compared with an increase of 8.8% in the previous quarter driven by continued market recovery from COVID-19 impact as medical procedures ramped up. This segment was hit the hardest during the early stages of the pandemic due to deferral of medical procedures.

This coupled with better execution and new product launches and extra selling days led to growth in the quarter.

Domestic market sales rose 77.2% year over year to $3.3 billion. International market sales rose 51.6% year over year to $3.7 billion. On an operational basis, international rose 41.9%.

In the Medical Devices segment, J&J expects the positive momentum to continue in the second half and expects some business lines that are slow in recovery, like Orthopedics and Vision, to accelerate.

The Consumer segment recorded revenues of $3.74 billion in the reported quarter, up 13.3% year over year, reflecting 9.2% operational increase and 4.1% positive currency impact.

Excluding the impact of acquisitions and divestitures, adjusted operational sales rose 10% worldwide against a decrease of 2.9% seen in the previous quarter helped by market recovery from COVID-19 impacts mainly in skin health/beauty products. The sales increase was led by skin health/beauty products like Neutrogena, Aveeno and OGX, OTC products like Zyrtec and Pepcid, digestive health products and Band Aid bandages in wound care products.

Sales in the domestic market rose 12.4% from the year-ago period to $1.75 billion. The international segment rose 14.1% to $1.98 billion, which included an operational increase of 6.3% and a positive currency impact of 7.8%.

In the Consumer segment, J&J expects the strong momentum to continue in the second half of the year.

2021 Outlook

J&J raised its previously issued guidance range for earnings and sales for 2021 to include $2.5 billion contribution from its COVID-19 vaccine as well as expected growth in the base business. J&J expects more than half of the $2.5 billion in revenues from COVID-19 vaccine to occur in the fourth quarter.

It raised its revenue guidance from a range of $90.6 billion to $91.6 billion to $93.8 billion to $94.6 billion, which includes $2.5 billion in revenues from the COVID-19 vaccine. The new range indicates a year-over-year increase of 13.5%-14.5% compared with 9.7%-10.9% expected previously.

Excluding revenues from the COVID-19 vaccine, the base business is expected to generate revenues in the range of $91.3 billion to $92.1 billion, which is also above the previous expectation.

Operational constant-currency sales are expected to increase in the range of 12 (including COVID vaccine) compared with 8.2%-9.4% previously. Excluding the COVID-19 vaccine, operational constant-currency sales are expected to increase in the range of 9.

Adjusted operational sales (excluding currency impact, acquisitions/divestitures) are expected to be up 12.5%-13.5% compared with 8.7%-9.9% guided previously. Excluding the COVID-19 vaccine, adjusted operational sales are expected to increase in the range of 9.5%-10.5%.

Adjusted earnings per share are expected in the range of $9.60-$9.70 compared with $9.42-$9.57 expected previously. The new range indicates an increase of 19.6%-20.8% compared with the previously expected increase of 17.3%-19.2%. On an operational basis, constant-currency basis, adjusted earnings per share are expected to increase 18.4%-19.6% (previously 15.8%-17.7%).

Operating margins are expected to improve 200 basis point year over year in 2021.

Currency is expected to benefit sales by $3 billion while it will impact EPS by 1.2% or 10 cents per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Johnson & Johnson has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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


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