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Johnson & Johnson (JNJ) Down 0.3% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Johnson & Johnson (JNJ - Free Report) . Shares have lost about 0.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Johnson & Johnson due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

J&J Beats on Q3 Earnings, Misses on Sales, Ups EPS View

J&J’s third-quarter 2021 earnings came in at $2.60 per share, which beat the Zacks Consensus Estimate of $2.37. Earnings increased 18.2% from the year-ago period.

Adjusted earnings exclude intangible amortization and some other special items. Including these items, J&J reported third-quarter earnings of $1.37 per share, up 3% from the year-ago quarter.

Sales came in at $23.3 billion, which slightly missed the Zacks Consensus Estimate of $23.6 billion. Sales rose 10.7% from the year-ago quarter, reflecting an operational increase of 9.9% and a positive currency impact of 0.8%.

Organically, excluding the impact of acquisitions and divestitures, sales rose 10.6% on an operational basis compared with 23.8% increase seen in the previous quarter. Its Pharmaceuticals unit continued to perform above market levels. The Medical Devices segment benefited from an ongoing recovery after its sales were hurt significantly in the early stages of the pandemic. However, the Delta variant impacted procedure volumes and sales in the Medical Devices segment. Sales of the Consumer segment continued to improve.

Third-quarter sales in the domestic market rose 7.9% to $11.96 billion. International sales rose 13.8% on a reported basis to $11.38 billion, reflecting an operational increase of 12.1% and a currency impact of 1.7%. Excluding the impact of all acquisitions and divestitures, on an adjusted operational basis, international sales rose 13.5% in the quarter.

Segment Details

Pharmaceutical segment sales rose 13.8% year over year to $12.99 billion, reflecting 13.2% operational growth and 0.6% positive currency impact. Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales rose 13.8%.

Sales in the domestic market rose 12.2% to $7.2 billion. International sales rose 15.9% to $5.77 billion (operational increase of 14.6%).

The sales increase was led by higher penetration and new indications across key products, such as Darzalex and Stelara. Other core products like Invega Sustenna, higher pulmonary arterial hypertension (PAH) revenues and new drugs, Erleada and Tremfya contributed significantly to sales growth. J&J’s single-dose COVID-19 vaccine also contributed to sales growth. However, the sales growth was dampened by generic/biosimilar competition to drugs like Zytiga and Remicade.

Imbruvica sales rose 3.5% to $1.07 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. Imbruvica’s growth was also negatively impacted by a prior period adjustment in the United States.

Darzalex sales rose 43.7% year over year to $1.58 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 while global launches continued.

Stelara sales grew 22.2% to $2.38 billion in the quarter driven by increased market growth and share gains.

PAH revenues of $868 million rose 15.9% year over year, driven by market penetration and share gains for Uptravi and Opsumit.

Invega Sustenna/Xeplion/Invega Trinza/Trevicta sales rose 8.5% to $1.0 billion in the quarter due to market and share growth. Simponi/Simponi Aria sales declined 3.3% to $571 million while Prezista sales decreased 1.7% to $517 million.  

Xarelto sales rose 0.8% in the quarter to $636 million. Sales of Invokana/Invokamet declined 40.3% to $133 million due to competitive pressure.

Among the newer medicines, Erleada generated sales of $344 million in the quarter, up 66.7% year over year driven by global market share gains, especially in the metastatic indication. Tremfya recorded sales of $537 million in the quarter, up 64.1% year over year due to share gains in the psoriasis market and continued penetration into the psoriatic arthritis indication for which approval was received in 2020.

Zytiga sales declined 7.2% to $548 million in the quarter due to generic competition. Sales of Procrit/Eprex declined 14.6% to $112 million in the quarter due to biosimilar competition. Sales of Remicade were down 17.4% in the quarter to $761 million. While U.S. sales declined 24.3%, sales in international markets rose 12.2%. U.S. exports declined 40.2%.

J&J’s single-dose COVID-19 vaccine generated sales of $502 million in the third quarter compared with $164 million in the second quarter

J&J continues to expect its Pharmaceutical business to deliver above-market growth in 2021.

Medical Devices segment sales came in at $6.64 billion, up 8% from the year-ago period, reflecting an operational increase of 7% and a positive currency movement of 1%.

Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales rose 7.6% driven by continued market recovery from COVID-19 impact. However, J&J saw a sequential step down in procedure volume trends in the third quarter hurt by the Delta variant impact and healthcare staff shortage.

Electrophysiology products in Interventional Solutions, wound closure products in General Surgery, surgical vision products and contact lenses in Vision, trauma, hips, and knees in Orthopaedics, and energy, endocutters, and biosurgicals in Advanced Surgery did well in the quarter. However, sales of certain procedures such as spine and knees within Orthopedics were slow to recover as they are more elective in nature.

Management noted that despite the declines in global Delta variant cases, there continues to be some hot spots across geographies in the United States, UK, Eastern Europe and Asia. This coupled with medical staffing shortages are constraining procedure volumes.

Domestic market sales rose 0.8% year over year to $3.12 billion. International market sales rose 15.4% year over year to $3.53 billion. On an operational basis, international rose 13.3%.

In the Medical Devices segment, J&J expects elective procedures to recover in the fourth quarter though the pace of recovery is uncertain.

The Consumer segment recorded revenues of $3.7 billion in the reported quarter, up 5.3% year over year, reflecting a 4.1% operational increase and 1.2% positive currency impact.

Excluding the impact of acquisitions and divestitures, adjusted operational sales rose 5.7% worldwide, helped by strong growth of OTC products. The sales increase was led by skin health/beauty products like Aveeno and Neutrogena, digestive health products in OTC, upper respiratory products, and Tylenol and Motrin in analgesics. However, external supply constraints and lost sales from the sun aerosol recall hurt sales of the skin health beauty franchise. Oral Care sales declined due to the impact of divestitures and external supply constraints for Listerine in the United States. Baby Care franchise also declined in the quarter due to Asia-Pacific COVID-19 lockdowns and competitive pressure. Wound Care declined due to unfavorable comparisons to prior-year stocking in the United States and competitive pressure in Asia-Pacific.

Sales in the domestic market rose 4.5% from the year-ago period to $1.63 billion. The international segment rose 5.9% to $2.08 billion, which included an operational increase of 3.7% and a positive currency impact of 2.2%.

In the Consumer segment, J&J expects the strong momentum to continue in the fourth quarter.

2021 Outlook

J&J significantly raised its previously issued guidance range for earnings while slightly increasing the lower end of the sales range for 2021. However, the company kept its COVID-19 vaccine sales outlook of $2.5 billion intact.

The lower end of the sales range was upped from $93.8 billion-$94.6 billion to $94.1 billion - $94.6 billion. The guidance includes $2.5 billion in revenues from the COVID-19 vaccine. The new range indicates a year-over-year increase of 13.9%-14.5% compared with 13.5%-14.5% expected previously.

Excluding revenues from the COVID-19 vaccine, the base business is expected to generate revenues in the range of $91.6 billion to $92.1 billion compared with the previous expectation of $91.3 billion to $92.1 billion.

Operational constant-currency sales are expected to increase in the range of 12.4 (including COVID vaccine) compared with 12 previously. Excluding the COVID-19 vaccine, operational constant-currency sales are expected to increase in the range of 9.4.

Adjusted operational sales (excluding currency impact, acquisitions/divestitures) are expected to be up 12.9%-13.5% compared with 12.5%-13.5% guided previously. Excluding the COVID-19 vaccine, adjusted operational sales are expected to increase in the range of 9.9%-10.5%.

Adjusted earnings per share are expected in the range of $9.77-$9.82 compared with $9.60-$9.70 expected previously. The new range indicates an increase of 21.7%-22.3% compared with the previously expected increase of 19.6%-20.8%. On an operational, constant-currency basis, adjusted earnings per share are expected to increase 20.2%-120.8% (previously 18.4%-19.6%). Currency is expected to benefit EPS by 12 cents per share.

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

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Johnson & Johnson has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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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