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J&J's (JNJ) Q4 Earnings Beat, 2019 Sales Forecast Soft

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Johnson & Johnson’s (JNJ - Free Report) fourth-quarter 2018 earnings came in at $1.97 per share, which beat the Zacks Consensus Estimate of $1.95 and increased 13.2% from the year-ago period driven by higher revenues and better operating margins.

Adjusted earnings excluded after-tax intangible amortization expense and some special items. Including these items, J&J reported fourth-quarter earnings of $1.12 per share against loss of $3.99 per share in the year-ago quarter.

Sales came in at $20.39 billion, beating the Zacks Consensus Estimate of $20.1 billion. Sales increased 1% from the year-ago quarter, reflecting an operational increase of 3.3% and an unfavorable currency impact of 2.3%.

Organically, excluding the impact of acquisitions and divestitures, sales increased 5.3% on an operational basis, less than 6.1% increase seen in the previous quarter. Continued growth in the Pharmaceutical segment offset a softer performance in the Consumer and Medical Devices units.

Fourth-quarter sales grew 1.5% in the domestic market to $10.63 billion and 0.4% in international markets to $9.77 billion, reflecting 5.1% operational growth and 4.7% negative currency impact.

Segment Details

J&J’s Pharma segment continued to perform well despite the impact of biosimilars on Remicade sales.

Pharmaceutical segment sales rose 5.3% year over year to $10.19 billion, reflecting 7.2% operational growth and 1.9% negative currency impact as sales rose in both domestic and international markets. Sales in the domestic market rose 2.8% to $5.94 billion. International sales grew 8.9% to $4.25 billion (operational increase of 13.7%). Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales increased 7.2%, less than 8.2% in the previous quarter.

The strong performance was led by the company’s oncology portfolio. Worldwide sales of J&J’s cancer drugs rose 22.1% in the quarter.

J&J’s cancer drugs like Imbruvica and Darzalex continued to perform well. Core products like Stelara and Invega Sustenna also contributed to growth. However, sales of some other key drugs like Simponi/Simponi Aria and Xarelto declined in the quarter. Sales of Zytiga slowed down significantly from the previous quarter.

Imbruvica sales rose 34.7% to $703 million in the quarter. Please note that J&J markets Imbruvica in partnership with AbbVie, Inc. (ABBV - Free Report) . Darzalex sales rose 57.4% to $584 million in the quarter. Stelara sales rose 33.6% to $1.44 billion in the quarter. Invega Sustenna sales rose 10.1% to $763 million in the quarter.

In the quarter, J&J recorded pulmonary arterial hypertension (PAH) revenues of $667 million, up 9.3% year over year.

Simponi/Simponi Aria sales declined 1.6% to $482 million in the quarter.

Zytiga sales rose 4.1% to $786 million in the quarter. Sales of Invokana/Invokamet declined 14.6% to $228 million. Xarelto sales declined 14.4% in the quarter to $608 million.

Sales of Procrit/Eprex declined 4.7% to $221 million in the quarter.

Sales of Remicade were down 15.6% in the quarter to $1.24 billion due to competition from biosimilars.  While U.S. sales declined 21.4%, U.S. exports went down 21.7%. Remicade sales rose 9.7% in international markets. Please note that J&Jmarkets Remicade in partnership with Merck (MRK - Free Report) .

Newly launched Tremfya recorded sales of $175 million in the quarter compared with $171 million in the third quarter.

Medical Devices segment sales came in at $6.67 billion, down 4.4% from the year-ago period. It included an operational decrease of 2.2% and negative currency movement of 2.2%.

Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales increased 3.3%, better than 2.9% in the previous quarter.

Domestic market sales declined 3% year over year to $3.2 billion. International market sales decreased 5.6% (operational decrease of 1.4%) year over year to $3.45 billion.

The Consumer segment recorded revenues of $3.54 billion in the reported quarter, almost flat year over year. Moreover, on an operational basis, Consumer segment sales increased 3.3%, which was offset by unfavorable foreign currency movement of 3.4%.

Excluding the impact of acquisitions and divestitures, adjusted operational sales growth was 3.8% worldwide, a significant deceleration from 6.1% the previous quarter.

Sales in the domestic market rose 7.3% from the year-ago period to $1.48 billion. Meanwhile, the international segment recorded a decline of 4.8% to $2.06 billion. The operational increase of 0.8% was offset by negative currency impact of 5.6% in the quarter.

2018 Results

Full-year 2018 sales rose 6.7% to $81.58 billion, beating the Zacks Consensus Estimate of $81.36 billion and came ahead of the guided range of $81 to $81.4 billion

Adjusted earnings for 2018 were $8.18 per share, exceeding the Zacks Consensus Estimate of $8.16 and up 12.1% year over year. Earnings were at the higher end of the guided range of $8.13 - $8.18 per share.

Forecast for 2019

J&J issued earnings and sales guidance for 2019.

J&J expects 2019 adjusted earnings per share in the range of $8.50 - $8.65. The guidance range reflects an operational growth rate between 5.7% and 7.6%. The Zacks Consensus Estimate for 2019 is $8.64.

Revenues are expected in the range of $80.4 to $81.2 billion, which falls short of the Zacks Consensus Estimate for revenues of $82.61 billion.

The sales guidance reflects operational constant currency sales growth in the range of 0% to 1%. Organically, excluding the impact of acquisitions and divestitures, sales growth is expected to be in the range of 2% to 3% on an operational basis.

Our Take

J&J beat estimates for both earnings and sales in the fourth quarter of 2018, pushing its shares up 1% in pre-market trading. The sales guidance for 2019 was however below expectations.

J&J’s Pharma segment performed better than the market in 2018 despite the impact of biosimilars on Remicade sales. We believe that new products in all segments, successful label expansion of cancer drugs like Imbruvica and Darzalex and contribution from acquisitions will continue to drive the top line in 2019.

The stock has depreciated 11.8% in the past year compared with a decrease of 0.8% recorded by the industry.

A recent allegation by a Reuters article, which claimed that the company knew for decades that its baby powders contained asbestos, hasbeen an overhang on the stock’s price lately. 

J&J is fighting thousands of lawsuits alleging that its talc/baby powders contain asbestos, which causes users to develop ovarian cancer. J&J, in a statement, called the reports by Reuters “one-sided, false, and inflammatory”. J&J said that independent tests by regulators, academic institutions and leading labs have proven that its talc-based products never contained asbestos.

J&J currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked large-cap pharma stock is Eli Lilly & Company (LLY - Free Report) , holding a Zacks Rank #2 (Buy).

Lilly’s earnings estimates have increased 1.4% for 2019 over the past 60 days. The company’s shares have surged 36.5% in the past year.

Johnson & Johnson Price, Consensus and EPS Surprise

Johnson & Johnson Price, Consensus and EPS Surprise | Johnson & Johnson Quote

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