It has been about a month since the last earnings report for Johnson & Johnson (JNJ - Free Report) . Shares have added about 5.9% 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 Q4 Earnings Beat, Issues 2019 Outlook
J&J’s 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 lower tax rate.
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 above-market growth in the Pharmaceutical segment and continued improvement in Medical Devices unit offset a softer performance in the Consumer unit.
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.
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 primarily due to lower sales of Zytiga and Xarelto.
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 due to the impact of generic competition in the United States.
Imbruvica sales rose 34.7% to $703 million in the quarter driven by market share gains and strong market growth across multiple indications in the United States and strong uptake in the European and Asia Pacific markets.
Darzalex sales rose 57.4% to $584 million in the quarter. In United States, market growth and market share gains drove sales. In outside U.S. markets, increased penetration and share gains drove sales growth.
Stelara sales rose 33.6% to $1.44 billion in the quarter. Stelara witnessed strong uptake in its new indication for Crohn's disease, experiencing share gains in the quarter. Invega Sustenna sales rose 10.1% to $763 million in the quarter.
Zytiga sales rose 4.1% to $786 million in the quarter as growth outside the United States was offset by sales decline in the United States due to generic competition.
Simponi/Simponi Aria sales declined 1.6% to $482 million in the quarter. Sales of Procrit/Eprex declined 4.7% to $221 million in the quarter.
In the quarter, J&J recorded pulmonary arterial hypertension (PAH) revenues of $667 million, up 9.3% year over year. Strong demand for Uptravi and Opsumit supported by share gains and overall market growth was partially offset by decline in Tracleer due to increased use of Opsumit as well as generic competition in Europe.
Sales of Invokana/Invokamet declined 14.6% to $228 million due to higher managed care discounting and market share decline due to competitive pressure.
Xarelto sales declined 14.4% in the quarter to $608 million as prescription growth was offset by increased discounts and rebates. The October FDA approval of Xarelto for a new 2.5 milligram vascular dose for the CAD/PAD indication significantly expands the drug’s eligible patient population, which can improve sales of the drug in the future quarters. Regarding this label expansion, management said on the call that the initial customer response has been positive.
Sales of Remicade were down 15.6% in the quarter to $1.24 billion due to increased discounts and share loss to biosimilars. While U.S. sales declined 21.4%, U.S. exports went down 21.7%. Remicade sales rose 9.7% in international markets.
Regarding newly launched Tremfya, J&J said that the product is seeing strong demand trends with more than 28,000 patients now on therapy and the drug capturing 6.6% share of the psoriasis market in the United States which is up almost 1 point from the previous quarter. 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 a 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.
Operational growth was driven by continued strong performance in Interventional Solutions, Advanced Surgery, General Surgery and Vision, which partially offset a decline in the orthopedics portfolio.
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.
Growth in beauty, oral care and over-the-counter products was offset by lower baby care sales in the United States despite the baby care brand re-launch.
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.
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.
J&J’s guidance for 2019 sales growth was below expectations.
J&J expects 2019 adjusted earnings per share in the range of $8.50 - $8.65. The guidance range reflects an operational constant currency growth rate between 5.7% and 7.6%.
Revenues are expected in the range of $80.4 to $81.2 billion, including currency impact. Currency fluctuations are expected to unfavorably impact sales by approximately 1.5% with Fix headwinds being more pronounced in the first half.
Operational constant currency sales growth is expected to be in the range of 0% to 1%. Acquisitions and divestitures are expected to hurt sales growth by about 2%.
Adjusted operational sales growth, (excluding FX, acquisitions/divestitures) is expected to be in the range of 2% to 3%, which marks a deceleration from 5.5% in 2018.
In 2019, J&J expects that the Pharmaceutical unit will deliver growth despite significant impacts from biosimilar and generic competition for some of its drugs.
In Pharmaceuticals, management is optimistic that key drugs like Darzalex, Imbruvica and Stelara should witness continued uptake and line extensions and new drugs like Erleada and Tremfya should perform well. However, continued biosimilar competition for Remicade and Procrit and generic competition for Velcade, Tracleer and Zytiga in the U.S. will hurt revenues by $3 billion in 2019. Other than that, pricing pressure will continue to hurt sales.
While the Consumer unit will grow slightly above the market in 2019 supported by innovation and improved go-to-market models, the Medical Devices segment is expected to continue to improve driven by improved execution and new product introductions.
Adjusted pre-tax operating margin is expected to improve slightly in 2019.
Adjusted tax rate is guided in the range of 17% -18%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Johnson & Johnson has an average Growth Score of C, though it is lagging a bit 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward 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.