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J&J (JNJ) Outshines in Q3 Earnings on Strong Pharma Sales


Johnson & Johnson JNJ reported another strong quarter with both earnings and sales beating expectations. Moreover, the company raised the lower end of its earnings outlook for the year.

The healthcare giant’s third-quarter 2016 earnings came in at $1.68 per share, beating the Zacks Consensus Estimate of $1.65 per share and increasing 12.8% from the year-ago period.

Sales came in at $17.82 billion, beating the Zacks Consensus Estimate of $17.72 billion. Sales increased 4.2% from the year-ago quarter, reflecting an operational increase of 4.3% and negative currency impact of 0.1%. Strong pharmaceutical sales once again drove the top line.

Third quarter sales grew 6.7% in the domestic market to $9.38 billion and 1.5% in international markets to $8.44 billion, reflecting 1.7% operational growth, partially offset by 0.2% negative currency impact.

Including one-time items, Johnson & Johnson reported third quarter earnings of $1.53 per share, up 27.5% from the year-ago period.

Pharma Segment Delivers Again

J&J’s pharmaceutical segment once again drove results with new as well as core products performing well. Pharma segment sales grew 9.2% year over year to $8.4 billion, reflecting 9% operational growth and a 0.2% positive currency impact.

Sales in the domestic market increased 11.8% to $5.04 billion, while international sales grew 5.4% to $3.36 billion.

New products like Imbruvica, Xarelto and Darzalex continued to perform well. Other growth drivers include Stelara, Invega Sustenna, Remicade and Simponi.

Hepatitis C virus (HCV) treatment Olysio continued to feel the impact of additional competition with sales declining 73.4% from the year-ago quarter. Invega sales also declined due to generic competition. Invokana/Invokamet sales declined 3.5% in the quarter.

J&J’s pharma segment also achieved some clinical milestones during the quarter including label expansion for products like Invokamet and Stelara.

The Medical Devices segment sales came in at $6.2 billion, up 1.1% from the year-ago period, comprising an operational increase of 0.7% and positive currency movement of 0.4%.

Sales in the domestic market grew 1.4% year over year to $3.05 billion. International market sales inched up 0.7% year over year to $3.11 billion.

Operational growth was driven by endocutters and energy in the Advanced Surgery business; electrophysiology products in the Cardiovascular business; Acuvue contact lenses in the Vision Care business; and joint reconstruction and trauma products in the Orthopedics business.

The company is working on driving growth in the Medical Devices segment through new product launches and by transforming its commercial models.

The Consumer segment recorded revenues of $3.3 billion in the reported quarter, down 1.6% from the third quarter of 2015. Foreign currency movement negatively impacted sales in the segment by 1.7%. Sales in the domestic market grew 1.1% from the year-ago period to $1.3 billion.

Meanwhile, the international segment recorded a decline of 3.3% to $1.97 billion, reflecting an operational decrease of 0.6% and negative currency impact of 2.7%.

Products that performed well include Aveeno skin care products and digestive health products; international anti-smoking aids in OTC products; and Listerine oral care products. Lower trade inventory levels, primarily in the U.S., however hurt sales to an extent.

Earnings Guidance Raised Once More

Johnson & Johnson raised the lower end of the 2016 earnings guidance. It now expects earnings per share in the range of $6.68 – $6.73 compared with $6.63 – $6.73 expected earlier. We remind investors that J&J had raised its 2016 earnings guidance at the second quarter call as well.

The revenue guidance was maintained in the range of $71.5 billion – $72.2 billion.

JOHNSON & JOHNS Price, Consensus and EPS Surprise

JOHNSON & JOHNS Price, Consensus and EPS Surprise | JOHNSON & JOHNS Quote

The company carries a Zacks Rank #3 (Hold).

Our Take

Johnson & Johnson delivered another strong quarter with both earnings and revenues surpassing expectations. The Pharmaceutical segment continues to perform well despite challenges like generic competition for a few products, negative currency impact and lower HCV revenues. In this regard, we would like to mention that Pfizer Inc. PFE announced on Monday that its Inflectra injection, a biosimilar version of J&J’s blockbuster drug Remicade, will be available in the U.S. in late November. This should pose strong competition to Remicade.

The company also raised its earnings outlook for the year. Contribution from new products, share buybacks and the restructuring initiative should help drive results.

Stocks to Consider

Some better-ranked stocks in the healthcare sector include BioMarin Pharmaceutical Inc. BMRN and Exelixis, Inc. EXEL. Both the stocks have a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Exelixis has an average positive surprise of 9.10% over the trailing four quarters. Its share price has jumped 104% year to date. The loss estimates for both 2016 and 2017 have narrowed down over the past 60 days.

Loss estimates for BioMarin have narrowed from 28 cents to 25 cents for 2016 and from $1.16 to $1.11 for 2017 over the last 60 days.

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