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J&J (JNJ) Tops Q1 Earnings Estimates, Raises Sales Guidance


Johnson & Johnson JNJ kicked off 2018 pharma earnings on a strong note, beating the Zacks Consensus Estimate on both counts in the first quarter of 2018. The drug and consumer products giant upped its previously issued sales outlook for 2018. Shares were up around 1% in pre-market trading.

This year so far, J&J’s shares have declined 5.7%, comparing unfavorably with the 2.7% decline witnessed by the industry.

Earnings Beat

J&J’s first-quarter 2018 earnings came in at $2.06 per share, beating the Zacks Consensus Estimate of $2.01 and increasing 12.6% from the year-ago period.

Adjusted earnings excluded amortization expense and some special items. Including these items, J&J reported first-quarter earnings of $1.60 per share compared with earnings of $1.61 in the year-ago period.

Sales Beat Slightly

Sales came in at $20 billion, beating the Zacks Consensus Estimate of $19.48 billion. Sales also increased 12.6% from the year-ago quarter, reflecting an operational increase of 8.4% and a positive currency impact of 4.2%. Organically, excluding the impact of acquisitions and divestitures, sales increased 4.3% on an operational basis, better than 2.4% increase seen in 2017. This is because the Pharmaceutical segment continued the positive momentum seen in the second half of 2017 and the Consumer segment sales improved.

First-quarter sales grew 6.1% in the domestic market to $9.95 billion and 19.9% in international markets to $10 billion, reflecting 10.9% operational growth and 9% positive currency impact.

Sales in Details

Pharmaceutical segment sales rose 19.4% year over year to $9.84 billion, reflecting 15.1% operational growth and 4.3% positive currency impact as sales rose in both domestic and international markets. Sales in the domestic market rose 9.9% to $5.35 billion while international sales grew 33.1% to $4.49 billion (operational increase of 22.5%).

New products like Imbruvica (cancer) and Darzalex (multiple myeloma) continued to perform well. Core products like Xarelto, Stelara, Zytiga, Simponi/Simponi Aria and Invega Sustenna also contributed to growth. Please note that J&J markets Imbruvica in partnership with AbbVie, Inc. ABBV.

Organically, excluding the impact of acquisitions and divestitures, sales increased 7.5% on an operational basis, slightly less than 7.6% growth seen in the previous quarter.

In the quarter, J&J recorded pulmonary arterial hypertension (PAH) revenues of $585 million, less than $610 million in the previous quarter. The $30 billion acquisition of Swiss biotech,Actelion in June last year diversified J&J’s revenues to the PAH category and added 7.6% to sales growth in the first quarter.

However, sales of Invokana/Invokamet declined 12.7% due to higher managed care discounting. Importantly, sales of the blockbuster rheumatoid arthritis drug, Remicade, marketed in partnership with Merck & Co., Inc. MRK, was down 16.9% in the quarter with U.S. sales declining 22.5%. However, international sales rose 1.8% despite biosimilar competition.

J&J’s Pharma segment achieved some clinical milestones during the quarter including FDA approvals of prostate cancer drug, Erleada for the treatment of men with non-metastatic castration-resistant prostate cancer and line extension of already marketed prostate cancer drug, Zytiga in combination with prednisone in the first-line setting.

Medical Devices segment sales came in at $6.77 billion, up 7.5% from the year-ago period. It included an operational increase of 3.2% and positive currency movement of 4.3%.

Domestic market sales rose 2.2% year over year to $3.16 billion. International market sales increased 12.7% (operational increase of 4.2%) year over year to $3.61 billion.

The Consumer segment recorded revenues of $3.4 billion in the reported quarter, up 5.3% year over year(operational increase of 1.3%). Foreign currency movement positively impacted sales in the segment by 4%. Sales in the domestic market rose 1.6% from the year-ago period to $1.44 billion.

Meanwhile, the international segment recorded an increase of 8.2% to 1.96 billion, reflecting an operational increase of 1.2% and a positive currency impact of 7%.

2018 Outlook

J&J maintained the previously issued earnings guidance for 2018 while increasing the sales range.

J&J still expects 2018 adjusted earnings per share in the range of $8.00 – $8.20, reflecting an operational growth rate between 6.8% and 9.6%.

However, now it expects revenues in the range of $81.0 to $81.8 billion, higher than $80.6 billion to $81.4 billion, reflecting operational constant currency sales growth rate in the range of 4% to 5% (previously 3.5% to 4.5%).

Our Take

Though quite a few key products in J&J’s portfolio like Remicade and Concerta face generic competition, we believe that new products like plaque psoriasis drug, Tremfya (guselkumab), cancer drugs, Darzalex, Imbruvica and Zytiga, currency tailwinds and contribution from acquisitions helped J&J deliver strong sales and profit in the first quarter of the year and led it to raise the sales outlook for the whole year. In fact, J&J is quite confident that its Pharma segment will continue to perform better than the market this year despite impact of biosimilars on Remicade sales, as told by chief financial officer, Dominic J. Caruso to Bloomberg.

Meanwhile, J&J announced some global supply chain initiatives, which will annually save approximately $600 million to $800 million in pre-tax costs by 2022. Meanwhile, Alex Gorsky, chairman and chief executive officer of J&J said that the company will invest more than $30 billion in R&D and capital investments in the United States over the next four years. The new tax laws will leave some extra cash in the hands of large pharma companies like J&J, allowing them to invest in innovation and capital building.

Zacks Rank & Stock to Consider

J&J carries a Zacks Rank #3 (Hold).

Johnson & Johnson Price, Consensus and EPS Surprise

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

A better-ranked stock is Pfizer, Inc. PFE, which has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Pfizer have gained 0.8% this year so far.

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