Income · Stocks to Consider and Updates

Johnson & Johnson Beats Consensus; Lifts Guidance

Health care giant Johnson & Johnson (NYSE: JNJ – $139.45) reported first-quarter adjusted share earnings of $2.10, versus a Street estimate of $2.04 and up from $2.06 last year. Sales, however, were basically flat as the top line inched only 0.1% higher. Eliminating the impact caused by the strong U.S. dollar and acquisitions and divestitures, the picture brightens considerably, as sales rose a healthy 5.5%. Much of this was due to a solid 7.9% pop in international operations. On the domestic side, adjusted sales increased at a more modest 3.1%. By business unit:

  • Pharmaceuticals, which are responsible for over 50% of revenues, performed well, as constant-currency sales rose 7.9% before foreign exchange translations reduced the number by 3.8%. Leading the way were drugs such as STELARA (inflammatory diseases), IMBRUVICA (certain B-cell malignancies), TREMFYA (psoriasis), DARZALEX (myeloma) and INVEGA (antipsychotic). Some of these gains were offset by declines in demand for REMICADE and ZYTIGA (both prostate cancer drugs) that are facing competition from new generic offerings.  
  • Results in the Medical Devices segment were somewhat disappointing. On an operational basis, domestic sales declined 1.6%, while international sales decreased 0.3%. When currency translations are taken into account, foreign sales were off a meaningful 6.8%. On the positive side, growth in the sales of electrophysiology products remained strong as did activity in the ACUVUE contact lens business.    
  • The company’s Consumer sector, which had shown signs of life lately, was also affected by the strong U.S. dollar as constant-currency sales increased only 0.7%. Probably due to the talc lawsuits, Baby Care products apparently didn’t do well. This was partly offset by higher sales of TYLENOL and NEUTROGENA.

       Management raised guidance for 2019 slightly, as adjusted operational sales are now expected to increase 2.5% to 3.5%, versus the 2.0% to 3.0% estimate made in January. Constant-currency sales were also marginally increased to 0.5%-1.5%, versus the earlier 0.0%-1.0% forecast. The picture is not as bright when the negative impact of currency translations is factored in. The top line is expected to decline 0.5%-1.5% to a range of $80.4 billion to $81.2 billion. Adjusted per share earnings were basically left unchanged at $8.53 to $8.63, with analysts’ views of $8.58. All told, the company has solid prospects mostly due to its promising drug pipeline. However, very conservative income investors may not feel as safe holding JNJ, yielding 2.6%, now as in the past, as it is vulnerable to sell-offs based on talc-related jury verdicts.

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