Last 2Q earnings results revealed by Johnson and Johnson were more than what Wall Street has expected.
As a brief summary, the quick refresher depicted estimated US$ 17.79 billion revenue rate, below at 8.8% from an annual Q of the previous year where the adjusted EPS was worth US$ 1.71, a decrease of 3.9% from the previous year.
In contrast, the Wall Street estimates were delivery of US$ 1.69 in EPS. J&J also raised its full annual EPS forecast a range of US$ 6.10 – US$ 6.20 from its prior Q projection of US$ 6.04 – US$ 6.19.
In order to get a better understanding of what’s really going on at J&J, and to get a better feel for the health of the business, we need to take a closer look at management’s commentary for the Q:
Here are five important postulates which J&J wants investors to know:
- We’re still growing whether you realize it or not
Although J&J’s revenue declined 8.8%, it was dealt a 7.9% reduction solely because of negative currency translation. J&J reports in dollars, and since the U.S. dollar has been strong against most global currencies J&J has been losing a percentage when translating back into dollars. It was also affected by business divestments which don’t allow for apples-to-apples comparisons to the previous year. When currency fluctuations are removed, and one-time benefits and costs are excluded, J&J actually grew its adjusted EPS by close to 7% and its global sales by a modest 1.7%.
- We realize Remicade is a concern, but we’re in good shape
Johnson & Johnson’s top-selling pharmaceutical product is arthritis drug Remicade, which brought in US$ 1.67 billion during 2Q and US$ 3.27 billion through the first-half of year 2015. J&J is facing a highly competitive anti-inflammatory market and expected patent losses by year 2018. In other words, there’s fear that J&J could be looking at billions in lost revenue once biosimilars of Remicade hit the market.
- Our medical device segment isn’t gaining any traction, but it could soon
One segment that’s been a regular disappointment for J&J and investors in recent quarters has been medical devices. The purchase of Synthes for nearly US$ 20 billion, announced in year 2011, was designed to bolster J&J’s orthopedic business, while introducing the company to rapidly growing emerging markets. Unfortunately, the deal hasn’t paid the dividends that investors had been expecting — at least not yet. The good news is that healthcare utilization rates appear to be rising, which could signal an end to hospitals and consumers being afraid of ACA-related pricing uncertainty.
- We remain on the hunt for an earnings-accretive deal
“We have a good balance of internal and externally sourced innovations. And acquisitions have accounted for just under half of sales growth over the last decade. And we’re always actively looking for new value-creating acquisitions and deals to continue that success.” – CEO Alex Gorsky
- By the way, our internal pipeline is enormous
Lastly, J&J’s management also wants its investors to understand that while it’s actively looking for acquisition opportunities, they aren’t entirely necessary:
“You can see the impact reflected in our portfolio and robust development pipeline, which includes 25 active late-stage development programs, 160-plus early stage programs and over 70 venture investments.”