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Johnson & Johnson (JNJ) Down 2.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Johnson & Johnson (JNJ). Shares have lost about 2.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Johnson & Johnson due for a breakout? 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 drivers.

Q1 Earnings & Sales Top, 2023 View Up

J&J’s first-quarter 2023 earnings came in at $2.68 per share, which beat the Zacks Consensus Estimate of $2.51 as well as our estimate of $2.49 per share. Earnings rose 0.4% from the year-ago period.

Adjusted earnings exclude intangible amortization and some other special items, primarily a $6.9 billion charge related to the talc settlement proposal. Including these items, J&J reported first-quarter loss of 3 cents per share, down 101.6% from the year-ago quarter.

Sales came in at $24.75 billion, beating the Zacks Consensus Estimate of $23.57 billion. Sales rose 5.6% from the year-ago quarter, reflecting an operational increase of 9% and a negative currency impact of 3.4%. Sales also beat our estimates of $23.6 billion.

Organically, excluding the impact of acquisitions and divestitures, sales rose 7.6% on an operational basis compared with an 0.8% increase in the previous quarter.

First-quarter sales in the domestic market rose 9.7% to $12.52 billion. International sales rose 1.8% on a reported basis to $12.23 billion, reflecting an operational increase of 8.3%, plus a negative currency impact of 6.5%. Excluding the impact of all acquisitions and divestitures, on an adjusted operational basis, international sales rose 7.9% in the quarter.

All three segments delivered a strong performance in the quarter, with sales in all segments rising sequentially over the fourth quarter.

Segment Details

Pharmaceutical segment sales rose 4.2% year over year to $13.41 billion, reflecting a 7.2% operational increase and a 3% negative currency impact. Excluding the impact of all acquisitions and divestitures and currency, on an adjusted operational basis, worldwide sales rose 7.2%. Pharmaceutical segment sales exceeded our estimates of $12.62 billion.

Sales in the domestic market rose 5.9% to $7.02 billion. International sales rose 2.4% to $6.39 billion (operational increase 8.6%).

Higher sales of key products, such as Darzalex, Stelara, Tremfya and Erleada and J&J’s single-dose COVID-19 vaccine drove the segment’s growth. The sales growth was dampened by lower sales of Imbruvica and generic/biosimilar competition to drugs like Zytiga and Remicade.

Darzalex sales rose 22% year over year to $2.26 billion in the quarter, which beat our estimates of $2.14 billion.

Stelara sales grew 6.8% to $2.44 billion in the quarter driven by strong market growth and share gains in Crohn's disease and ulcerative colitis, partially offset by unfavorable patient mix and price. Stelara sales beat our estimate of $2.42 billion.  

Imbruvica sales declined 20.3% to $827 million. Rising competitive pressure in the United States due to new oral competition has been hurting sales of Imbruvica for the past few quarters. Imbruvica sales missed our estimates of $870.6 million.

Erleada generated sales of $542 million in the quarter, up 35.6% year over year. Tremfya recorded sales of $640 million in the quarter, up 8.4% year over year, driven by share gains in psoriasis and psoriatic arthritis indications, partially offset by unfavorable patient mix.

New drug, Carvykti, a BCMA CAR-T therapy approved for relapsed or refractory multiple myeloma, recorded sales of $72 million. New drug, Spravato, approved for treatment-resistant depression, recorded sales of $131 million, up 86.9% year over year.

PAH revenues of $872 million rose 2.4% year over year. Xarelto sales rose 13.7% in the quarter to $578 million.

Invega Sustenna/Xeplion/Invega Trinza/Trevicta sales declined 0.4% to $1.04 billion in the quarter. Simponi/Simponi Aria sales declined 5.8% to $537 million, while Prezista sales decreased 4.8% to $477 million.  

Zytiga sales declined 54.5% to $245 million in the quarter due to generic competition. Sales of Remicade were down 26.5% in the quarter to $487 million.

J&J’s single-dose COVID-19 vaccine generated sales of $747 million in the quarter, up 63.4% year over year. International sales accounted for all COVID-19 vaccine sales.

Excluding COVID-19 vaccine, sales in the Pharmaceutical segment rose 2% as an operational increase of 4.9% was offset by a negative currency movement of 2.9%.

J&J continues to expect its Pharmaceutical business to deliver market-leading adjusted operational sales growth in 2023 despite the Stelara loss of exclusivity in late 2023 in the United States. However, loss of exclusivity of products like Remicade, Zytiga and Xeplion and increased austerity measures across Europe are expected to put pressure on the top line. J&J does not expect any material sales from the COVID-19 vaccine in 2023 beyond what it recorded in the first quarter as its contractual commitments are now over.

Overall, J&J expects a relatively consistent performance throughout the year from the Pharma segment as regards quarterly phasing.

MedTech segment sales came in at $7.48 billion, up 7.3% from the year-ago period, as an operational increase of 11% was offset by a negative currency movement of 3.7%. MedTech segment sales beat our estimate of $7.32 billion

Excluding the impact of all acquisitions and divestitures and currency, on an adjusted operational basis, worldwide sales rose 6.4%. Abiomed, acquired last year, contributed 4.6% of operational sales growth.

Sales in the MedTech segment were driven by a recovery in surgical procedures, better commercial execution and new product launches, which led to better sequential growth in all four MedTech businesses. However, sales were partly hurt by volume-based procurement (VBP) issues in China and as well as supply constraints. However, procedure volumes improved in China.

Interventional Solutions grew 41.8% on an operational basis. Excluding the acquisition of Abiomed, the Interventional Solutions business rose 12.3% driven by double-digit sales growth of electrophysiology products in all regions except Asia-Pacific. In Surgery, Advanced Surgery rose 1.6% worldwide. General Surgery rose 6.4% worldwide. Worldwide orthopedics rose 5.1%, driven by strong procedure recovery and successfully launched new products. Worldwide Vision rose 7.6%.

Domestic market sales rose 16.6% year over year to $3.76 billion. International market sales declined 0.6% year over year to $3.72 billion, which included an operational increase of 6.2% and a negative currency impact of 6.8%.

In the MedTech segment, J&J expects continued recovery in worldwide procedure volumes and uptake from recently launched products to drive sales in 2023. J&J expects relatively stable procedure volumes and health care staffing levels through the rest of 2023, with normal seasonality. J&J expects a relatively consistent performance throughout the year from the MedTech segment with regard to quarterly phasing.

The Consumer Health segment recorded revenues of $3.85 billion in the reported quarter, up 7.4% year over year, reflecting an 11.3% operational increase and a 3.9% negative currency impact. Consumer Health segment sales came ahead of our estimate of $3.640 million.

Excluding the impact of all acquisitions and divestitures and currency, on an adjusted operational basis, worldwide sales rose 11.3% worldwide.

The sales growth was driven by strategic price increases, growth in OTC due to an exceptionally strong cold, cough and flu season in Europe and a one-time retailer restocking primarily in the United States.

Sales in the domestic market rose 11.4% from the year-ago period to $1.74 billion. The international segment rose 4.4% to $2.12 billion, which included an operational increase of 11.3% and a negative currency impact of 6.9%.

Raises 2023 Guidance

The company raised its previously issued financial guidance for 2023.

J&J raised its revenue guidance to a range of $97.9 billion to $98.9 billion from $96.9 billion to $97.9 billion. This guidance excludes any revenues from J&J’s COVID-19 vaccine. Revenue growth is now expected in the range of 5.5%-6.5% versus the prior expectation of 4.5%-5.5%.

Excluding the COVID-19 vaccine, operational constant-currency sales are expected to increase in the range of 5.5%-6.5% versus the prior expectation of 4.5%-5.5%. Adjusted operational sales (excluding currency impact, acquisitions/divestitures) growth is now expected to be 4.5%-5.5% (prior expectation of 3.5%-4.5%).

The adjusted earnings per share guidance was raised from a range of $10.45-$10.65 to $10.60-$10.70.

The earnings range indicates an increase of 4.5%-5.5% versus the prior expectation of 3. On an operational, constant-currency basis, adjusted earnings per share are expected to increase 3.5%-4.5% versus the prior expectation of 2.5%-4.5%.

J&J expects minimal impact from foreign currency translation on reported sales for 2023 as the dollar has strengthened against most currencies.

Adjusted pretax operating margins are expected to be flat from 2022 levels as the impact of continued operating expense leverage will be offset by the impact of inflationary pressure. J&J expects supply constraints, inflationary pressure and rising input costs to continue to hurt margins in 2023. Operating margin is expected to be better in the second half than the first.

Other income is expected to be in the range of $1.9 billion to $2.1 billion. Adjusted tax rate guidance was maintained in the range of 15.5 % to 16.5%.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, Johnson & Johnson has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Johnson & Johnson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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