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Why Is Johnson & Johnson (JNJ) Down 0.2% Since Last Earnings Report?

It has been about a month since the last earnings report for Johnson & Johnson (JNJ). Shares have lost about 0.2% 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.

Beats Q4 Earnings & Sales Estimates

J&J’s fourth-quarter 2023 earnings came in at $2.29 per share, which beat the Zacks Consensus Estimate of $2.27. Earnings rose 11.7% from the year-ago period.

Adjusted earnings exclude intangible amortization and some other special items. Including these items, J&J reported fourth-quarter earnings of $1.70 per share, up 39.3% from the year-ago quarter.

Sales came in at $21.4 billion, beating the Zacks Consensus Estimate of $21.1 billion by a slight margin. Sales rose 7.3% from the year-ago quarter, reflecting an operational increase of 7.2% and a positive currency impact of 0.1%. Organically, excluding the impact of acquisitions/divestitures and currency, sales rose 5.7% on an operational basis.

Fourth-quarter sales in the domestic market rose 11% to $12.0 billion. Excluding the impact of all acquisitions and divestitures, on an adjusted operational basis, domestic sales rose 8.8% in the quarter.

International sales rose 2.9% on a reported basis to $9.39 billion, reflecting an operational increase of 2.7% and a positive currency impact of 0.2%. Excluding the impact of all acquisitions and divestitures, on an adjusted operational basis, international sales rose 2.1% in the quarter.

Segment Details

Sales in J&J’s Innovative Medicines segment (previously the Pharmaceutical segment) rose 4.2% year over year to $13.72 billion, reflecting a 4% operational increase and a 0.2% positive currency impact. Excluding the impact of all acquisitions and divestitures, and currency, on an adjusted operational basis, worldwide sales rose 4%. Innovative Medicines sales beat the Zacks Consensus Estimate of $13.41 billion and our model estimate of $13.1 billion. Excluding sales from J&J’s COVID-19 vaccine, operational sales grew 9.5%.

Higher sales of key products such as Darzalex, Stelara, Tremfya and Erleada drove the segment’s growth. New drugs like Carvykti and Spravato also contributed to growth. The sales growth was partially dampened by lower sales of Imbruvica, the COVID vaccine and generic/biosimilar competition to drugs like Zytiga and Remicade.

In the Innovative Medicines segment, sales in the United States rose 9.5%, while outside U.S. sales declined 2.5%.

Darzalex sales rose 22.4% year over year to $2.55 billion in the quarter, driven by continued share gains and market growth. Sales slightly beat the Zacks Consensus Estimate of $2.50 billion and our model estimate of $2.47 billion.

Stelara sales grew 15.3% to $2.75 billion in the quarter, driven by strong market growth and share gains. Stelara sales beat the Zacks Consensus Estimate of $2.56 billion and our model estimate of $2.49 billion.

In May, J&J settled its litigation with Amgen. As a result, J&J does not anticipate the launch of a biosimilar version of Stelara in the United States until January 2025. J&J, on the conference call, said Stelara biosimilars are expected to be launched in Europe in mid-2024.

Imbruvica sales declined 8.9% to $788.0 million due to rising competitive pressure in the United States due to new oral competition. Imbruvica sales were, however, better than the Zacks Consensus Estimate of $740.0 million and our estimate of $686.6 million.

Erleada generated sales of $647 million in the quarter, up 19.8% year over year. Erleada sales missed the Zacks Consensus Estimate of $720 million as well as our model estimate of $660.9 million.

Tremfya recorded sales of $910 million in the quarter, up 21% year over year, driven by strong market growth, share gains and a favorable patient mix. Tremfya sales beat the Zacks Consensus Estimate of $885.0 million as well as our model estimate of $868.0 million.

New drug Carvykti recorded sales of $159 million compared with $152 million in the previous quarter. New drug Spravato recorded sales of $206.0 million compared with $183.0 million in the previous quarter. J&J expects to begin disclosing Tecvayli sales from the first quarter of 2024, which is now included in Other Oncology. Talvey sales are also included in Other Oncology.

PAH drug Uptravi recorded sales of $419.0 million, rising 24.6% year over year. Xarelto sales declined 21.2% in the quarter to $525 million.

Invega Sustenna/Xeplion/Invega Trinza/Trevicta sales rose 0.3% to $1.01 billion in the quarter. Simponi/Simponi Aria sales rose 0.1% to $502.0 million, while Prezista sales declined 11% to $439.0 million.  

Zytiga sales declined 25.6% to $201.0 million in the quarter due to generic competition. Sales of Remicade were down 9.6% in the quarter to $429 million

J&J’s single-dose COVID-19 vaccine generated sales of $44 million in the quarter, down 93.8% year over year. International sales accounted for all COVID-19 vaccine sales.

In 2024, J&J expects to record above-market growth in the Innovative Medicine unit, for the 13th consecutive quarter. The growth is expected to be driven by market share gains for key products like Darzalex, Tremfya and Erleada and rapid adoption of new products such as Carvykti, Tecvayli, Talvey and Spravato. Innovative Medicine sales growth is expected to be slightly stronger in the first half of the year compared to the second half due to the potential entry of Stelara biosimilars in Europe in mid-2024.

MedTech segment sales came in at $7.67 billion, up 13.3% from the year-ago period, as an operational increase of 13.4% was offset by a negative currency movement of 0.1%. MedTech segment sales beat the Zacks Consensus Estimate of $7.48 billion as well as our model estimate of $7.56 billion.

In the MedTech segment, sales rose 14.1% in the United States and 12.4% outside of the United States

Excluding the impact of all acquisitions and divestitures, and currency, on an adjusted operational basis, worldwide sales rose 9.1%.

Sales in the MedTech businesses continued to benefit from strong procedure recovery and new products, which were partially offset by international sanctions in Russia and volume-based procurement (VBP) issues in China in some categories.

Interventional Solutions grew 51.9%, driven by strong sales growth of electrophysiology products, with strong growth in all regions, including Europe. Worldwide Surgery rose 6.1%, driven primarily by procedure recovery and strength of biosurgery and wound closure portfolios, which was partially offset by VBP issues in China. Worldwide orthopedics rose 5.6%, driven by strong procedure recovery and new product launches. Worldwide Vision rose 5.5%, driven by price increases, growth of contact lenses and new products, which were partially offset due to the Blink divestiture.

In 2024, in the MedTech segment, J&J expects operational sales growth to be relatively consistent throughout the year. Procedure volumes are expected to be above pre-COVID levels with a modest impact from Russia sanctions in the first half and China VBP pricing impact in some categories.

2023 Results

Full-year 2023 sales rose 6.5% to $85.2 billion, which beat the Zacks Consensus Estimate of $84.87 billion.

Adjusted earnings for 2023 were $9.92 per share, up 11.1% year over year. Earnings beat the Zacks Consensus Estimate of $9.90 per share.

2024 Outlook

J&J maintained its sales and earnings growth expectations for 2024, which it had announced in December.

In 2024, J&J expects total revenues in the range of $87.8 billion-$88.6 billion, which indicates growth in the range of 4.5%-5.5%, driven by its Innovative Medicine and MedTech segments. Operational sales growth is expected in the range of 5, the same as announced on the December guidance call.

Adjusted operational sales (excluding currency impact, acquisitions/divestitures) growth is now expected to be in the range of 5. All revenue figures exclude any revenues from COVID-19 vaccine sales.

Adjusted earnings per share are expected in the range of $10.55-$10.75. The earnings range implies growth in the range of 6.4%-8.4%.

On an operational, constant-currency basis, adjusted earnings per share are expected to increase in the range of 6.4%-8.4%.

Adjusted pretax operating margins are expected to improve approximately 50 basis points from 2023. However, potential Stelara biosimilar launches in Europe and some lingering inflationary costs in MedTech inventory are expected to hurt margins.

Other income is expected to be in the range of $1.2 billion to $1.4 billion. Net interest income is expected in the range of $450 million to $550 million.

Adjusted tax rate is expected in the range of 16.0% to 17.5%.

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How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

Currently, Johnson & Johnson has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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