J&J’s Beats Earnings Forecasts, Slips on Sales

Drug major’s worldwide sales grew by 1.7% Y-o-Y to $18.11 billion

Johnson & Johnson Inc. (NYSE: JNJ), the world’s biggest maker of healthcare products, announced its Q4 FY16 and full year FY16 financial results on January 24th, 2017.

Headquartered in New Brunswick, New Jersey, Johnson & Johnson researches, develops, manufactures, and sells healthcare products worldwide. It operates through three segments: Consumer, Pharmaceutical, and Medical Devices.

The Consumer segment offers baby care products under the JOHNSON’S brand name; oral care products under the LISTERINE brand name; skin care products under the AVEENO, CLEAN & CLEAR, DABAO, JOHNSON’S Adult, NEUTROGENA, and RoC brand names; women’s health products, wound care products, including adhesive bandages under the BAND-AID brand name.

The Pharmaceutical segment offers various products in the areas of immunology, infectious diseases and vaccines, neuroscience, oncology, and cardiovascular and metabolic diseases.

The Medical Devices segment offers orthopedic products; general surgery, biosurgical, endomechanical, and energy products; electrophysiology products to treat cardiovascular disease; sterilization and disinfection products. Read more about J&J’s financial results below.

Q4 FY16 financial highlights

Johnson & Johnson’s Q4 FY16 worldwide sales grew by 1.7% Y-o-Y to $18.11 billion versus $17.81 billion in the year ago same period. Operational sales rose 2.3% with a 0.6% negative impact of currency translations. Domestic sales grew 2.6%, while International sales increased 0.6%, reflecting operational growth of 1.9% and a negative currency impact of 1.3%. Excluding the net impact of acquisitions, divestitures, hepatitis C, Venezuela, and the additional shipping days in 2015, on an operational basis, worldwide sales grew 7.6%, domestic sales rose 9.5% and international sales increased 5.6% during the reporting quarter.

During Q4 FY16, Johnson & Johnson’s net earnings rose to $3.81 billion, or $1.38 a share, from $3.22 billion, or $1.15 a share, in the same period a year ago. Net earnings during the reporting quarter included after-tax intangible amortization expense of approximately $0.3 billion and a net charge for after-tax special items of approximately $0.3 billion. Excluding after-tax intangible amortization expense and special items, adjusted net earnings for Q4 FY16 were $4.4 billion and adjusted diluted EPS was $1.58.

FY16 financial highlights

Johnson & Johnson’s FY16 worldwide sales grew 2.6% Y-o-Y to $71.9 billion versus 2015. Operational results grew 3.9% with a 1.3% negative impact of currency translations. Domestic sales grew 6.0%, while International sales decreased 0.9%, reflecting operational growth of 1.8% and a negative currency impact of 2.7%. Excluding the net impact of acquisitions, divestitures, hepatitis C, Venezuela, and the additional shipping days in 2015, on an operational basis, worldwide sales rose 7.4%, domestic sales grew 8.9% and international sales increased 5.7%.

Johnson & Johnson’s FY16 net earnings and diluted EPS were $16.5 billion and $5.93, respectively. Excluding after-tax intangible amortization expense and special items, adjusted net earnings for FY16 were $18.8 billion and adjusted diluted EPS was at $6.73.

Segmental highlights

The pharma bellwether’s worldwide Consumer sales fell 1.5% to $13.3 billion in FY16 versus the prior year, consisting of an operational increase of 1.5% and a negative impact from currency of 3.0%. Domestic sales grew 3.8%, while international sales fell 4.8%, reflecting an operational increase of 0.1% and a negative currency impact of 4.9%. Excluding the net impact of acquisitions, divestitures, Venezuela, and the additional shipping days in 2015, on an operational basis, worldwide sales grew 4.3%, domestic sales rose 5.6% and international sales grew 3.4%.

During the year, growth was driven by over-the-counter products, including TYLENOL® analgesics, digestive health products and anti-smoking aids; NEUTROGENA® and AVEENO® beauty products and LISTERINE® oral care products.

The Company’s worldwide Pharmaceutical sales grew 6.5% to $33.5 billion in FY16 versus the prior year, with an operational increase of 7.4% and a negative impact from currency of 0.9%. Domestic sales grew 9.8% and international sales rose 1.8%, reflecting an operational increase of 4.0% and a negative currency impact of 2.2%. Excluding the net impact of acquisitions, divestitures, hepatitis C, Venezuela, and the additional shipping days in 2015, on an operational basis, worldwide sales jumped 11.5%, domestic sales rose 13.8% and international sales grew 8.3% during the year.

Segmental growth was driven by new products including IMBRUVICA® (ibrutinib), an oral, once-daily therapy approved for use in treating certain B-cell malignancies, a type of blood or lymph node cancer; DARZALEX® (daratumumab), for the treatment of patients with multiple myeloma; XARELTO® (rivaroxaban), an oral anticoagulant and INVOKANA®/INVOKAMET® (canagliflozin), for the treatment of adults with type 2 diabetes.

The Company’s worldwide Medical Devices sales fell 0.1% to $25.1 billion versus the prior year, consisting of an operational increase of 0.9% and a negative currency impact of 1.0%. Domestic sales increased 1.1%, while international sales decreased 1.2%, reflecting an operational increase of 0.7% and a negative currency impact of 1.9%. Excluding the net impact of acquisitions, divestitures, Venezuela and the additional shipping days in 2015, on an operational basis, worldwide sales grew 3.8%, domestic sales increased 2.9% and international sales rose 4.7% during the year.

Results were driven by electrophysiology products in the Cardiovascular business; endocutters, energy and biosurgicals in the Advanced Surgery business; ACUVUE® contact lenses in the Vision Care business; and joint reconstruction and trauma products in the Orthopaedics business.

During the quarter, the FDA approved OneTouch Vibe™ Plus Insulin Pump and Continuous Glucose Monitoring System for the treatment of patients age two and older living with diabetes.

Drug approvals

During the quarter under review, the FDA approved DARZALEX® (daratumumab) in combination with lenalidomide and dexamethasone, or bortezomib and dexamethasone, for the treatment of patients with multiple myeloma who have received at least one prior therapy. The European Commission approved STELARA® for the treatment of adults with moderately to severely active Crohn’s disease. In January 2017, the FDA approved IMBRUVICA® (ibrutinib) for the treatment of patients with marginal zone lymphoma who require systemic therapy and have received at least one prior anti-CD20- based therapy.

Other highlights

Strategic options for diabetes care: As part of the Company’s ongoing portfolio management, Johnson & Johnson’s announced that it is evaluating potential strategic options for the Johnson & Johnson Diabetes Care Companies, specifically LifeScan Inc., Animas Corporation, and Calibra Medical Inc. These options may include the formation of operating partnerships, joint ventures or strategic alliances, a sale of the businesses, or other alternatives to drive future growth and maximize shareholder value.

Potential acquisition of Actelion: Johnson & Johnson announced on November 25th, 2016 that it is in preliminary talks with Actelion Pharmaceuticals Ltd, Europe’s largest biotech firm which is currently valued at about $20 billion. A potential takeover deal would help Johnson & Johnson withstand looming competition to its blockbuster rheumatoid-arthritis drug Remicade, an autoimmune therapy that had $4.5 billion in US sales in 2015.

This comes after Pfizer Inc. (NYSE: PFE) said it plans to start selling its biosimilar version called Inflectra, in the US at a 15% discount off the brand-name drug’s list price in November 2016. Inflectra is the first and only biosimilar monoclonal antibody therapy and the second biosimilar to be approved in the US J&J says it has several new drugs in development whose launch could make up for any revenue loss. However, a potential deal for Actelion would help J&J quickly compensate for lost sales estimated at about $1 billion in 2017.

Actelion, which employs about 2,500 people, sells drugs for rare diseases, including artery disorders that affect the lung and heart known as pulmonary arterial hypertension (PAH). The company reported about 1.785 billion Swiss francs ($1.8 billion) in sales for January-September 2016. Actelion’s focus on rare diseases makes it an attractive takeover target because drugs in that area are less prone to pricing pressure. A potential bid for Actelion could be worth up to 220 Swiss francs ($217) or 250 Swiss francs ($246) per share.

Outlook for FY17

Johnson & Johnson announced its 2017 full-year guidance for sales of $74.1 billion to $74.8 billion, reflecting expected operational growth in the range of 4.0% to 5.0%. Excluding the impact of acquisitions and divestitures, operational sales growth is expected to be in the range of 3.0% to 3.5%. Additionally, the Company announced adjusted earnings guidance for full-year 2017 of $6.93 to $7.08 per share reflecting expected operational growth in the range of 4.8% to 7.0%. Adjusted earnings guidance excludes the impact of after-tax intangible amortization expense and special items.

Stock Performance

Johnson & Johnson’s stock stood at $112.80, gaining 0.93%, at the close on Wednesday, January 25th, 2017, having vacillated between an intraday high of $112.80 and a low of $110.76 during the session. The stock’s trading volume was at 9,373,178 for the day. The Company’s market cap was at $307.01 billion as of Wednesday’s close.

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