J&J (JNJ) Beats on Q3 Earnings, Actelion Buyout Drives Sales

Johnson & Johnson JNJ reported better-than-expected third-quarter 2017 results, beating the Zacks Consensus Estimate for both earnings and sales. The drug and consumer products giant raised its 2017 sales and profit outlook, which sent shares up 1.5% in pre-market trading.

In fact, this year so far, J&J’s share price is up 18.1%. This is almost in line with the 18.2% increase witnessed by the industry.

Earnings Beat

J&J’s third-quarter 2017 earnings came in at $1.90 per share, beating the Zacks Consensus Estimate of $1.80 and increasing 13.1% from the year-ago period.

Including amortization expense and special items, J&J reported third-quarter earnings of $1.37 per share, down 10.5% from the year-ago period.

Sales Beat

Sales came in at $19.65 billion, beating the Zacks Consensus Estimate of $19.28 billion by 1.9%. Sales increased 10.3% from the year-ago quarter, reflecting an operational increase of 9.5% and a positive currency impact of 0.8%. Organically, excluding the impact of acquisitions and divestitures, sales increased 3.8% on an operational basis.

Third-quarter sales grew 9.7% in the domestic market to $10.29 billion and 10.9% in international markets to $9.36 billion, reflecting 9.3% operational growth and 1.6% positive currency impact.

Sales in Details

Pharmaceutical segment sales rose 15.4% year over year to $9.7 billion, reflecting 14.6% operational growth and 0.8% positive currency impact as sales rose in both the domestic and international markets. Sales in the domestic market rose 15.4% to $5.82 billion, while international sales grew 15.5% to $3.88 billion. Organically, excluding the impact of acquisitions and divestitures, sales increased 6.7% on an operational basis.

New products like Imbruvica (cancer) and Darzalex (multiple myeloma) continued to perform well. Other growth drivers were core products like Xarelto, Stelara and Invega Sustenna. Sales of Concerta and Zytiga improved in the quarter.

In the quarter, J&J recorded pulmonary arterial hypertension (PAH) revenues of $670 million. The $30 billion acquisition of Swiss biotech Actelion in June diversified J&J’s revenues to the PAH category.

However, sales of Invokana/Invokamet declined 19.2% due to higher managed care discounting. Importantly, sales of the blockbuster rheumatoid arthritis drug Remicade, marketed in partnership with Merck & Co., Inc. MRK, declined 7.6% in the quarter with U.S. sales declining 1.3% and international sales declining 6.9% due to biosimilar competition. In this regard, we would like to mention that Pfizer, Inc. PFE filed a lawsuit in a U.S. district court recently. In the lawsuit, Pfizer alleged J&J of resorting to unfair practices to prevent sale of Inflectra — Pfizer’s biosimilar version of Remicade — that was launched in the United States in November last year.

J&J’s Pharma segment achieved some clinical milestones during the quarter including label expansions in the United States for pulmonary arterial hypertension (PAH) drug, Tracleer for pediatric use and Imbruvica for chronic graft versus host disease (GVHD) – the drug’s first indication outside of cancer. J&J markets Imbruvica in partnership with AbbVie, Inc. ABBV.

At the call, the company also mentioned that it will not file global regulatory applications for rheumatoid arthritis candidate, sirukumab. We remind investors that last month, J&J received a complete response letter (CRL) from the FDA for sirukumab for want of additional safety data.  

Medical Devices segment sales came in at $6.6 billion, up 7.1% from the year-ago period. It included an operational increase of 6.6% and positive currency movement of 0.5%. Sales gained mainly from the inclusion of Abbott Medical Optics acquisition, which added 5.2% to operational sales growth. Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales increased 1.2%.

Domestic market sales rose 4.6% year over year to $3.19 billion. International market sales increased 9.6% (operational increase of 8.6%) year over year to $3.41 billion.

Operational growth was driven by wound closure products in the General Surgery business, electrophysiology products in the Cardiovascular business and Acuvue contact lenses in the Vision Care business, which made up for a weaker sales performance in the Diabetes Care unit

The Consumer segment recorded revenues of $3.36 billion in the reported quarter, up 2.9% year over year(operational increase of 1.6%). Foreign currency movement positively impacted sales in the segment by 1.3%. Sales in the domestic market declined 0.5% from the year-ago period to $1.29 billion.

Slower growth in baby care products due to competitive pressure was partially offset by growth in beauty and over-the-counter products and international smoking cessation aids.

Meanwhile, the international segment recorded an increase of 5.1% to $2.07 billion, reflecting an operational increase of 3% and a positive currency impact of 2.1%.

2017 Guidance Raised

J&J raised its adjusted earnings and sales outlook for the year.

J&J expects 2017 adjusted earnings per share in the range of $7.25 - $7.30 compared with $7.12 - $7.22 expected previously.

The revenue guidance was raised to a range of $76.1 billion to $76.5 billion compared with $75.8 billion to $76.1 billion expected previously

Our Take

As indicated last quarter, J&J’s sales growth accelerated in the third quarter leading the company to post its first positive sales surprise after almost a year. Higher sales in the pharmaceutical segment as well as positive contribution from the Actelion deal pulled up the top line in the quarter. The Actelion acquisition added an impressive 7.9% to operational sales growth in the quarter.

Though quite a few key products in J&J’s portfolio like Remicade and Concerta are facing generic competition, we believe that new products in all segments, label expansion of drugs like Imbruvica and Darzalex and contribution from Actelion could lead to better sales trends, going forward.

J&J carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Johnson & Johnson Price, Consensus and EPS Surprise

Johnson & Johnson Price, Consensus and EPS Surprise | Johnson & Johnson Quote

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.  

See the pot trades we're targeting>>          

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Pfizer, Inc. (PFE) : Free Stock Analysis Report
 
Johnson & Johnson (JNJ) : Free Stock Analysis Report
 
Merck & Company, Inc. (MRK) : Free Stock Analysis Report
 
AbbVie Inc. (ABBV) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research