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Johnson & Johnson (JNJ) Down 4.6% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Johnson & Johnson (JNJ). Shares have lost about 4.6% in that time frame, outperforming 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.

Q4 Earnings Beat Estimates, Sales Miss

J&J’s first-quarter 2022 earnings came in at $2.67 per share, which beat the Zacks Consensus Estimate of $2.60. Earnings increased 3.1% from the year-ago period.

Adjusted earnings exclude intangible amortization and some other special items. Including these items, J&J reported first-quarter earnings of $1.93 per share, down 16.8% from the year-ago quarter.

Sales came in at $23.4 billion, which missed the Zacks Consensus Estimate of $23.8 billion. Sales rose 5% from the year-ago quarter, reflecting an operational increase of 7.7% and a negative currency impact of 2.7%.

Organically, excluding the impact of acquisitions and divestitures, sales rose 7.9% on an operational basis compared with a 12.3% increase seen in the previous quarter.

Its Pharmaceuticals unit’s adjusted operational sales growth remained above-market levels though sales of some drugs were soft in the quarter. The Medical Devices segment saw recovering trends in the quarter. Sales of the Consumer segment continued to be hurt by industry-wide supply constraints.

First-quarter sales in the domestic market rose 2.7% to $11.4 billion. International sales rose 7.2% on a reported basis to $12.0 billion, reflecting an operational increase of 12.6% and a negative currency impact of 5.4%. Excluding the impact of all acquisitions and divestitures, on an adjusted operational basis, international sales rose 12.9% in the quarter.

Segment Details

Pharmaceutical segment sales rose 6.3% year over year to $12.9 billion, reflecting 9.3% operational growth and 3% negative currency impact. Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales rose 9.3%.

Sales in the domestic market rose 2.9% to $6.6 billion. International sales rose 10.3% to $6.2 billion (operational increase of 16.8%).

The year-over-year sales increase was led by higher penetration and new indications across key products, such as Darzalex and Stelara. Other core products like Invega Sustenna and new drugs, Erleada and Tremfya contributed significantly to sales growth. However, sales of J&J’s single-dose COVID-19 vaccine were much below expectations. The sales growth was also dampened by lower sales of key medicines, Imbruvica and Xarelto and generic/biosimilar competition to drugs like Zytiga and Remicade.

Imbruvica sales declined 7.7% to $1.04 billion due to increased competitive pressure in the United States from novel oral agents.

Darzalex sales rose 36% year over year to $1.86 billion in the quarter driven by share gains across all lines of therapy. The company also witnessed increased adoption of the subcutaneous formulation.

Stelara sales grew 6.5% to $2.29 billion in the quarter driven by strong share gains in Crohn's disease and ulcerative colitis. However, COVID-19 headwinds hurt sales to an extent in the quarter. Stelara sales were strong in ex U.S. markets.

PAH revenues of $852 million declined 1.1% year over year. Invega Sustenna/Xeplion/Invega Trinza/Trevicta sales rose 8.6% to $1.05 billion in the quarter. Simponi/Simponi Aria sales rose 1.5% to $571 million while Prezista sales decreased 8.3% to $501 million

Xarelto sales declined 13.8% in the quarter to $508 million due to unfavorable prior period price adjustment and increased cost for patient access. Sales of Invokana/Invokamet declined 14.6% to $128 million.

Among the newer medicines, Erleada generated sales of $400 million in the quarter, up 53% year over year. Tremfya recorded sales of $590 million in the quarter, up 41.3% year over year due to growth in psoriasis and psoriatic arthritis indications.

J&J’s single-dose COVID-19 vaccine generated sales of $457 million in the first quarter compared with $1.62 billion in the fourth quarter of 2021.

On the first-quarter conference call, J&J said that the market demand for all COVID-19 vaccines is currently challenged by global supply surplus and vaccine hesitancy in developing markets

Zytiga sales declined 15.6% to $539 million in the quarter due to generic competition. Sales of Remicade were down 14.7% in the quarter to $663 million.

Regarding its newly approved medicine, Carvykti, J&J said that the launch is on track with its internal expectations.

J&J continues to expect its Pharmaceutical business to deliver market-leading adjusted operational sales growth in 2022 driven by drugs like Darzalex, Tremfya, Stelara, Erleada and the newly launched, Rybrevant.

MedTech (previously Medical Devices) segment sales came in at $6.97 billion, up 5.9% from the year-ago period, reflecting an operational increase of 8.5% and a negative currency movement of 2.6%.

Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales rose 8.6%.

Sales in the MedTech segment improved, driven by a faster-than-expected market recovery, better commercial execution and new product launches. J&J saw a steady uptick in surgical procedures in the first quarter with the easing of COVID restrictions in several countries.

Interventional Solutions grew 15.1% driven by market recovery, successful penetration of new products and better commercial execution. Advanced Surgery grew 2.5% worldwide. General Surgery grew 2.7% worldwide, led by wound closure and biosurgery. Worldwide orthopedics rose 3.5%, reflecting COVID-19 recovery and penetration of new product launches, which offset the softness in spine procedures in the United States. Worldwide Vision grew 9.8% driven by the strong performance of contact lenses and surgical vision products.

Domestic market sales rose 5.6% year over year to $3.23 billion. International market sales rose 6.3% year over year to $3.75 billion. On an operational basis, international rose 11.1%.

In the Medical Devices segment, J&J expects continued market recovery and uptake from recently launched products. However, the company will keep an eye on the ever-changing COVID dynamics, particularly the surging cases in China. Second-half sales of the MedTech unit are expected to be stronger than the first half.

The Consumer segment recorded revenues of $3.59 billion in the reported quarter, down 1.5% year over year, reflecting a 0.8% operational increase and a 2.3% negative currency impact.

Excluding the impact of acquisitions and divestitures, adjusted operational sales rose 1.6% worldwide as higher sales of over-the-counter (OTC) products were partially offset by external supply constraints (due to raw material availability and labor shortages), which hurt sales of the skin health and beauty franchise.

The above-market growth in J&J’s OTC segment was driven by increased Tylenol, Motrin and upper respiratory product sales.

Sales in the domestic market declined 3.4% from the year-ago period to $1.56 billion. The international segment was flat at $2.03 billion, which included an operational increase of 4.1% and a negative currency impact of 4.1%.

In the Consumer segment, J&J expects the supply constraints and inflationary pressure to continue to linger throughout the remainder of 2022. However, the impact is expected to be more pronounced in the first half of the year. Second-half sales are expected to be stronger than the first half.

J&J is instituting price increases across its Consumer Health portfolio, implementing cost improvement initiatives and negotiating contract terms with external supply partners to mitigate the impact of inflationary pressure.

On the first-quarter conference call, management said that it will announce key executive leadership appointments for the new Consumer Health company in the coming months and will announce the new company name and headquarters location around mid-2022.

2022 Outlook

J&J lowered its earnings and sales expectations for 2022 mainly due to greater-than-expected negative impact from currency movements. The company suspended previously issued sales guidance for its COVID-19 vaccine due to global surplus supply and demand uncertainty. The company also suspended its overall sales expectations, including revenues from the COVID-19 vaccine.

Excluding revenues from the COVID-19 vaccine, J&J expects to generate revenues from its base business in the range of $94.8 billion to $95.8 billion, lower than $95.9 billion to $96.9 billion guided previously.

Excluding the COVID-19 vaccine, operational constant-currency sales are expected to increase in the range of 6.5%-7.5%.

The adjusted operational sales (excluding currency impact, acquisitions/divestitures) growth guidance is the same as the operational constant-currency sales discussed above.

The adjusted earnings per share guidance was lowered from a range of $10.40-$10.60 per share to $10.15-$10.35.

The earnings range indicates an increase of 3.6%-5.6%, lower than 6.1%-8.2% expected previously. On an operational, constant-currency basis, adjusted earnings per share are expected to increase 8.2%-10.2%.

J&J expects currency changes to hurt reported sales by $2.5 billion and adjusted earnings per share by 45 cents.

Earlier, including COVID-19 vaccine sales, J&J expected sales to be in the range of $98.9 billion-$100.4 billion. The guidance included $3.0 billion-$3.5 billion in revenues from the COVID-19 vaccine. This guidance now stands suspended.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, 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 second quintile 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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