A month has gone by since the last earnings report for Johnson & Johnson (JNJ). Shares have added about 2.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Johnson & Johnson due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Q1 Earnings & Sales Top
J&J beat first-quarter estimates for earnings as well as sales. First-quarter 2021 earnings came in at $2.59 per share, which beat the Zacks Consensus Estimate of $2.31. Earnings increased 12.6% from the year-ago period.
Adjusted earnings exclude after-tax intangible asset, amortization expense and some other special items. Including these items, J&J reported first-quarter earnings of $2.32 per share, up 6.9% from the year-ago quarter.
Sales came in at $22.3 billion, which beat the Zacks Consensus Estimate of $21.82 billion. Sales rose 7.9% from the year-ago quarter, reflecting an operational increase of 5.5% and a positive currency impact of 2.4%.
Organically, excluding the impact of acquisitions and divestitures, sales rose 6% on an operational basis compared with 7.9% increase seen in the previous quarter.
J&J’s Pharmaceuticals unit continued to perform above market levels. The recovery in the Medical Devices unit continued as well. However, unfavorable comparisons to the year-ago quarter due to COVID-19 pantry loading and demand surges experienced in 2020 hurt sales of the Consumer Health segment in the first quarter of 2021
First-quarter sales in the domestic market rose 3.9% to $11.1 billion. International sales rose 12.2% on a reported basis to $11.21 billion, reflecting an operational increase of 7.3% and a currency impact of 4.9%. Excluding the impact of all acquisitions and divestitures, on an adjusted operational basis, international sales rose 8.2% in the quarter.
Segment Details
Pharmaceutical segment sales rose 9.6% year over year to $12.2 billion, reflecting 7.1% operational growth and 2.5% positive currency impact. Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales increased 7.4%, lower than 14.6% increase in the previous quarter.
Sales in the domestic market rose 6.4% to $6.44 billion. International sales however rose 13.4% to $5.75 billion (operational increase of 7.9%).
The sales increase was led by higher penetration and new indications across key products, such as Darzalex, Imbruvica and Stelara. Other core products like Invega Sustenna, J&J’s PAH drugs and new drugs, Erleada and Tremfya contributed significantly to sales growth.
Moreover, improvement in sales of some other key drugs like Xarelto seen in the past few quarters continued into the first quarter of 2021. The sales growth was hurt by generic/biosimilar competition to drugs like Zytiga and Remicade.
Imbruvica sales rose 9% to $1.13 billion driven by volume growth due to leading market share, which was partially offset by market contraction due to temporary COVID-19 impacts on new patient starts and difficult comparisons due to increased demand in the first quarter of 2020.
Darzalex sales rose 45.6% year over year to $1.37 billion in the quarter driven by share gains across all lines of therapy. The company also witnessed increased adoption of the subcutaneous formulation in Europe and United States.
Stelara sales grew 18.1% to $2.15 billion in the quarter driven by increased market growth and share gains, which partially offset an unfavorable comparison to higher sales in the first quarter of 2020 due to COVID-19 related longer scrip durations in the United States and Europe.
PAH revenues of $861 million rose 15.5% year over year, driven by market penetration and share gains for Uptravi and Opsumit.
Invega Sustenna sales rose 9.4% to $965 million in the quarter. Simponi/Simponi Aria sales grew 6.2% to $562 million while Prezista sales decreased 5.8% to $546 million.
Xarelto sales rose 11.7% in the quarter to $589.0 million driven by demand growth and a one-time favorable prior period pricing adjustment. Sales of Invokana/Invokamet declined 14.4% to $150.0 million due to competitive pressure.
Among the newer medicines, Erleada generated sales of $261 million in the quarter compared with $241 million in the previous quarter driven by strong share growth, especially in the metastatic indication. Tremfya recorded sales of $418 million in the quarter, up 41% year over year due to share gains in the psoriasis market in the United States, expansion into new markets and continued penetration into the psoriatic arthritis indication for which approval was received in 2020.
Zytiga sales declined 7.6% to $638 million in the quarter due to generic competition. Sales of Procrit/Eprex declined 18.2% to $127 million in the quarter due to biosimilar competition. Sales of Remicade were down 21.5% in the quarter to $777 million. While U.S. sales declined 21.7%, sales in international markets declined 9.4%.
J&J’s single-dose COVID-19 vaccine, which was granted emergency approval by the FDA in February, generated sales of $100 million in the first quarter.
J&J continues to expect its Pharmaceutical business to deliver above-market growth in 2021.
Medical Devices segment sales came in at $6.58 billion, up 10.9% from the year-ago period, reflecting an operational increase of 8% and a positive currency movement of 2.9%.
Excluding the impact of all acquisitions and divestitures, on an operational basis, worldwide sales rose 8.8% against a decline of 1.5% in the previous quarter.
The pandemic hit this segment the hardest due to a widespread decline in elective surgical procedures. However, the segment benefited from better-than-expected market recovery in the second half of 2020 amid faster-than-expected ramping up of medical procedures. The recovery continued in the first quarter of 2021. This coupled with better execution, new product launches and extra selling days led to growth in the quarter.
Electrophysiology products in the Interventional Solutions business, worldwide biosurgery and energy products, and international endocutters in Advanced Surgery, wound closure products in General Surgery and contact lenses and surgery in the Vision business contributed to growth, which was partially offset by knee products in Orthopedics primarily due to slower market recovery.
Domestic market sales rose 5.4% year over year to $3.05 billion. International market sales rose 16.2% year over year to $3.53 billion. On an operational basis, international rose 10.5%.
In this segment, the company expects revenue growth in each quarter of 2021 versus 2020 due to market recovery. J&J expects the highest growth to occur in the second quarter due to easy comparison to the highly disrupted second quarter of 2020. Meanwhile, market variables such as patient willingness to take insurance coverage, and unemployment rates along with the easing of mobility restrictions is expected to influence the rate of recovery.
The Consumer Health segment recorded revenues of $3.54 billion in the reported quarter, down 2.3% year over year, reflecting 3.3% operational decrease but 1% positive currency impact.
Excluding the impact of acquisitions and divestitures, adjusted operational sales decrease was 2.9% worldwide compared with a 2.1% increase seen in the previous quarter. Sales in the first quarter were hurt by negative COVID-19 related sales comparisons from the prior-year quarter primary in the OTC products category. This coupled with lower cough, cold and flu incidences due to social distancing measures hurt the segment sales. However, Listerine mouthwash in oral care products, Johnson’s Baby in baby care products and international skin health/beauty products did well in the quarter.
Sales in the domestic market declined 7.4% from the year-ago period to $1.61 billion. Meanwhile, the international segment rose 2.5% to $1.93 billion, which included an operational increase of 0.5% and a positive currency impact of 2.0%.
Though sales growth is expected to be choppy by quarter throughout 2021, J&J expects the segment to grow with the market .
2021 Outlook
J&J tightened its previously issued guidance range for earnings and sales for 2021. It tightened its revenue guidance from a range of $90.5 billion to $91.7 billion to $90.6 billion to $91.6 billion. The new range indicates a year-over-year increase of 9.7%-10.9% compared with 9.5 expected previously.
Operational constant-currency sales are expected to increase in the range of 8.2%-9.4% compared with 7.5 previously. Adjusted operational sales (excluding currency impact, acquisitions/divestitures) are expected to be up 8.7%-9.9% versus 8%-9.5%.
Adjusted earnings per share are expected in the range of $9.42-$9.57 versus $9.40-$9.60 previously. The new range indicates an increase in the range of 17.3%-19.2%. On an operational, constant-currency basis, adjusted earnings per share are expected to increase 15.8%-17.7% (previously 15.2% – 17.7%).
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, Johnson & Johnson has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, 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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