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Why Is Johnson & Johnson (JNJ) Down 6.7% Since Last Earnings Report?
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It has been about a month since the last earnings report for Johnson & Johnson (JNJ - Free Report) . Shares have lost about 6.7% 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 the most recent earnings report in order to get a better handle on the important catalysts.
J&J’s third-quarter 2024 earnings came in at $2.42 per share, which beat the Zacks Consensus Estimate of $2.22. Earnings declined 9% from the year-ago period due to higher in-process research and development (IPR&D) costs associated with the NM26 bispecific antibody.
Adjusted earnings exclude after-tax intangible asset amortization expense and special items, including which, reported earnings were $1.11 per share, down 34.3% year over year.
Sales came in at $22.47 billion, which beat the Zacks Consensus Estimate of $22.19 billion. Sales rose 5.2% from the year-ago quarter, reflecting an operational increase of 6.3% and a negative currency impact of 1.1%. Organically, excluding the impact of acquisitions/divestitures and currency, sales rose 5.4% on an operational basis.
Third-quarter sales in the domestic market rose 7.6% to $12.9 billion. Excluding the impact of all acquisitions and divestitures on an adjusted operational basis, domestic sales rose 6.5% in the quarter.
International sales rose 2.2% on a reported basis to $9.56 billion, reflecting an operational increase of 4.6% and a negative currency impact of 2.4%. Excluding the impact of all acquisitions and divestitures on an adjusted operational basis, international sales rose 4.0% in the quarter.
Innovative Medicine
ales in the Innovative Medicine segment (previously the Pharmaceutical segment) rose 4.9% year over year to $14.58 billion, reflecting a 6.3% operational increase and a 1.4% negative currency impact.
Excluding the impact of all acquisitions and divestitures and currency on an adjusted operational basis, worldwide sales rose 6.4%. Innovative Medicines sales beat the Zacks Consensus Estimate of $14.15 billion as well as our model estimate of $13.97 billion.
Higher sales of key products such as Darzalex, Tremfya, Uptravi, Opsumit, and Erleada drove the segment’s growth. New drugs like Carvykti, Tecvayli and Spravato also contributed to growth. The sales growth was partially dampened by lower sales of Stelara, Simponi/Simponi Aria and Imbruvica and generic/biosimilar competition to drugs like Zytiga and Remicade.
In the Innovative Medicines segment, sales in the United States rose 7.5%, while outside U.S. sales rose 4.4% on an operational basis.
Darzalex sales rose 20.7% year over year to $3.02 billion in the quarter, driven by continued share gains across all lines of therapy, particularly the front-line setting, as well as market growth. Sales beat the Zacks Consensus Estimate of $2.96 billion and our model estimate of $2.94 billion.
Stelara declined 6.6% to $2.68 billion in the quarter as market growth was offset by unfavorable patient mix and share loss primarily due to European biosimilar entrants. While U.S. sales of Stelara declined 7.5%, international sales declined 4.8% in the quarter. However, Stelara sales beat the Zacks Consensus Estimate as well as our model estimate of $2.53 billion.
Several biosimilar versions of Stelara are expected to be launched in the United States in January 2025. A biosimilar version of Stelara was launched in certain European markets for certain indications in July 2024.
Imbruvica sales declined 6.8% to $753.0 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 $730.0 million and our estimate of $722.9 million.
Erleada generated sales of $790.0 million in the quarter, up 25.4% year over year, driven by share gains and favorable inventory dynamics. Erleada sales beat the Zacks Consensus Estimate of $778.0 million as well as our model estimate of $755.2 million.
Tremfya recorded sales of $1.0 billion in the quarter, up 13.0% year over year, driven by strong market growth. Share gains were partially offset by an unfavorable patient mix. Tremfya sales slightly missed the Zacks Consensus Estimate and our model estimate of $1.06 billion.
New drug Carvykti recorded sales of $286 million, up 87.7% year over year, driven by share gains and continued capacity expansion. Another new drug, Tecvayli, recorded sales of $135 million in the quarter, up 20.6% year over year, driven by demand growth. However. sequential growth slowed due to the adoption of recently approved longer-duration dosing intervals.
Spravato recorded sales of $284.0 million, up 54.9% year over year driven by the ongoing launch and increased physician and patient demand.
PAH drug Uptravi recorded sales of $458.0 million, up 14.2% year over year. Opsumit recorded sales of $571 million, up 16.8% year over year.
Xarelto sales declined 5.2% in the quarter to $592 million due to unfavorable patient mix and share loss. Invega Sustenna/Xeplion/Invega Trinza/Trevicta sales rose 1.9% to $1.05 billion in the quarter. Simponi/Simponi Aria sales declined 18% to $516.0 million, while Prezista sales rose 0.6% to $449.0 million.
Zytiga sales declined 30.0% to $150.0 million in the quarter due to generic competition. Sales of Remicade were down 9.1% in the quarter to $419 million.
Distribution rights for Remicade and Simponi in Europe will be returned in the fourth quarter which resulted in limited sales of these drugs in the third quarter.
MedTech
MedTech segment sales came in at $7.89 billion, up 5.8% from the year-ago period, as an operational increase of 6.4% was offset by a negative currency movement of 0.6%. MedTech segment sales missed the Zacks Consensus Estimate of $8.07 billion as well as our model estimate of $8.15 billion.
Excluding the impact of all acquisitions and divestitures, and currency, on an adjusted operational basis, worldwide sales rose 3.7%. In the MedTech segment, sales rose 7.8% in the United States and 5.0% outside of the United States on an operational basis.
Sales in the MedTech business were driven by new product uptake and commercial execution, which were partially offset by continued headwinds in Asia Pacific, specifically in China. Sales in China were hurt by the impact of the volume-based procurement (VBP) program and the anti-corruption campaign. VBP is a government-driven cost containment effort in China.
Cardiovascular (previously Interventional Solutions) sales grew 26.2%, driven by the growth of electrophysiology products in all regions and higher sales of Abiomed. The acquisition of Shockwave contributed $229 million to Cardiovascular sales in the third quarter. Worldwide Surgery declined 1.8% due to competitive pressure in energy and endocutters, VBP issues in China and Acclarent divestiture, partially offset by the strength of new products and price increases in Argentina. Worldwide orthopedics rose 1.2%, driven by growth in new products and commercial execution, partially offset by VBP issues in China and revenue disruption from the previously announced Orthopedics transformation. Worldwide Vision rose 3.5% as a decent performance in Contact Lenses was partially offset by China VBP issues and softness in the U.S market in Surgical Vision.
J&J does not expect any improvement in its business in the Asia Pacific region, specifically in China, in the rest of this year. Accordingly, the company lowered its expectation for adjusted operational sales growth in the MedTech segment for 2024 to be closer to 5% versus the prior expectation of being closer to 6%.
2024 Outlook
J&J raised its total revenue expectation for the year as it expects an improved performance in the rest of the year. However, the company lowered its adjusted earnings expectation as its expectation of a better operational performance was partially offset by costs associated with the recent acquisition of private medical device company V-Wave.
Total revenues are expected in the range of $88.4 billion-$88.8 billion for 2024, up from $88.0 billion-$88.4 billion expected previously. The sales range indicates growth in the range of 5.1%-5.6% versus 4.7%-5.2% previously. Operational sales growth is expected in the range of 6.3%-6.8% compared with 6.1%-6.6% previously.
The adjusted operational sales (excluding currency impact, acquisitions/divestitures) growth guidance was raised from a range of 5.5 to 5.7%-6.2% previously.
The revenue figures exclude revenues from COVID-19 vaccine sales.
The adjusted earnings per share guidance was lowered from a range of $9.97-$10.07 to $9.88-$9.98. The earnings range implies growth in the range of -0.4% to 0.6% (0.5%-1.5% expected previously).
On an operational, constant-currency basis, adjusted earnings per share are expected to increase in the range of -0.6% to 0.4% versus 0.8%-1.8% expected previously.
Adjusted operating margin is expected to improve by 50 basis points. Adjusted pretax operating margin is expected to decline 200 bps compared to the prior expectation of a 120 basis points decline from 2023.
Other income is expected to be in the range of $1.9 billion to $2.1 billion versus $1.5 billion to $1.7 billion previously. Net interest income is expected to be between $450 million and $550 million versus the prior range of $300 million to $400 million. The guidance was lowered to account for the interest expenses associated with the recent acquisitions. The adjusted tax rate guidance was maintained in the range of 17.5%-18.5%.
Preliminary Guidance for 2025
In 2025, the company expects sales to be more than its guidance of $57 billion, which it issued in 2021. It expects growth in the Innovative Medicine segment despite the loss of Stelara exclusivity. The growth is expected to be driven by its key products such as Darzalex, Tremfya, Erleada and others as well as new drugs and new indications, including Tremfya in IBD and Rybrevant in non-small cell lung cancer
In MedTech, J&J expects growing operational sales growth at the upper end of its long-term (2022-2027) guidance range of 5-7%, driven by the launch of new products like Varipulse PFA catheter and contributions from Abiomed and Shockwave acquisitions. It expects continued impacts from the VBP issues in China as VBP continues expanding across provinces and products.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -8.58% due to these changes.
VGM Scores
At this time, Johnson & Johnson has an average Growth Score of C, though it is lagging a bit 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 top 40% 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
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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Why Is Johnson & Johnson (JNJ) Down 6.7% Since Last Earnings Report?
It has been about a month since the last earnings report for Johnson & Johnson (JNJ - Free Report) . Shares have lost about 6.7% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Q3 Earnings & Sales Top, Sales View Raised but EPS Guidance Cut
J&J’s third-quarter 2024 earnings came in at $2.42 per share, which beat the Zacks Consensus Estimate of $2.22. Earnings declined 9% from the year-ago period due to higher in-process research and development (IPR&D) costs associated with the NM26 bispecific antibody.
Adjusted earnings exclude after-tax intangible asset amortization expense and special items, including which, reported earnings were $1.11 per share, down 34.3% year over year.
Sales came in at $22.47 billion, which beat the Zacks Consensus Estimate of $22.19 billion. Sales rose 5.2% from the year-ago quarter, reflecting an operational increase of 6.3% and a negative currency impact of 1.1%. Organically, excluding the impact of acquisitions/divestitures and currency, sales rose 5.4% on an operational basis.
Third-quarter sales in the domestic market rose 7.6% to $12.9 billion. Excluding the impact of all acquisitions and divestitures on an adjusted operational basis, domestic sales rose 6.5% in the quarter.
International sales rose 2.2% on a reported basis to $9.56 billion, reflecting an operational increase of 4.6% and a negative currency impact of 2.4%. Excluding the impact of all acquisitions and divestitures on an adjusted operational basis, international sales rose 4.0% in the quarter.
Innovative Medicine
ales in the Innovative Medicine segment (previously the Pharmaceutical segment) rose 4.9% year over year to $14.58 billion, reflecting a 6.3% operational increase and a 1.4% negative currency impact.
Excluding the impact of all acquisitions and divestitures and currency on an adjusted operational basis, worldwide sales rose 6.4%. Innovative Medicines sales beat the Zacks Consensus Estimate of $14.15 billion as well as our model estimate of $13.97 billion.
Higher sales of key products such as Darzalex, Tremfya, Uptravi, Opsumit, and Erleada drove the segment’s growth. New drugs like Carvykti, Tecvayli and Spravato also contributed to growth. The sales growth was partially dampened by lower sales of Stelara, Simponi/Simponi Aria and Imbruvica and generic/biosimilar competition to drugs like Zytiga and Remicade.
In the Innovative Medicines segment, sales in the United States rose 7.5%, while outside U.S. sales rose 4.4% on an operational basis.
Darzalex sales rose 20.7% year over year to $3.02 billion in the quarter, driven by continued share gains across all lines of therapy, particularly the front-line setting, as well as market growth. Sales beat the Zacks Consensus Estimate of $2.96 billion and our model estimate of $2.94 billion.
Stelara declined 6.6% to $2.68 billion in the quarter as market growth was offset by unfavorable patient mix and share loss primarily due to European biosimilar entrants. While U.S. sales of Stelara declined 7.5%, international sales declined 4.8% in the quarter. However, Stelara sales beat the Zacks Consensus Estimate as well as our model estimate of $2.53 billion.
Several biosimilar versions of Stelara are expected to be launched in the United States in January 2025. A biosimilar version of Stelara was launched in certain European markets for certain indications in July 2024.
Imbruvica sales declined 6.8% to $753.0 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 $730.0 million and our estimate of $722.9 million.
Erleada generated sales of $790.0 million in the quarter, up 25.4% year over year, driven by share gains and favorable inventory dynamics. Erleada sales beat the Zacks Consensus Estimate of $778.0 million as well as our model estimate of $755.2 million.
Tremfya recorded sales of $1.0 billion in the quarter, up 13.0% year over year, driven by strong market growth. Share gains were partially offset by an unfavorable patient mix. Tremfya sales slightly missed the Zacks Consensus Estimate and our model estimate of $1.06 billion.
New drug Carvykti recorded sales of $286 million, up 87.7% year over year, driven by share gains and continued capacity expansion. Another new drug, Tecvayli, recorded sales of $135 million in the quarter, up 20.6% year over year, driven by demand growth. However. sequential growth slowed due to the adoption of recently approved longer-duration dosing intervals.
Spravato recorded sales of $284.0 million, up 54.9% year over year driven by the ongoing launch and increased physician and patient demand.
PAH drug Uptravi recorded sales of $458.0 million, up 14.2% year over year. Opsumit recorded sales of $571 million, up 16.8% year over year.
Xarelto sales declined 5.2% in the quarter to $592 million due to unfavorable patient mix and share loss. Invega Sustenna/Xeplion/Invega Trinza/Trevicta sales rose 1.9% to $1.05 billion in the quarter. Simponi/Simponi Aria sales declined 18% to $516.0 million, while Prezista sales rose 0.6% to $449.0 million.
Zytiga sales declined 30.0% to $150.0 million in the quarter due to generic competition. Sales of Remicade were down 9.1% in the quarter to $419 million.
Distribution rights for Remicade and Simponi in Europe will be returned in the fourth quarter which resulted in limited sales of these drugs in the third quarter.
MedTech
MedTech segment sales came in at $7.89 billion, up 5.8% from the year-ago period, as an operational increase of 6.4% was offset by a negative currency movement of 0.6%. MedTech segment sales missed the Zacks Consensus Estimate of $8.07 billion as well as our model estimate of $8.15 billion.
Excluding the impact of all acquisitions and divestitures, and currency, on an adjusted operational basis, worldwide sales rose 3.7%. In the MedTech segment, sales rose 7.8% in the United States and 5.0% outside of the United States on an operational basis.
Sales in the MedTech business were driven by new product uptake and commercial execution, which were partially offset by continued headwinds in Asia Pacific, specifically in China. Sales in China were hurt by the impact of the volume-based procurement (VBP) program and the anti-corruption campaign. VBP is a government-driven cost containment effort in China.
Cardiovascular (previously Interventional Solutions) sales grew 26.2%, driven by the growth of electrophysiology products in all regions and higher sales of Abiomed. The acquisition of Shockwave contributed $229 million to Cardiovascular sales in the third quarter. Worldwide Surgery declined 1.8% due to competitive pressure in energy and endocutters, VBP issues in China and Acclarent divestiture, partially offset by the strength of new products and price increases in Argentina. Worldwide orthopedics rose 1.2%, driven by growth in new products and commercial execution, partially offset by VBP issues in China and revenue disruption from the previously announced Orthopedics transformation. Worldwide Vision rose 3.5% as a decent performance in Contact Lenses was partially offset by China VBP issues and softness in the U.S market in Surgical Vision.
J&J does not expect any improvement in its business in the Asia Pacific region, specifically in China, in the rest of this year. Accordingly, the company lowered its expectation for adjusted operational sales growth in the MedTech segment for 2024 to be closer to 5% versus the prior expectation of being closer to 6%.
2024 Outlook
J&J raised its total revenue expectation for the year as it expects an improved performance in the rest of the year. However, the company lowered its adjusted earnings expectation as its expectation of a better operational performance was partially offset by costs associated with the recent acquisition of private medical device company V-Wave.
Total revenues are expected in the range of $88.4 billion-$88.8 billion for 2024, up from $88.0 billion-$88.4 billion expected previously. The sales range indicates growth in the range of 5.1%-5.6% versus 4.7%-5.2% previously. Operational sales growth is expected in the range of 6.3%-6.8% compared with 6.1%-6.6% previously.
The adjusted operational sales (excluding currency impact, acquisitions/divestitures) growth guidance was raised from a range of 5.5 to 5.7%-6.2% previously.
The revenue figures exclude revenues from COVID-19 vaccine sales.
The adjusted earnings per share guidance was lowered from a range of $9.97-$10.07 to $9.88-$9.98. The earnings range implies growth in the range of -0.4% to 0.6% (0.5%-1.5% expected previously).
On an operational, constant-currency basis, adjusted earnings per share are expected to increase in the range of -0.6% to 0.4% versus 0.8%-1.8% expected previously.
Adjusted operating margin is expected to improve by 50 basis points. Adjusted pretax operating margin is expected to decline 200 bps compared to the prior expectation of a 120 basis points decline from 2023.
Other income is expected to be in the range of $1.9 billion to $2.1 billion versus $1.5 billion to $1.7 billion previously. Net interest income is expected to be between $450 million and $550 million versus the prior range of $300 million to $400 million. The guidance was lowered to account for the interest expenses associated with the recent acquisitions. The adjusted tax rate guidance was maintained in the range of 17.5%-18.5%.
Preliminary Guidance for 2025
In 2025, the company expects sales to be more than its guidance of $57 billion, which it issued in 2021. It expects growth in the Innovative Medicine segment despite the loss of Stelara exclusivity. The growth is expected to be driven by its key products such as Darzalex, Tremfya, Erleada and others as well as new drugs and new indications, including Tremfya in IBD and Rybrevant in non-small cell lung cancer
In MedTech, J&J expects growing operational sales growth at the upper end of its long-term (2022-2027) guidance range of 5-7%, driven by the launch of new products like Varipulse PFA catheter and contributions from Abiomed and Shockwave acquisitions. It expects continued impacts from the VBP issues in China as VBP continues expanding across provinces and products.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -8.58% due to these changes.
VGM Scores
At this time, Johnson & Johnson has an average Growth Score of C, though it is lagging a bit 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 top 40% 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
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.