Healthcare giant Johnson & Johnson (JNJ, Financial) reported earnings results for the its third quarter of fiscal on Oct. 13. Revenue increased just 1.7% year over year to $21.1 billion, but easily topped Wall Streets' expectations by $927 million. Adjusted earnings per share increased 8 cents, or 3.8%, to $2.20. This was 22 cents above consensus estimates.
The Pharmaceutical segment continues to be the growth engine for Johnson & Johnson as sales increased 5% to $11.4 million. U.S. sales were up just 1.5%, but international improved 9.7%.
Oncology was the top performing business. Darzalex, the company's treatment for multiple myeloma, increased 44% overall, including 46% growth in the U.S. This drug continues to see its market share increase in the U.S. and European Union. Imbruvica, used to treat lymphoma, was up 12%, mostly due to a 22.5% increase in international sales on account of higher uptake rates. U.S. sales were little changed due to unfavorable prior year inventory comparisons.
Immunology was up 2.1%. Stelara continues to see strong uptake rates for use in patients suffering from Crohn's Disease and Ulcerative Colitis. Tremfya, the company's treatment for moderate to severe plaque psoriasis, had sales growth of 13.1%. U.S. sales were up 0.4%, but international improved more than 54% as demand was very high.
Remicade, which treats arthritis, decreased 18.9% worldwide, but more than 30% internationally. This product has resorted to higher rebates and discounts to offset biosimilar competition. Remicade remains Johnson & Johnson's best-selling drug. Stelara, which is used to treat immune-mediated inflammatory diseases, was up almost 15%.
After declining last quarter, the Consumer segment retuned to growth this time around. Sales came in slightly ahead of estimate, growing 1.3% to $3.5 billion. U.S. sales were up an impressive 11.6%, but international was a 5.6% drag on segment results. Included in this was a 2.9% headwind from currency exchange.
Sales for over-the-counter, the second largest business within Consumer, grew 4% and were driven by market share gains made by Tylenol and Zyrtec. Pepcid benefited from the removal of a competitor. Wound Care, the smallest business within this segment, increased 12.5% due to strength in Band-Aid in the U.S. and rubbing alcohol in the Asia Pacific region.
Offsetting this was a slight decline of 0.2% in Skin Health and Beauty, the largest business within this segment, due to increased retail stocking and market share gains for hair-care brand OGX. Covid-19 negatively impacted Cleansing, Sun Care and Make Up. Women's Health fell nearly 10% due to protection pricing in the Europe/Middle East/Africa region.
The Medical Device segment continues to struggle as sales fell 3.7% to $6.2 billion, but was better than analysts' expectations for sales of $5.5 billion. U.S. turned positive, with sales inching up 1.2%. International markets were quite weak, declining more than 8%.
Interventional Solutions was higher by 13%. This business benefited from a combination of new products and growth in the number of atrial fibrillation procedures.
Unfortunately, this is the smallest business within Medical Devices and the only one to grow year-over-year. The pandemic has forced the health care system to put off elective surgeries, hurting many names in the medical device sector. Surgery declined 6.9% as gains made in biosurgery were more than offset by the performance of endocutters, energy and general surgery. Orthopaedics decreased 2.6% even as hip and trauma procedures were once again higher. Knee procedures were down once more.
Guidance
Johnson & Johnson also updated guidance for the remainder of the year. The company expects revenue of $81.2 billion to $82 billion for 2020, up from previous guidance of $79.9 billion to $81.4 billion. Adjusted EPS is now projected to be in a range of $7.95 to $8.05, up from $7.75 to $7.95 previously. This is the second consecutive quarter that Johnson & Johnson has raised its top and bottom-line guidance.
Valuation
Shares declined 2.3% following the release of earnings. This was likely due to the company's announcement on Oct. 12 that it was pausing its 60,000-patient clinical trial for its Covid-19 vaccine after a patient developed an unexplained illness. Pauses of clinical trials can be common, especially for very large studies. Other companies, including AstraZeneca (AZN, Financial) Eli Lilly & Company (LLY, Financial), have also paused clinical trials.
Johnson & Johnson closed Tuesday's trading session at $148.36, giving the stock a forward price-earnings ratio of 18.5 based off of revised company guidance. The stock has averaged a price-earnings ratio of 17.3 over the last decade and 20.1 over the last five years.
The current valuation is slightly higher than the intrinsic value estimated by the GuruFocus Value chart.
Johnson & Johnson put together a solid quarter, one that easily topped analysts' estimates for both revenue and adjusted EPS. The Pharmaceutical division, powered by oncology, continues to perform well and the Consumer segment returned to growth. Medical Devices continues to face Covid-19 pressure, but some businesses saw growth once again.
Shares were weaker following the release, but most likely due to the company's pausing its Covid-19 clinical trial. Overall, I'm not terribly worried about this as Johnson & Johnson just delivered a strong quarter.
With 58 consecutive years of dividend growth, Johnson & Johnson has one of the longest growth streaks in the market place. I believe the stock should be one of the first names dividend growth investors buy for their portfolio.
Even with an elevated valuation using either the 10-year average earnings multiple or the GuruFocus Value chart, I believe that Johnson & Johnson is worth buying any time it is even close to being fairly valued. Thus, my wife and I bought shares of the company at $184.66 recently.
Author disclosure: the author maintains a long position in Johnson & Johnson.
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