While Johnson & Johnson’s (JNJ, Financial) Medtech sales were lower in the second quarter, revenue from hips and knee replacements was on target or above, a development that could spill over into segment competitors Stryker Corp. (SYK, Financial) and Zimmer Bioment Holdings Inc. (ZBH, Financial), as well as robotic surgery leader Intuitive Surgical Inc. (ISRG, Financial), analysts said in a Fierce Pharma article.
In trading Tuesday, shares of all three of the latter were up substantially, Stryker leading the gain with a 4.24% bump up. Meanwhile, Johnson & Johnson fell $2.54 to $171.69, even though the Dow soared nearly 2.5%, the drop attributed in great part to the company cutting its 2022 sales forecast due to higher inflation and fluctuations in foreign currencies.
Full-year revenue is now expected to be in the $93.3 billion to $94.3 billion range, down from the prior forecast of $94.8 billion to $95.8 billion, Chief Financial Officer Joe Wolk said during an earnings call. He added that the company expects a $4 billion negative impact from currency pressures.
In the U.S., J&J MedTech sales increased 1.6% in the second quarter, but declined 3.6% elsewhere. The company expects the business to stabilize going forward thanks to new products, including a surgical stapler and a balloon guide catheter to remove blood clots.
Margins for the segment dropped from 28.6% to 26.5%, driven by inflation, an unfavorable product mix and increased investments in research and development, Jessica Moore, vice president of investor relations, said on the call.
But the Medtech results seem to be good news for others in certain areas of the business. Stryker and Zimmer stand to benefit from increased demand for their hip and knee replacements, while Intuitive should gain on robotic surgery.
Like other Medtechs, Johnson & Johnson is struggling with higher costs of materials and wage pressures, though those are starting to stabilize, Wolk said.
I own Johnson & Johnson and it has been and will remain a staple of my portfolio. It is about as steady a performer as there is, up 30% during the past five years with no big surprises. One good reason is the diversity of the company’s business, which includes, in addition to Medtech, pharmaceuticals, a segment that makes up more than half of its revenue, vaccines and consumer products. Tack onto those plusses a reasonably healthy dividend yielding more than 2.5%.
Johnson & Johnson will look a bit different next year when it completes the spinoff of its consumer products unit. With that business out of the picture, the company is likely to continue pursuing acquisitions, particularly in biotech, new CEO Joaquin Duato said during the earnings call. The company certainly does not get hung up on pride of ownership; it has pulled off around 40 acquisitions and major licensing agreements in the past five years.
