The healthcare giant, Johnson & Johnson (JNJ, Financial) announced its Q4 2014 results early this week. The company’s figures were not so great for the quarter, and it resulted in lots of murmurs among the Wall Street experts. This announcement also had an impact on the share prices of Johnson & Johnson as they came down by 2.6% in a single day. Though the percentage of drop was quite negligible, the fact that it had come from one of the most reputed stocks, did create a flutter among investors and stakeholders of the company. Sales Q4 2014 were reported as $18.3 billion, which was 0.6% lesser than Q4 2013 and the earnings per share had come down to $0.89, as against $1.23 during Q4 2013. All these have indeed raised some concerns; however there is no need to panic. Here are some of the reasons as to why Johnson & Johnson is still one of the safest bets in the stock market
The big picture
Investors of Johnson & Johnson have every right to feel upset about the quarterly results that the company reported recently. However, they should get further more into the details and try to understand the big picture. On the face of it, it does look like the company has reported reduced sales, but, when analyzing further, it will be evident that the company was hit by two important factors – currency exchange problems and unfair comparisons. The U.S. dollar has been strengthening against currencies of other countries; hence Johnson & Johnson’s sales revenue from other countries have indeed taken a hit.
If you ignore the currency exchange crisis, you will be pleased to note that the company had actually reported a 3.9% increase in sales from last year. Johnson & Johnson’s financial health is quite healthy at the moment; however it is dominated by currency problems, which is presenting a different picture to the shareholders and stakeholders. Controlling currency rate fluctuations is definitely not the business of Johnson & Johnson and hence the company should be given due credit for its performance rather than being criticised for a problem that it cannot solve.
The other factor that had hit Johnson & Johnson’s results for Q4 2014 was unfair comparisons. Any company would definitely get impacted if it involves in activities like mergers, acquisitions, divestments etc. Investors and Wall Street analysts should understand that these would just create one time impact on the books and should not be taken as the base for comparison. These divestments and acquisitions have a knack of creating a mess in the financials even though in reality, the books are clean. Johnson & Johnson, too, was no exception to this rule.
During last year, the company acquired Alios BioPharma and sold off its stake in Ortho Clinical Diagnostics. For Q4 2014, it reported a decline of 1.6% operating revenue in the medical device segment. Naturally since Johnson & Johnson had divested its stake in Ortho Clinical Diagnostics, it could not depend on this for boosting its medical devices revenue. The company had just received a one- time setback due to its divestment and the slump (however small or big) in operational revenues should not be attributed to the fact that the company fared badly. This was the mistake that people made with Johnson & Johnson. To understand the intricacies of the company’s performance, investors should try to analyse the financial health, after taking off the one off effects of acquisitions and divestments. Ignoring these impacts, Johnson & Johnson’s medical device segment alone had grown to 1.6% in 2014. This, in reality, is the real financial status of the company. The global sales figures of Johnson & Johnson for Q4 2014 are explained in this picture below:
With some of the breakthrough drugs like Imbruvica ( to treat blood cancer) and Invokana / Invokamet (to treat type 2 diabetes) performing excellently in the international market, Johnson & Johnson is all set to deliver yet another blockbuster performance for 2015. Here is a glimpse of the company’s impressive achievements.
Conclusion
Healthcare and pharmaceuticals are one of the few stable industries in the highly volatile stock market today. When a stalwart in this industry like Johnson & Johnson reports quarterly or annual earnings, it is only wise to read more into these lines and understand how strong it is, to get the real facts. Investors must never make any decisions based on the superficial figures announced, as more often than not, these do not represent the correct picture of an organisation.
