Johnson & Johnson JNJ, the first among the large health care companies to report third quarter 2015 results, beat earnings expectations yet again. The company’s third-quarter 2015 earnings were $1.49 per share, beating the Zacks Consensus Estimate of $1.44 per share but down 7.5% from the year-ago period.
Third quarter sales of $17.1 billion lagged the Zacks Consensus Estimate of $17.4 billion, and declined 7.4% from the year-ago period.
While operational results increased 0.8%, currency fluctuations had a negative impact of 8.2%.
Including one-time items, Johnson & Johnson reported third quarter earnings of $1.20 per share, down 27.7% from the year-ago period.
Currency Hits Revenues
Third quarter sales decreased 0.6% in the domestic market. Meanwhile, international sales declined 13.7%, consisting of 2.1% operational growth and 15.8% negative currency impact.
Pharmaceutical segment sales declined 7.4% year-over-year to $7.7 billion (operational decline of 0.3%). Sales in the domestic market decreased 4.5% to $4.5 billion, whereas international sales declined 11.1% to $3.2 billion.
New products like Stelara, Xarelto and Invega Sustenna continued to perform well. Other growth drivers include Invokana/Invokamet, Imbruvica and Simponi. Third quarter Zytiga sales were $548 million, down 3.5% year-over-year.
However, hepatitis C virus (HCV) treatment Olysio continued to feel the impact of additional competition with sales declining 90.1% from the year-ago quarter.
The Medical Devices segment posted sales of $6.1 billion, down 7.3% from the year-ago period comprising an operational increase of 0.9% and negative currency movement of 8.2%.
Sales in the domestic market grew 2.0% year-over year to $3 billion; international market sales fell 14.8% year-over-year to $3.1 billion.
Several medical devices markets have been facing challenges in the form of austerity measures, pricing pressure and a slowdown in elective surgeries, which have all contributed to more tempered growth rates.
The Consumer segment recorded revenues of $3.3 billion in the reported quarter, down 7.7% from the third quarter of 2014. Foreign currency movement negatively impacted sales in the segment by 10.8%. Sales in the domestic market increased 8.9% year-over-year to $1.3 billion.
Meanwhile, the international segment recorded a decline of 15.7% with currency having a negative impact of 16.1%. OTC sales increased 22.4% in the U.S. with key products being re-launched. Johnson & Johnson has been working on ensuring reliable and consistent supply of products. OTC products like Zyrtec allergy medications and Tylenol and Motrin analgesics, international feminine protection products, Aveeno, Neutrogena and Listerine oral care products performed well.
2015 Guidance
J&J raised its earnings outlook for 2015 to $6.15 – $6.20 per share (guidance provided with second quarter results: $6.10 – $6.20 per share). The Zacks Consensus Estimate currently stands at $6.16 per share.
The company also announced a share buyback program worth up to $10 billion.
Our Take
Although Johnson & Johnson’s third quarter earnings were better-than-expected, all the segments including the usually outperforming Pharmaceutical segment recorded a decline in revenues and total revenues fell short of expectations. Moreover, HCV treatment, Olysio, continued to put in a disappointing performance in the face of increased competition. Zytiga also recorded a decline in sales. Meanwhile, Remicade is facing biosimilar competition in major EU markets. However, the company raised its earnings outlook with third quarter results.
Johnson & Johnson is a Zacks Rank #3 (Hold) stock. Some better-ranked health care stocks include AstraZeneca plc AZN, AbbVie Inc. ABBV and Sanofi SNY. While AstraZeneca is a Zacks Rank #1 (Strong Buy) stock, AbbVie and Sanofi are Zacks Rank #2 (Buy) stocks.
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