Johnson & Johnson JNJ, the first among the large health care companies to report first quarter 2015 results, beat earnings expectations yet again. The company’s first-quarter 2015 earnings (excluding special items) were $1.56 per share, four cents above the Zacks Consensus Estimate of $1.52 per share but 4.3% below the year-ago earnings.
First quarter sales of $17.4 billion were just above the Zacks Consensus Estimate of $17.3 billion. Revenues, however, declined 4.1% from the year-ago period.
While operational factors favorably impacted sales by 3.1%, currency fluctuations had a negative impact of 7.2%.
Including one-time items, Johnson & Johnson reported first quarter earnings of $1.53 per share, well below the year-ago earnings of $1.64 per share.
Currency Hits Performance
First quarter sales increased 5.9% in the domestic market. Meanwhile, international sales declined 12.4%, consisting of 0.8% operational growth and 13.2% negative currency impact. Once again, the Pharmaceutical segment recorded sales growth with the remaining two segments recording a decline in sales.
Pharmaceutical segment sales increased 3% year-over-year to $7.7 billion (operational growth of 10.2%). Sales in the domestic market increased 16.9% to $4.4 billion, whereas international sales declined 10.7% to $3.4 billion.
New products like Zytiga, Stelara, Xarelto and Invega Sustenna continued to perform well. Other growth drivers include Invokana/Invokamet, Imbruvica and Simponi. First quarter Zytiga sales were $556 million, up 8.6% year-over-year. Launch in additional countries and label expansion for use in chemo-naïve patients should continue driving sales.
However, hepatitis C virus (HCV) treatment Olysio continued to feel the impact of additional competition with sales declining 27% sequentially and 33.9% from the year-ago quarter.
The Medical Devices segment posted sales of $6.3 billion, down 11.4% from the year-ago period comprising an operational decline of 4.6% and a negative currency movement of 6.8%.
Sales in the domestic market declined 6.1% year-over year to $3 billion; international market sales fell 15.6% year-over-year to $3.3 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 Vision Care business continued with its disappointing performance reflecting buying patterns and competitive pricing dynamics. Johnson & Johnson has received a binding offer from Cardinal Health CAH worth $1.99 billion for its Cordis business.
The Consumer segment recorded revenues of $3.4 billion in the reported quarter, down 4.7% from the first quarter of 2014. Foreign currency movement negatively impacted sales in the segment by 8.1%. Sales in the domestic market increased 3.8% year-over-year to $1.4 billion.
Meanwhile, the international segment recorded a decline of 9.7% with currency having a negative impact of 12.8%. OTC sales increased 10.7% in the U.S. with key products being re-launched. Johnson & Johnson has been working on ensuring reliable and consistent supply of products.
2015 Guidance Cut to Reflect Currency Impact
J&J lowered its earnings outlook for 2015 to $6.04 – $6.19 per share (old guidance: $6.12 to $6.27 per share). Negative currency movement was the main reason for the lowered outlook. The Zacks Consensus Estimate curently stands at $6.18 per share.
Our Take
Although Johnson & Johnson’s first quarter results were better-than-expected, the company lowered its earnings outlook to reflect the negative impact of currency. Moreover, HCV treatment, Olysio, continued to put in a disappointing performance in the face of increased competition.
Olysio, one of J&J’s new and promising product offerings, will continue to be impacted by the changing competitive dynamics in the HCV market. Remicade is also facing biosimilar competition in major EU markets.
Johnson & Johnson is a Zacks Rank #4 (Sell) stock. Companies that currently look attractive in the health care space include Amgen AMGN and Biogen BIIB. Both are Zacks Rank #1 (Strong Buy) stocks.
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