Health care products manufacturer Johnson & Johnson (JNJ
128.44, -2.25, -1.72%) gives back Friday’s advance after the company guided for
mostly in-line earnings on declining sales for the coming year.
Off the bat, JNJ’s fourth quarter results weren’t too bad, as earnings per share beat market views at $1.97, though sales growth of 1.0% to $20.39 bln seemed to disappoint a bit. All told, JNJ closed 2018 with sales growth of 6.7% to $81.6 bln. However, the company doesn’t expect that growth to continue into 2019.
Specifically, management guided full-year 2019 sales down in a range of about 1.5% to about 0.5% to $80.4-81.2 bln. These expectations also reflect expected operational growth in the range of flat to up 1.0% and expected adjusted operational growth in the range of 2.0-3.0%. The company also announced adjusted earnings guidance for full-year 2019 of $8.50-8.65 per share, reflecting expected operational growth in the range of 5.7-7.6%. Additionally, based on current spot rates, JNJ expects currency to have a more negative impact in the first half of 2019.
By business, JNJ saw the best results out of its Pharmaceutical segment – which represented just shy of 50% of overall Q4 revenues – as sales grew 7.2% to $10.19 bln driven mostly by a strong uptake in STELARA, expanded indications of SIMPONI/SIMPONI ARIA, a strong launch uptake of TRAMFYA, and growth in the U.S. immunology market.
Within the Pharmaceutical business, pricing pressures continued to impact all categories in Orthopaedics. For the quarter, U.S. peer price was negative across all platforms by approximately negative 4.5% in Spine, including a one-time pricing true-up, negative 3.5% in hips, negative 2.5% in knees, and negative 2% in trauma. Pricing pressure in the Pharmaceutical segment is expected to persist, and a stronger U.S. dollar will likely result in a negative impact on reported results in 2019.
JNJ’s Consumer segment – which sells everything from Tylenol and Benadryl to LISTERINE – saw Q4 sales increase 3.3% to about $3.54 bln. The company’s smallest segment by overall sales, Consumer saw strength in U.S. Aveeno Baby category as well as gains from the Johnson's Baby relaunch, evidenced by the seven point increase in U.S. consumption data since the launch with plans to continue to launch into other markets in 2019. Further, management expects Consumer to maintain above market growth and anticipates that its five main segments will continue to improve.
In the Medical Devices business, JNJ didn’t fare as well, as overall Q4 sales dipped 2.2% to about $6.67 bln consisting of a negative impact from currency of 0.4%. Excluding the net impact of acquisitions and divestitures, primarily the divestiture of the diabetic LifeScan business, adjusted sales growth was 3.3% worldwide and accelerated on a sequential basis. Additionally, management believes that improved execution and new product introductions will enable the Medical Devices segment to continue to improve growth, advancing on JNJ’s goal to be above market growth in 2020.
Plagued by recent reports of asbestos in its talc-based baby powder products, shares of JNJ have lost more than 13.5% since December highs. Management has refuted allegations that baby powder contains traces of the carcinogen, stating that independent bodies found “no causation between talc, baby powder and ovarian cancer or any type of asbestos-related disease.”
On the conference call this morning in which management elaborated on the Q4 results, CEO Alex Gorsky addressed the talc allegations once more stating, “We remain committed to ensuring that facts about talc are understood and we will continue to defend the safety of our product. We have a legacy of working hard to earn our customers' trust and working equally hard to keep it. We will continue to focus on meeting the needs of the patients and consumers around the world who have come to depend on us and put their trust in us each and every day.” In short, the company’s rhetoric hasn’t changed, as they’ve been staunch in their belief that there is no connection between the talc-based baby powder products it sells and ovarian cancer.
The company also commented in the conference call on the state of the healthcare industry as a whole. To be brief, management stated that it has engaged and continues to engage with the Trump administration to better combat the cost of today’s healthcare, which JNJ management suggested was “one of the most pressing issues facing our country today.” On a company-basis JNJ noted that, in 2018, the net prices of its medicines declined between 6% and 8%. On the geopolitical front, JNJ management stated that it was hopeful that an agreement could be reached with China that addresses concerns.
The majority of JNJ's peers trade lower today -- albeit juxtaposed against a weaker broader market -- with BAYRY -1.84%, RHHBY -0.89%, NVS -0.76%, MDT -0.69%, ABT -0.49%, PFE -0.33%, and GSK -0.15% all lower, while MRK +0.05% clings to a slight gain.