Dow component Johnson & Johnson (JNJ 145.07, -3.07, -2.1%) reported its fourth quarter results before the open. Its stock is down in the wake of that report, which might lead one to think it was disappointing. On the contrary, it was an encouraging report. The stock's initial reaction to the news has the markings of being a sell-the-news response.
Johnson & Johnson exceeded analysts' average expectations for sales and earnings. In addition, the company provided full-year 2018 guidance that also exceeded analysts' average expectation.
Specifically, fourth quarter sales increased 11.5% to $20.2 billion, led by sales growth across all three categories. Consumer sales rose 3.1% to $3.54 billion; Pharmaceutical sales jumped 17.6% to $9.68 billion; and Medical Devices sales increased 8.3% to $6.97 billion.
The positive impact of currency helped bolster Johnson & Johnson's quarterly sales growth, but importantly, the bulk of the sales growth was operational. Excluding the impact of acquisitions and divestitures, worldwide sales increased 4.2% in the fourth quarter, with domestic sales up 4.1% and international sales up 4.3%.
Johnson & Johnson leveraged its sales growth and reported a 10.1% increase in adjusted diluted earnings per share of $1.74. On a GAAP basis, which includes an after-tax intangible amortization expense and a net charge for after-tax special items, Johnson & Johnson reported a net loss of $3.99 per share.
The company was encouraged by the performance of its Pharmaceutical business and noted it was pleased by the passage of the recent tax reform legislation. To that end, the company said on its conference call that it will bring back $12 billion of overseas cash immediately due to tax reform.
Johnson & Johnson's full-year 2018 guidance calls for sales in the range of $80.6 billion to $81.4 billion, or operational sales growth of 3.5% to 4.5%. Adjusted earnings are anticipated to be between $8.00 and $8.20 per share, which translates to operational growth of 6.8% to 9.6%.
Shares of JNJ have had an impressive run since the start of 2017, gaining 29% in the interim. Prior to the fourth quarter report, they had increased 6.0% since the start of 2018 as investors were rightfully anticipating good earnings news.
At the current price, JNJ trades at roughly 18x estimated full-year 2018 earnings, which is a slight discount to the market multiple.