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In a role reversal from last quarter, Johnson & Johnson's (JNJ) Innovative Medicine segment (formerly known as Pharma) outperformed the MedTech segment, mainly driven by strength in the oncology portfolio, helping the healthcare giant to surpass Q2 EPS estimates. However, JNJ also cut its FY24 EPS guidance to $9.97-10.07 from $10.57-10.72 to reflect the impact of acquisitions, most notably including its $13.0 bln acquisition of Shockwave Medical on April 5.

• Since the cause for the guidance cut wasn't related to JNJ's expected operational results, participants are mostly looking past the downgraded EPS outlook. Furthermore, similar to the past several quarters, expectations were muted heading into the earnings report, as reflected in the stock's recent lackluster performance.
• Therefore, the fact that JNJ topped EPS expectations while also reaffirming its FY24 revenue guidance of $88.0-$88.4 bln is being viewed as good enough.

Overall, though, JNJ's Q2 results were mixed with the MedTech segment in particular posting disappointing growth.

• On a reported basis, MedTech revenue edged higher by just 2.2% to $7.9 bln, falling short of analysts' expectations. Weighing on the segment was a 4.1% decline in surgical device sales due to ongoing supply chain issues, competitive pressures, and slowing demand for bariatric procedures.
  • The emergence and explosive growth of weight loss drugs, such as Eli Lilly's (LLY) Zepbound or Novo Nordisk's (NVO) Wegovy, is hurting demand for these procedures, as also reported by robotic surgery company Intuitive Surgical (ISRG).
• On the plus side, revenue in MedTech's Cardiovascular business jumped by nearly 16% to $1.87 bln, boosted by Abiomed, the maker of heart pump products that JNJ acquired in 2022.
• Turning to the Innovative Medicine segment, revenue increased by 5.5% on a reported basis to $14.5 bln, up from last quarter's growth of just 1%, primarily driven by JNJ's oncology portfolio.
  • Blood cancer drug Darzalex was a notable standout as sales climbed by 18% to $2.88 bln, helping to mitigate the impact of slowing sales of psoriasis drug Stelara (+3%), which is set to face strong competition from a host of similar treatments next year.

The main takeaway is that while JNJ certainly didn't knock it out of the park with its Q2 results and guidance, the company is experiencing strength in key areas, such as its oncology and cardiovascular businesses.