Another Earnings Beat from J&J, View Up - Analyst Blog

Johnson & Johnson JNJ, the first among the large health care companies to report first quarter results, beat expectations yet again. The company's first-quarter 2014 earnings (excluding special items) were $1.54 per share, well above the Zacks Consensus Estimate of $1.48 per share and 6.9% above the year-ago earnings of $1.44 per share.

Despite the negative impact of currency fluctuation, Johnson & Johnson recorded growth on the back of strong pharma product sales.

Johnson & Johnson's first quarter sales increased 3.5% year-over-year to $18.1 billion, just above the Zacks Consensus Estimate of $17.9 billion. While operational factors favorably impacted sales by 5.3%, currency fluctuations had a negative impact of 1.8%.

Including one-time items, Johnson & Johnson reported first quarter earnings of $1.64 per share, well above the year-ago earnings of $1.22.

The Quarter in Details

First quarter sales increased 2.2% in the domestic market. Meanwhile, international sales grew 4.5%, consisting of 7.9% operational growth and 3.4% negative currency impact. Only the Pharmaceutical segment recorded growth in the reported quarter with the Medical Devices & Diagnostics segment remaining flat and the Consumer segment declining.

The Medical Devices & Diagnostics segment posted sales of $7.1 billion, unchanged from the year-ago period. Sales, however, declined 2.7% sequentially. While operational factors positively impacted Medical Devices & Diagnostics segment sales by 1.8%, this was offset by negative currency movement.

Sales in the domestic market declined 1.6% year-over year to $3.2 billion; international market sales grew 1.3% year-over-year to $3.9 billion.

Several Medical Devices & Diagnostics 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.

Pharmaceutical segment sales increased 10.8% year-over-year to $7.5 billion (operational growth of 12.2% and negative currency impact of 1.4%). Sales in the domestic market increased 7.7% to $3.7 billion, whereas international sales increased 14.0% to $3.8 billion.

New products like Zytiga, Invokana, Stelara, Xarelto and Invega Sustenna continued to perform well. Other growth drivers included Prezista, and Velcade. First quarter Zytiga sales were $512 million, up 48.8% year-over-year. Launch in additional countries and the label expansion for use in chemo-naïve patients should continue driving sales.

Meanwhile, sales were hampered to a certain extent by generic competition for products like Aciphex and Concerta.

The Consumer segment recorded revenues of $3.6 billion in the reported quarter, down 3.2% from the first quarter of 2013. Foreign currency movement negatively impacted sales in the segment by 2.6%. Sales in the domestic market declined 2.9% year-over-year to $1.3 billion, reflecting the Oct 2013 divestment of the sanitary protection business.

Meanwhile, the international segment recorded a 3.4% decline in sales with currency having a negative impact of 4.1%. OTC sales increased 3.4% in the U.S. with some key products being re-launched. Johnson & Johnson has been working on ensuring reliable and consistent supply of products.

Ups Earnings Guidance

Following the release of better-than-expected first quarter results, Johnson & Johnson upped its 2014 earnings guidance range by 5 cents to $5.80 - $5.90 per share. The Zacks Consensus Estimate for 2014 is currently $5.83 per share, within the guidance range.

Our Take

Johnson & Johnson's first quarter results were strong with the company raising its guidance for the year. Johnson & Johnson has been trying to offset the declining sales of some of its important products by bringing in new products through in-licensing deals and acquisitions. The diversity and strength of the company's underlying businesses should continue to support strong growth in future.

Johnson & Johnson is a Zacks Rank #3 (Hold) stock. Companies that currently look attractive in the healthcare space include Amgen AMGN, Regeneron Pharmaceuticals, Inc. REGN and Allergan AGN. While Amgen and Regeneron are Zacks Rank #1 (Strong Buy) stocks, Allergan is a Zacks Rank #2 (Buy) stock.