J&J Beats on EPS but Guidance Lags - Analyst Blog

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Johnson & Johnson's ( JNJ ) fourth quarter 2012 earnings (excluding special items) of $1.19 per share were a couple of cents above the Zacks Consensus Estimate of $1.17 and 5.3% above the year-ago earnings of $1.13 per share.

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

Johnson & Johnson's fourth quarter sales increased 8.0% year-over-year to $17.6 billion, just shy of the Zacks Consensus Estimate of $17.7 billion. While operational factors favorably impacted sales by 9.3%, currency fluctuations had a negative impact of 1.3%. Results included the impact of the recently completed Synthes acquisition, which contributed 5.6% to global operational sales growth.

Including one-time items, Johnson & Johnson reported fourth quarter earnings of 91 cents per share, well above the year-ago earnings of 8 cents.

2012 Highlights

Johnson & Johnson's full-year earnings increased 2.0% to $5.10 per share, a penny above the Zacks Consensus Estimate of $5.09. Johnson & Johnson met the the higher end of its 2012 guidance range of $5.05 - $5.10. Full year sales increased 3.4% to $67.2 billion, slightly below the Zacks Consensus Estimate of $67.3 billion.

Sales increased 3.2% in the domestic market. Meanwhile, international sales grew 3.5%, consisting of 8.4% operational growth and 4.9% negative currency impact. While both the Pharmaceutical and the Medical Devices & Diagnostics segments posted an increase in sales, the Consumer segment recorded a decline in sales.

The Medical Devices & Diagnostics segment posted sales of $27.4 billion, up 6.4%. While operational factors positively impacted Medical Devices & Diagnostics segment sales by 8.7%, foreign exchange movement negatively impacted sales by 2.3%.

Sales in the domestic market increased 8.7% to $12.4 billion; international market sales increased 4.5% to $15.1 billion. Results included the impact of the Synthes acquisition.

Primary contributors to growth included orthopedic sales from Synthes products, Biosense Webster's electrophysiology business, Vistakon's disposable contact lenses and some Specialty Surgery products. Orthopedics sales increased 34.3% to $7.8 billion thanks to the Synthes acquisition. The Cardiovascular Care franchise declined 13.2% reflecting Johnson & Johnson's exit from the drug-eluting stent market.

Several Medical Devices & Diagnostics markets have been facing challenges in the form of European austerity measures, pricing pressure and a slowdown in elective surgeries, which have all contributed to more tempered growth rates. However, there have been some signs of improvement in the rate of growth in hospital admissions and surgeries, including joint replacement.

Pharmaceutical segment sales increased 4.0% to $25.4 billion (operational growth of 6.8% and negative currency impact of 2.8%). Sales in the domestic market increased 0.3% to $12.4 billion whereas international sales increased 7.9% to $12.9 billion.

While the Doxil/Caelyx supply situation and the genericization of Levaquin affected sales, recently launched products like Zytiga, Incivo, Xarelto, Stelara, Simponi and Invega Sustenna continued to perform well. Johnson & Johnson also recorded incremental sales due to the amendment of its distribution agreement with Merck ( MRK ) for Remicade. Other growth drivers include Prezista as well as Velcade. Zytiga sales were $961 million in 2012.

The Consumer segment recorded sales of $14.4 billion in 2012, down 2.9%. Foreign currency movement negatively impacted sales in the segment by 3.4%. Sales in the domestic market declined 2.0% to $5.0 billion, whereas international sales declined 3.4% to $9.4 billion.

2013 Guidance Lags Expectations

Although Johnson & Johnson's fourth quarter and full-year 2012 earnings surpassed expectations, 2013 guidance was disappointing. Johnson & Johnson expects 2013 earnings in the range of $5.35 - $5.45 per share. Guidance was well below the Zacks Consensus Estimate of $5.50 per share and shares were down in pre-market trading.

Johnson & Johnson currently carries a Zacks Rank #2 (Buy). While we expect the company to continue facing headwinds in the form of pricing pressure, currency fluctuation, manufacturing issues and healthcare reform, we believe Johnson & Johnson's diversified business model, lack of cyclicality, and strong financial position will continue helping it pave its way through tough situations.

Other large-cap pharma companies like Eli Lilly ( LLY ) and Sanofi ( SNY ) that will be reporting fourth quarter and full year 2012 results shortly, are also Zacks Rank #2 stocks.

JOHNSON & JOHNS (JNJ): Free Stock Analysis Report

LILLY ELI & CO (LLY): Free Stock Analysis Report

MERCK & CO INC (MRK): Free Stock Analysis Report

SANOFI-AVENTIS (SNY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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