Johnson & Johnson (JNJ) Earnings Beat, Revenue Miss

Johnson and Johnson earnings ()

Johnson and Johnson earnings ()

Shares of Johnson & Johnson (JNJ) are trading almost 2% lower in Tuesday’s pre-market session after the healthcare conglomerate released mixed fourth quarter fiscal 2016 earnings results and beat on the bottom line, but missed on the top. But given the rate at which the company has moved to lower costs, that shouldn't’ have been much of surprise.

What was a surprise, however, was that the company announced it was evaluating “strategic options” for its diabetes care companies, which include LifeScan Inc., Animas Corp. and Calibra Medical Inc. The options may include sales of the businesses, partnerships or joint ventures. All told, Johnson & Johnson needs a healthy dose of growth. And the Dow component seems intent on focusing on the bottom line as revenue growth options continue to evade. Let’s go through the numbers.

For the quarter that ended December, the New Jersey-based consumer products reported a net income of $3.81 billion, or $1.38 per share, up from $3.22 billion, or $1.15 per share, in the same period a year ago. On an adjusted basis, when taking out one-time gains and cost, earnings were $1.58 per share, which was enough for a 2-cent beat. Fourth quarter revenue grew 1.7% year over year to $18.11 billion, up from $17.81 billion a year ago, but missing consensus of $18.26 billion.

The company said net revenues were negatively impacted 1.3% by currency fluctuations. When adjusting out certain impacts, including acquisitions, divestitures and additional shipping days, Johnson & Johnson said worldwide revenue would have increased 7.6%. “The strong adjusted sales and EPS growth was driven by the impressive performance of our Pharmaceutical business and continued momentum in our Medical Device business and share gains while improving profitability in our Consumer business," said CEO Alex Gorsky in a statement.

The company, however, while evaluating “strategic options” for its diabetes care companies, didn’t comment about Actelion, the Swiss biotech firm it attempted to acquire last month. Reports suggest that both sides had reached a tentative agreement and talks could accelerate in the weeks ahead. It remains to be seen what emerges from these discussions or what the company decides to do with the diabetes care business. But it’s tough to ignore the potential value these moves could create.

Reports suggest that if or when a deal with Actelion is completed, Johnson & Johnson could spin off Actelion's R&D assets into a new business, allowing current Actelion shareholders to retain some ownership. Meanwhile, divesting the diabetes care companies — or other “strategic options” — would further reduce Johnson & Johnson’s overhead and put the company on track to achieve its target cost savings of some $1 billion in the next two years.

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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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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