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Dow-30 Earnings: Johnson & Johnson - Fourth Quarter 2013
Healthcare conglomerate Johnson & Johnson (JNJ - Free J&J Stock Report) recently reported better-than-expected fourth-quarter and full-year results. Sales were $18.4 billion in the final period of 2013, an increase of 5% from the year-earlier figure. This was $312 million ahead of our target and $465 million better than the consensus estimate. For the full year, the top line advanced 6%, to $71.3 billion. EBITDA margins were wider than we had anticipated for both the December quarter and 2013, which enabled adjusted profits to rise to $3.6 billion and $15.9 billion, respectively. Adjusted share net in the fourth period was $1.24, $0.04 above our target and two pennies in front of the consensus figure. For 2013, adjusted share earnings were $5.52, an increase of 8% from the $5.10 reported in 2012. Last year was a very good one for J&J, thanks to the strong results reported by the Pharmaceuticals business, the acquisition of Synthes and its ongoing integration into the Medical Devices & Diagnostics segment, and the strength of key brands on the Consumer side.
On a segment-by-segment basis, the Consumer group reported fourth-quarter and full-year revenues of $3.8 billion and $14.7 billion, respectively, representing gains of 3% and 2%, after unfavorable currency translation. Management said that the positive contributors to results were U.S. sales of TYLENOL and MOTRIN analgesics; upper respiratory OTC products; international sales of baby care offerings; sales of NEUTROGENA and AVEENO skin care goods; etc.
The Pharmaceutical segment notched sales of $7.3 billion and $28.1 billion for the final period and 2013, respectively. Growth amounted to 12% and 11%, and these figures were slightly held back by unfavorable currency headwinds. The top performers on this front were REMICADE and SIMPONI, biologics used to treat immune-mediated inflammatory diseases; biologic STELARA, approved to treat plaque psoriasis and psoriatic arthritis; PREZISTA, a drug used to treat HIV; DOXIL/CAELYX, a medication to treat recurrent ovarian and other cancers; etc. In addition, a number of new products have hit the marketplace, which helped to drive the strong top-line growth here.
Finally, the Medical Devices & Diagnostics segment posted sales of $7.3 billion (a 1% decline) and $28.5 billion (a 4% gain) in the fourth quarter and full year, respectively. Negative foreign currency translation once again slowed growth. The bulk of the growth seen in 2013 was due to the June 2012 addition of Synthes, though sales of electrophysiology and biosurgical products were consistently positive.
Looking ahead to 2014, we think the company is well-positioned to deliver another round of solid share-earnings growth. Management issued full-year guidance of $5.75-$5.85, and our estimate remains at $5.85. Most shops on Wall Street are looking for share net to come in at $5.82.
Also of note is the offer J&J received from The Carlyle Group to acquire its Ortho-Clinical Diagnostics business for $4.2 billion. Management is still mulling over the deal, so we have not made any changes to our presentation. If the offer is accepted, though, the proposed transaction would likely close sometime during the summer months of 2014.
Investors did not react positively to the news, and shares of JNJ slipped modestly in the hours following the release. We surmise most were expecting much stronger share-earnings guidance for 2014. Still, this blue chip continues to trade just below the 52-high of $96. As far as our investment advice goes, not much has changed. We think this issue is fairly valued at the current price, but believe most buy-and-hold types looking for stability and a nice dividend yield would do well here.
About The Company: Johnson & Johnson manufactures and sells health care products. Its major lines consist of numerous household products. The company operates in a diverse number of segments, including Consumer (baby care, nonprescription drugs, sanitary protection, and skin care), Medical Device & Diagnostics (wound closures, minimally invasive surgical instruments, diagnostics, orthopedics, and contact lenses), and Pharmaceutical (contraceptives, psychiatric, anti-infective, and dermatological drugs).
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.