Johnson & Johnson Q4 report: The numbers behind the healthcare giant's resilience

Johnson & Johnson stock JNJ is set to kick off pharma earnings season with its Q4 earnings results on Tuesday, January 24th, before the market opens, amid a challenging macro environment. The consensus earnings per share (EPS) estimate is $2.24 (+5.2% Y/Y) and the consensus revenue estimate is $23.9 billion (-3.6% Y/Y).

Over the last two years, JNJ has beaten EPS estimates 100% of the time and has beaten revenue estimates 63% of the time. However, over the last three months, EPS estimates have seen one upward revision and three downward revisions, while revenue estimates have seen two upward revisions and three downward revisions.

Despite rising interest rates, a slowing economy, and a strong dollar, JNJ has gained ~3.8% in the year, compared to the ~10% decline in the S&P 500.

The Q4 Presentation

Last quarter, the company lowered its full-year revenue outlook amid inflationary and currency headwinds, making it the third guidance cut for the year. Citing forex headwinds, JNJ trimmed its 2022 guidance for reported sales $93.0 billion - $93.5 billion from $93.3 billion - $94.3 billion. Analysts are estimating $95.02 billion. However, the company reaffirmed reported EPS guidance at $10.02 - $10.07 despite forex impact vs $10.06 consensus.

In April, the company suspended its sales guidance for its FDA-approved COVID-19 vaccine citing a supply glut and demand uncertainty. During the quarter, the Janssen Pharmaceutical unit of Johnson & Johnson announced the FDA had granted accelerated approval for Tecvayli as a treatment for adult patients with relapsed or refractory multiple myeloma after four or more prior lines of therapy.

Amid falling demand, JNJ significantly cut back the production of its COVID-19 vaccine and terminated manufacturing agreements with companies such as Catalent (CTLT) and Sanofi (SNY) (OTCPK: SNYNF) in recent months, The Wall Street Journal reported earlier this month.

In December, JNJ completed the acquisition of cardiac pump maker Abiomed (ABMD) following an M&A agreement the company announced in early November. J&J bought Abiomed in a deal valued at ~$16.6 billion, including debt and cash, or $380 a share in cash initially. JNJ's consumer health division, which will be called Kenvue, has filed to raise up to $100 million through an initial public offering.

JNJ's sales grew 1.9% to $23.8 billion in Q3 2022, fueled by the performance of the Pharmaceutical and MedTech divisions, which helped offset the lower sales from the Consumer Health division. Adjusted earnings per share (EPS) declined 1.9% to $2.55. Nonetheless, both sales and EPS came ahead of expectations.

What The Analysts Expect

Analysts expect Q4 revenue to decline 3.6% year-over-year to $23.9 billion, while adjusted EPS is projected to rise 5% to $2.24. The company is anticipated to benefit from higher sales of Darzalex, Tremfya, and Erleada drugs. JNJ completed the acquisition of Abiomed in late 2022.

Consequently, Abiomed’s performance might not have a material impact on Q4 results. Meanwhile, forex headwinds and competition from generics and biosimilars for some of JNJ’s key drugs are expected to weigh on the Q4 results.

Analysts and investors will pay attention to JNJ's 2023 outlook, especially as the company is gearing up to spin off its Consumer Healthcare unit as a separate entity. The spin-off, which is expected to be completed in the first quarter of 2023, will allow JNJ to focus on its high-growth pharmaceutical and medical device businesses.

The company's pharmaceutical division has been growing at a steady pace, driven by the success of its immunology and oncology drugs, and is expected to continue to be a major contributor to JNJ's growth in the coming years.

Johnson & Johnson's Q4 earnings report is expected to be affected by currency headwinds and higher costs, but the company's diversified business model and strong pharmaceutical division are expected to offset these pressures. Investors and analysts will be paying close attention to the company's 2023 outlook, particularly the spin-off of its Consumer Healthcare unit and the growth prospects of its pharmaceutical division.