Johnson & Johnson Falls While Meeting Expectations

Alan Penny

22 January 2020

3 min read

  • Q4 earnings meet expectations
  • Stock falls anyway
  • Negotiation moving forward

Early in the Wednesday session, Johnson & Johnson released its earnings for the fourth quarter. While it did meet the Wall Street expectations, it doesn’t seem to be impressive enough for the market itself. This shows that, perhaps, traders are trying to find a way to get away from staples and reach further out on the risk spectrum.

The announcement met expectations

The fourth-quarter earnings met Wall Street expectations, but it doesn’t seem as if the market is going to reward Johnson & Johnson for that result.

Shares were down 1.2% after the announcement that came out at $1.88 per share for the fourth quarter of 2019. This was not only in line with consensus, but $0.01 above many of the analysts out there.

a “safety play” going into the future, despite the opioid issues

Johnson & Johnson reported revenues of $20.75 billion for the quarter, falling slightly short of the $20.83 billion expected by the majority of analysts. However, the slight miss in revenues was offset by tightening of expenses, and therefore most healthcare trading desk analysts are willing to give Johnson & Johnson a pass when it comes to the revenues falling slightly lower than anticipated.

The company has offered guidance for 2020, saying it expects operational sales to increase by 5% to 6% from the previous year, and that the adjusted operational earnings-per-share will be between $8.95 and $9.10 for the entirety of the year. This has some analysts out there very positive on sales growth, suggesting it should quell any concerns surrounding pharmaceutical and medical device units.

Johnson & Johnson CEO Alex Gorsky stated that sales and earnings growth during the previous year was “driven by the strength of our Pharmaceutical business, accelerating performance in our Medical device business and improved profitability in our Consumer business.” That being said, there is still the specter of the opioid crisis in the United States hanging over the head of the company. Johnson & Johnson CFO Joseph Wolk says that he remains “cautiously optimistic” on the opioid negotiations and expects to hear more in the next few months from lead negotiators.

During this past October, Johnson & Johnson agreed to pay $4 billion in a deal with four state attorney generals to settle litigation against the company for its handling of opioids. The deal has not been finalized yet and needs approval from a large host of plaintiffs.

The company also reported quarterly sales of $10.5 billion in its pharmaceutical unit, up 3.5% from the same quarter last year. This shows signs that the company still has forward momentum.

With this in mind, Johnson & Johnson will more than likely attract value hunters and will continue to be considered a “safety play” going into the future, despite the opioid issues.

$4 billion settlement a mere blip

Johnson & Johnson remains a very solid and cash-flush company, so while a $4 billion negotiated settlement may bankrupt some companies, it is simply a temporary setback for this giant.

JNJ should continue to be one of the leaders when it comes to consumer products and healthcare in the United States, leading traders to look for it in times of market disruption.

Written By
Alan Penny

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