Johnson & Johnson’s profitability
Johnson & Johnson (JNJ) reported a fall in revenues by ~8.8% during 2Q15. The net profit margin improved to 25.4% for 2Q15 compared to 22.2% for 2Q14. This was due to the divestiture of some low profitability products and improved sales of high profitability products.
Gross margin improved by ~0.9% to 69.9% in 2Q15 over 2Q14, driven by a favorable product mix. However, the foreign exchange negatively impacted the gross margin.
Operating profit margin improved by ~3.4% to 32.3% for 2Q15 compared to 28.9% for 2Q14. Selling, administration, and marketing expenses increased as a percentage of revenues by ~2% for 2Q15 following incremental investment spending for both the Pharmaceuticals and Medical Devices segments.
Research and development increased by more than 1.5% as a percentage of sales for 2Q15 due to higher spends on late-stage pipeline and timing of milestone payments for the Pharmaceuticals segment.
JNJ had a net gain of ~$900 million from other income and expenses for 2Q15, compared to a net charge of $200 million for 2Q14. This included a gain of $1.0 billion for the divestiture of Nucynta and a write-down of $100 million for an intangible asset related to Incivo for 2Q15.
Financial guidance for 2015
Johnson & Johnson has revised a few parameters in its financial guidance for 2015. Revenues are estimated between $70.0 billion and $71.0 billion, which is nearly 5%–6% lower than 2014 revenues of $74.3 billion. These revenues estimate an operational increase of 1%–2%, set off by a negative currency impact of 7% for 2015.
Adjusted EPS (earnings per share) is estimated at $6.10–$6.20 for 2015 during 2Q15 earnings. The same was estimated at $6.04–$6.19 for 2015 during 1Q15 earnings.
Investors can consider the Health Care Select Sector SPDR ETF (XLV), which has invested ~9.7% of its total assets in Johnson & Johnson. The fund also holds companies like Merck & Co. (MRK), Novartis AG (NVS), and Pfizer (PFE). Total returns over the last three years were more than 20%.