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Johnson & Johnson’s Expected Profitability in 1Q16

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Mar. 30 2016, Updated 7:04 a.m. ET

Johnson & Johnson’s profitability

Johnson & Johnson (JNJ) has restructured its business over the past few years, having divested some of its low profitability products, including its ortho-diagnostic business and the Cordis business, in order to improve profitability. The company is also focused on improving revenues from high profitability products.

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Estimated profit margins for 1Q16

For 1Q16, JNJ’s gross margin is expected to improve by 0.3% to 69.9% as compared to 69.6% for 1Q15. This increase should be fueled by the lower cost of goods sold but offset by the negative impact of transaction currency.

JNJ’s EBITDA (earnings before interest, taxes, depreciation, and amortization) margin is expected to improve by ~1.7% at 36.1% for 1Q16, compared to 34.4% in 1Q15. Its operating profit margin is expected to improve by ~0.3% to 31.1% in 1Q16, compared to 30.8% in 1Q15. This improvement will mainly be due to JNJ’s constant efforts to decrease its selling and marketing expenses as well as to its focus on late-stage research and development.

The company’s net profit margin is also expected to improve by over 2% at 26.2% for 1Q16, compared to 24.1% for 1Q15.

Estimated profit margins for 2016

JNJ’s gross margin is estimated to improve by 0.5% YoY (year-over-year) to 59.9% in 2016 due to lower cost of goods sold. The company’s operating profit margin is also expected to increase by over 4% to 29.9% for 2016, compared to 25.0% for 2015. Its net profit margin is estimated to reach 25.2% for 2016, compared to 23.7% for 2015.

Cautious investors might consider ETFs like the iShares US Healthcare ETF (IYH), which has 11.0% of its portfolio in Johnson & Johnson, or the Fidelity MSCI Healthcare Index ETF (FHLC), which has 8.8% of its portfolio in Johnson & Johnson. IYH also has 5.3% of its total assets in Merck (MRK), 6.9% in Pfizer (PFE), and 4.3% in Allergan (AGN).

Continue to the next part for a look at JNJ’s future estimates.

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