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Why Johnson & Johnson’s 2Q16 Profits Fell by 11.5%

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Jul. 22 2016, Updated 12:14 p.m. ET

Overview

Johnson & Johnson’s (JNJ) 2Q16 profits came in at ~$4 billion as compared to $4.5 billion in 2Q15. Thus, the company registered an ~11.5% YoY (year-over-year) decline in 2Q16 profits. The company’s net EPS (earnings per share) in 2Q16 were reported to be about $1.43, representing a drop of ~11.2% on a YoY basis.

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2Q16 profit decline

The company’s 2Q16 profits declined primarily due to the one-time gains registered in 1Q16 in the company’s prescription drug business. However, amid strong operational sales growth, Johnson & Johnson has increased its earnings forecast for 2016. The company expects to register EPS in the range of $6.63–$6.73 in 2016. This compares to the company’s previous guidance of $6.53–$6.68. The company’s YoY profits fell in 2Q16, but the fundamental earnings potential of the company improved, as evidenced by the increase in its adjusted earnings and gross profit margin. JNJ’s operational performance exhibited strong growth, and the company is expected to register significant revenues and profit margins in the rest of the year.

Johnson & Johnson’s major competitors in the medical device industry include Medtronic (MDT), Becton, Dickinson and Company (BDX), and Abbott Laboratories (ABT), which reported profits of about $1.1 billion, $0.34 billion, and $0.62 billion, respectively, in their recent quarters. Investors interested in gaining exposure to Johnson & Johnson can invest in the Health Care Select Sector SPDR Fund (XLV). XLV invests approximately 12.1% of its total holdings in Johnson & Johnson.

Next, let’s discuss the performance of Johnson & Johnson’s Medical Devices business.

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