Johnson & Johnson’s Business Segment Performance

Johnson & Johnson (JNJ) reported an increase of ~3.9% in revenues in constant currencies to $71.9 billion for 2016 compared to 2015. The company’s US revenues rose 6% to $37.8 billion. Its international revenues fell 0.9% to $34.1 billion due to the negative impact of foreign exchange, offsetting the 1.8% operational growth in international revenues.

The above chart shows the quarterly revenues for each segment. Johnson & Johnson operates three business segments—Pharmaceuticals, Consumer, and Medical Devices. At constant exchange rates, the company reported growth across all segments.

The Pharmaceutical segment contributes nearly 46.5% of Johnson & Johnson’s (JNJ) total revenues. The segment reported revenues of ~$33.5 billion for 2016—a 6.5% increase over 2015. This consisted of an operational increase of ~7.4% and a negative currency impact of ~0.9% during 2016.

The segment’s operational performance was driven by the Oncology and Immunology franchise. It was offset by the competition of hepatitis C products in the Infectious Disease franchise, as well as lower Invega sales in the US markets due to generic competition.

After excluding the impact of hepatitis C sales, as well as acquisitions and divestitures for the Pharmaceutical segment, the Pharmaceutical segment reported growth of 11.5% in worldwide sales.

Johnson & Johnson’s Consumer segment contributes nearly 19% of Johnson & Johnson’s total 2016 revenues, reported revenues of ~$13.3 billion for 2016, a decrease of 1.5% as compared to 2015. The decrease in revenues consisted of an operational increase of 1.5%, offset by a negative currency impact of 3.0% during 2016.

The segment’s operational performance was mainly driven by products from its Over-the-Counter, Oral Care, and Beauty franchises. The revenues from Baby Care products, Women’s Health products, and Wound Care products offset the growth of this segment during 2016. After excluding the acquisitions and divestitures, the Consumer segment reported an increase of 4.3% in worldwide sales.

Johnson & Johnson’s Medical Devices segment contributed nearly 35% to the company’s total revenues. The segment reported revenues of ~$25.1 billion for 2016, a decrease of 0.1% over 2015. There was an operational increase of 0.9% and a negative currency impact of 1.0% during 2016.

The Medical Devices segment reported a decline in revenues due to the impact of divestitures of the Cordis business in 4Q15 as well as the Ortho-Clinical Diagnostics franchise in mid-2014. Key growth drivers included the Advanced Surgery, Vision Care, and Orthopedics franchises, substantially offset by lower sales in the Cardiovascular, Surgery, and Diabetes Care franchises. After excluding the impact of acquisitions and divestitures for the Medical Devices segment, the segment reported 3.8% growth in worldwide sales.

To divest the company-specific risk, investors can consider ETFs like the iShares US Pharmaceuticals ETF (IHE), which holds 9.4% of its total assets in Johnson & Johnson, 8.0% in Pfizer (PFE), 6.1% in Eli Lilly (LLY), and 7.9% in Merck (MRK).