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Johnson & Johnson Beats Q1 Estimates, Raises Dividend

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Johnson & Johnson (NYSE:JNJ) stock rose 4.7% as of 12:30 PM ET today. Investors are optimistic about the company’s strong first-quarter results and a dividend hike. The healthcare giant’s first-quarter sales grew 3.3% YoY (year-over-year) to $20.69 billion. Meanwhile, analysts expected sales of $19.48 billion. The coronavirus-led demand boosted the results of the company’s Consumer Health and Pharmaceuticals divisions.

However, the COVID-19 pandemic had a negative impact on the company’s Medical Devices segment. Hospitals are delaying surgical and elective procedures. Right now, hospitals have to focus on coronavirus cases.

Meanwhile, Johnson & Johnson raised its quarterly dividend per share by 6.3% to $1.01. The company hiked its dividend for the 58th consecutive year.

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What drove Johnson & Johnson’s Q1 earnings?

Johnson & Johnson’s first-quarter adjusted EPS grew by 9.5% YoY to $2.30. Also, the adjusted EPS easily beat analysts’ estimate of $2.00. Strong sales, lower selling, marketing, and administrative expenses, and reduced research and development expenses drove the company’s earnings.

Sales from the company’s Pharmaceutical division, its largest business, rose by 8.7% YoY to $11.1 billion in the first quarter. Oncology drugs Darzalex and Imbruvica continued to deliver strong results. Due to COVID-19, customers stockpiled drugs and essentials. The Pharmaceuticals division saw incremental demand in Xarelto, Imbruvica, and Stelara drugs, the pulmonary hypertension portfolio, and the HIV category due to the pandemic.

The Consumer Healthcare division’s sales rose by 9.2% YoY to $3.63 billion. Aside from a spike in the demand due to COVID-19, the division’s over-the-counter medicines witnessed higher sales in Adult TYLENOL, Pepcid, ZYRTEC, and Zarbee’s Naturals. The division also benefited from a severe allergy season in the domestic market. The COVID-19 crisis benefited the division’s Skin Health and Beauty business in the US market. However, the coronavirus had a negative impact on Skin Health and Beauty category in the Asia-Pacific region, especially in China. Neutrogena Facial Care continued to deliver strong performance in the US.

Meanwhile, sales of the company’s Medical Devices division fell by 8.2% YoY to $5.93 billion. Medical procedures have been deferred amid the pandemic.

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Coronavirus impacts the company’s outlook

Johnson & Johnson lowered its outlook for 2020 to reflect the impact of COVID-19. Now, the company expects its reported sales to fall by 2%–5.5% to $77.5 billion–$80.5 billion in 2020. In January, the company expected 2020 sales growth of 4.0%–5.0%. The company expects its 2020 adjusted EPS to fall by 9.0%–13.6% to $7.50–$7.90. Previously, the adjusted EPS guidance range was $8.95–$9.10.

The company’s Consumer Health division gained from pantry loading in the first quarter. However, the company doesn’t expect the trend to continue. Despite certain headwinds, the company is confident about delivering the expectations for its Pharmaceuticals business.

However, Johnson & Johnson expects its Medical Devices segment to be impacted by the postponement of medical procedures. Hospitals continue to dedicate resources to address COVID-19. Currently, the company expects COVID-19 to have a $4 billion–$7 billion negative impact on the operational sales in its Medical Devices business in 2020.

Recently, the company partnered with BARDA to jointly invest $1 billion to develop a vaccine for COVID-19. BARDA (Biomedical Advanced Research and Development Authority) is a part of the Department of Health and Human Services. The company is on track to start Phase 1 clinical trials for its COVID-19 vaccine candidate in early September in the US and Europe. The company expects the vaccine to be available for emergency use authorization in early 2021.

As of April 13, Johnson & Johnson stock has fallen by 4.2% year-to-date. Meanwhile, the S&P 500 and the Dow Jones have fallen by 14.5% and 18%, respectively, due to concerns about the impact of COVID-19.

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