J&J reports a strong Q3 despite fears of recession: what went right?

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Johnson & Johnson (NYSE: JNJ) reported market-beating results for its fiscal third quarter on Tuesday. Shares are still in the red as investors wanted more in terms of future guidance.

CFO discussed results on CNBC

Revenue from “Consumer Health” was up 4.8% this quarter (better than expected) despite fears of a recession. On CNBC’s “Squawk Box”, CFO Joseph Wolk said:

As supply chain issues abates there, we were able to have more products on the shelf, take strategic price increases and see a recovery in that business.

Johnson & Johnson has massively outperformed the market in 2022, down only 2.0% for the year. Its revenue from “Pharmaceuticals” and “MedTech” was up 9.2% and 8.1% this quarter, respectively. Both ahead of Street estimates, as per the earnings press release.

Our pipeline of pharma products – 100 candidates in development, 43 in Phase III, 10 in registration. The cadence of MedTech innovation continues to be extremely strong with 20 new entries this year alone and great free cash flow.

Johnson & Johnson is open to strategic acquisitions and has returned more than $11 billion to shareholders in dividends and stock buybacks.

Johnson & Johnson Q3 report

Earned $4.46 billion versus the year-ago $3.67 billion
Per-share earnings climbed from $1.37 to $1.68
Adjusted for one-time items, EPS came in at $2.55
Sales went up nearly 2.0% year-on-year to $23.79 billion
Consensus was $2.48 a share on $23.36 billion revenue

A 7.7% increase in cost of sales resulted in a 170-bps hit to margin. Still, CFO Wolk said:

We’ve been able to manage our P&L to still prioritise investment, up 8.0% over last year’s record levels, strengthening the future. We’re focused on those initiatives that drive value for patients and consumers.

J&J lowers sales guidance

For the full financial year, J&J narrowed its guidance for adjusted per-share earnings. It now expects $10.02 to $10.07 a share in fiscal 2022. On the sales front, it lowered its outlook and now forecasts $93 billion to $93.5 billion this year.

Wall Street recommends investing in Johnson & Johnson. The average price target on the stock is $186 – more than a 10% upside from here.

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