Pharmaceutical major Johnson & Johnson (NYSE: JNJ) is a truly iconic company. It was founded all the way back in 1886.
Over the many years, J&J’s steady growth has turned it into a massive company. It holds a $275 billion market capitalization, and has a hand in a number of different areas, including pharmaceuticals, medical devices and consumer products – each of which is a huge business.
In fact, J&J now holds the world’s sixth-largest consumer health company, the largest medical devices business, the sixth-largest biologics company, and the fifth-largest pharmaceuticals company. In all, J&J has more than 265 companies across more than 60 countries.
Plus, it’s a market leader in its various industries. The company derives approximately 70% of its revenues from either No. 1 or No. 2 global leadership positions in their respective markets.
As a result, when J&J speaks, the market listens. Johnson & Johnson earnings for the second quarter were released Tuesday. Here are the key takeaways for investors.
Results Beat Estimates
Importantly, J&J beat analyst expectations on profit and met expectations on revenue. Overall, adjusted earnings per share fell 4% to $1.71, which topped projections of $1.67 per share, according to estimates compiled by Thomson Reuters.
Revenue clocked in at $17.8 billion, which met consensus. However, revenue fell 8.8% year-over-year, although it’s worth noting that revenue was severely impacted from unfavorable currency movements.
For example, the strengthening U.S. dollar shaved a whopping 7.9% off J&J’s revenue last quarter. Excluding foreign exchange – as well as the impact of acquisitions and divestitures – revenue would have actually increased 1.7%.
This is an important takeaway for investors – to not react overly negatively to corporate earnings this quarter based on currency. The rising U.S. dollar is making it hard for multinational companies of all sorts.
Underlying Business Trends Remain Strong
It’s more useful for investors to focus on core organic results that strip away the effects of the foreign exchange markets. Companies have no control over currency. What they can control – their underlying business operations – should be the focus.
On an operational basis, J&J’s adjusted earnings per share increased 6.7% during the quarter. This is actually a strong result, and indicates the company’s products are still enjoying solid demand.
This is evident from the fact that operationally, J&J saw success across its businesses. Organic revenue grew 2.3% in consumer products, and rose 1% in pharmaceuticals.
Medical devices saw revenue decline 4.7% on an operational basis, but this had a lot to do with divestments. Recall that J&J sold its Cordis business for approximately $2 billion. Excluding businesses sold and foreign exchange, sales actually increased 1.4% across the globe.
Focus on the Long Term
It’s easy to be disappointed by J&J’s results last quarter based on the headline numbers. But focusing too much on one quarter’s results can lead an investor to miss the bigger picture, which is that the business remains extremely strong.
J&J’s long-term results bear this out. It has achieved 31 consecutive years of adjusted earnings growth, and has increased its stock dividend for 53 years in a row.
Investors have been richly rewarded for their patience. According to the company, over the last 10 years the stock has provided an 8.3% total return, compared to a 7.7% total return for the S&P 500 index in that time. And J&J remains one of only three U.S. based companies to hold a triple-A credit rating from Standard & Poor’s.
As a result, Johnson & Johnson remains a great investment.
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