Health and Science

Johnson & Johnson tops fourth-quarter expectations but signals sales to slow this year

Key Points
  • Johnson & Johnson reported fourth-quarter earnings Tuesday before the bell.
  • The health-care giant makes a wide range of products, from Neutrogena face wash to Acuvue contacts to prescription drugs such as Xarelto and Invokana.
  • A Reuters report claiming J&J knew for decades its talc baby powder contained asbestos has weighed on J&J's stock.
Alex Gorsky, chairman and chief executive officer at Johnson & Johnson.
Christopher Goodney | Bloomberg | Getty Images

Psoriasis treatments and cancer drug sales propelled Johnson & Johnson to another quarterly earnings beat, while sales of its signature baby products and other consumer goods showed slight improvement.

The health-care conglomerate — which makes a wide range of products, from Neutrogena face wash to Acuvue contacts to prescription drugs such as Xarelto and Invokana — reported its fourth-quarter earnings before the markets opened Tuesday.

The company offered its financial forecast for 2019 that was close to what Wall Street is expecting on profit but fell short on sales estimates.

"As you've heard me say before, while we're pleased with our 2018 performance it's important to remember that we are never satisfied," Johnson & Johnson CEO Alex Gorsky told analysts Tuesday on a conference call to discuss earnings results.

Shares of J&J fell by about 1 percent Tuesday morning.

Here's what the company reported during the last three months of 2018 compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $1.97, adjusted, vs. $1.95 expected
  • Revenue: $20.4 billion vs. $20.2 billion expected

In the fourth quarter, Johnson & Johnson reported net income of $3.04 billion, or $1.12 per share, up from a loss of $10.7 billion, or a loss of $3.99 per share a year earlier due to amortization expenses and special items. J&J earned $1.97 per share, above the $1.95 per share expected by analysts surveyed by Refinitiv and after excluding an amortization expense of about $1 billion, $1.29 billion in after-tax litigation expenses and other charges.

Net sales rose 1 percent to $20.4 billion, above expectations of $20.2 billion. The company has now beaten consensus earnings estimates 21 quarters in a row and revenue 14 of the past 21 quarters.

J&J forecast 2019 earnings of between $8.50 and $8.65 per share and revenue in the range of $80.4 billion to $81.2 billion. Analysts previously said they expected earnings of $8.60 per share and $82.69 billion in revenue, according to Refinitiv.

The company is divided in three main business units: pharmaceuticals, medical devices and consumer products. Prescription drug sales accounted for half of the $81.58 billion in revenue J&J generated in 2018.

Pharmaceutical sales continued to shine for J&J in the quarter. Sales reached $10.19 billion, surpassing the $9.99 billion analysts had expected. Anti-inflammatory treatment Stelara posted better-than-expected sales of $1.44 billion, while Simponi fell short at $482 million in sales, compared with the average estimate of $573.3 million, according to StreetAccount.

Prostate cancer drug Zytiga generated $786 million in revenue during the quarter, exceeding StreetAccount expectations of $695.5 million. A judge last year invalidated a patent on Zytiga, allowing generic versions to enter the market. Despite Zytiga's success in the quarter, some investors worry the loss of the patent will erode future sales, Jefferies analyst Jared Holz told CNBC.

J&J's consumer business improved slightly, matching sales estimates of $3.55 billion in the quarter, a slight improvement from the $3.54 billion in revenue it generated during the same quarter in 2017. Sales of baby care products, which includes baby powder, washes and lotions, dipped to $473 million from $490 million in the fourth quarter of 2017. J&J relaunched the line and introduced new products over the summer in hopes of spurring a comeback for the struggling segment.

Its medical device segment continued to struggle. Sales totaled $6.67 billion, short of the $6.68 billion Wall Street had anticipated and down more than 4 percent from $6.97 billion in the same period a year earlier.

J&J's litigation expenses doubled in the quarter as the company fights back against accusations that its talc-based baby powder contained asbestos and caused mesothelioma, ovarian and other types of cancers. The company set aside $1.29 billion for legal costs during the quarter, double the $645 million it spent during the same period in the year before. For the entire year, J&J's litigation expenses totaled $1.99 billion, a 59 percent increase from the $1.26 billion J&J spent in 2017.

A December report from Reuters brought the spotlight on J&J's talc-based baby powder. The story claimed J&J knew for decades its talc baby powder contained asbestos. The company has repeatedly denied any wrongdoing and stands behind its namesake baby powder.

Dozens of court cases have already gone to trial. J&J has won a number of them on appeal, though a Missouri judge in August affirmed the nearly $4.7 billion jury award.

Since Reuters published its report, J&J shares have fallen by about 9.5 percent. Analysts called the sell-off overdone, saying any litigation risk would cost less than the billions of dollars J&J lost in market cap.

"We will continue to fight and defend a product that consumers use around the globe that we know to be safe, not just based on our own scientific evidence, but that from highly respected authoritative bodies across the globe," J&J Chief Financial Officer Joseph Wolk told CNBC's "Squawk on the Street" on Tuesday.