The Stock of Johnson & Johnson Rises as Sales for the Third Quarter Beat Expectations and Guidance is Raised

Johnson & Johnson's shares initially saw an uptick on Tuesday after the pharmaceutical giant announced better-than-expected third-quarter sales and raised its full-year revenue forecast. However, despite the early rise, the stock later reversed course and was down 0.7% by 9:34 a.m. Eastern time.

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For the third quarter, Johnson & Johnson reported net income of $2.694 billion, or $1.11 per share, a decline from $4.309 billion, or $1.69 per share, during the same period last year. The company attributed this drop in profit to a one-time special charge and costs associated with acquired in-process research and development (IPR&D). Excluding these nonrecurring expenses—such as asset amortization and acquisition-related costs—adjusted earnings per share came in at $2.42. Although this was a decrease from last year’s $2.66 per share, it still exceeded analysts’ expectations. The FactSet consensus had projected earnings of $2.21 per share.

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Johnson & Johnson’s sales for the quarter grew 5.2%, reaching $22.471 billion. This was above the $22.17 billion that analysts surveyed by FactSet had anticipated. The company's strong performance prompted it to raise its full-year operational sales guidance to a range of $89.4 billion to $89.8 billion, up from the previous forecast of $89.2 billion to $89.6 billion.

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Additionally, Johnson & Johnson updated its adjusted operational earnings per share outlook, now expecting it to fall between $9.86 and $9.96 per share, down from the earlier projection of $10.00 to $10.10 per share. The company noted that the revised outlook reflects its better-than-expected performance as well as the impact of its recent acquisition of V-Wave, a medical technology company.

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Johnson & Johnson’s business is divided into several operating segments, with innovative medicine and medtech being key drivers. The innovative medicine segment generated $14.58 billion in revenue for the third quarter, an increase from $13.893 billion during the same period last year. This figure also exceeded the FactSet consensus estimate of $14.105 billion. Medtech, another important segment for the company, saw revenue rise to $7.891 billion, compared with $7.458 billion a year earlier. However, medtech revenue came in below analysts’ expectations, as the FactSet consensus had predicted $8.051 billion.

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Several of Johnson & Johnson’s pharmaceutical products contributed significantly to its quarterly results. Stelara, a popular treatment for psoriasis, saw sales dip by 6.6%, bringing in $2.676 billion for the quarter. Despite the decline, Stelara’s revenue still surpassed the FactSet consensus forecast of $2.494 billion. Meanwhile, Darzalex, a drug used to treat cancer, experienced strong growth. Sales for Darzalex jumped 20.7% to $3.016 billion, surpassing the consensus estimate of $2.928 billion. These key drugs continue to play an essential role in the company’s overall financial performance, helping to bolster its results in the face of certain headwinds.

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The company’s updated guidance for the full year underscores its solid operational performance in the third quarter. Raising its revenue forecast and adjusting its earnings outlook to account for recent acquisitions, Johnson & Johnson demonstrated confidence in its ability to navigate the current business environment. The acquisition of V-Wave is expected to positively impact future growth, further contributing to the company's strong market position in the medtech space.

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Despite the initial rise in the stock price following the earnings report, shares of Johnson & Johnson eventually pulled back. This could reflect a broader market reaction to certain underlying factors, such as the revised earnings per share guidance, which fell below the earlier projection of $10.00 to $10.10 per share. Investors may have been cautious about this downgrade, even though the company’s sales and adjusted earnings surpassed expectations.

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So far in 2024, Johnson & Johnson’s stock has risen by 2.7%, underperforming compared to the S&P 500 index, which has gained 23% over the same period. This divergence in performance suggests that while the company remains a strong player in the pharmaceutical and healthcare sectors, it faces challenges in keeping pace with the broader market, particularly in a year where tech and growth stocks have driven much of the market’s gains.

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The company’s results indicate continued strength in key product areas, particularly in its innovative medicine segment, but also highlight some challenges, such as the decline in sales for Stelara and the underperformance of its medtech business relative to analyst expectations. Moving forward, Johnson & Johnson will likely focus on expanding its product offerings, especially in medtech and innovative medicines, while integrating its recent acquisitions to drive future growth.

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In conclusion, Johnson & Johnson delivered solid third-quarter results, with better-than-expected sales and earnings, but concerns about its guidance and certain operational challenges caused the stock to retreat after an initial rally. The company's performance remains robust, but it faces pressure to enhance its growth trajectory in a competitive market. Investors will be closely watching how Johnson & Johnson navigates the remainder of the year, especially in light of its updated earnings guidance and recent acquisitions.

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