Image Source: J&J quarterly presentation.
Amid headline pressure from consumer lawsuits, Johnson & Johnson continues to execute well, as evidenced by its solid second quarter report.
By Kris Rosemann
Newsletter portfolio holding Johnson & Johnson (JNJ) turned in a solid second-quarter 2018 report that revealed total reported sales growth of 10.6% on a year-over-year basis thanks in part to a nearly 12% international sales increase. Double-digit growth in the company’s ‘Pharmaceutical’ business and improving top-line momentum in ‘Medical Devices’ were cited as key drivers of the top-line expansion. A number of drugs reported impressive sales growth rates in the second quarter, but most impressive may have been its Oncology division delivering 42% reported year-over-year growth. Adjusted diluted earnings per share advanced 14.8% from the year-ago-period to $2.10.
Following the impressive quarter, Johnson & Johnson adjusted its full-year guidance. Sales guidance has been tightened to a range of $80.5-$81.3 billion from $80-$81.8 billion, reflecting operational sales growth of 4.5%-5.5% (previously 4%-5% operational sales growth expectations) and an unfavorable currency impact. Full-year adjusted earnings per share are now projected to be in a range of $8.07-$8.17 (was $8.00-$8.20), which reflects expected operational growth of 8.5%-9.5%.
Though J&J continues to execute well, specifically in its growth engine ‘Pharmaceutical’ business, shares have done little other than move sideways thus far in 2018 as concerns surrounding consumer lawsuits related to talcum powder continue to swirl the company. The most recent blow came via a $4.69 billion award to a group of consumers from a Missouri jury. J&J will appeal the decision, but any outcome is far from guaranteed. We continue to be of the opinion that the company’s litigation risk is manageable, ”Johnson & Johnson’s Litigation Risk Manageable,” but we will continue to monitor the situation as additional information comes to light.
Shares of Johnson & Johnson yield ~2.8% as of this writing, and its Dividend Cushion is a strong 2.3, suggesting it may have cushion enough to handle even more material litigation risk. We continue to evaluate levels of exposure to J&J and may scale back some in coming months. The company remains a key position in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio, however.
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Kris Rosemann does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.