Johnson & Johnson (NYSE:JNJ) announced its quarterly earnings for Q1 2012 on April 17th, in which it reported $16.14 billion in sales, a slight decline of 0.2% y-o-y. This fall could be attributed to a drop in sales from consumer and devices & diagnostics segment. Only the pharmaceutical segment registered 1.2% growth in revenues riding on improved sales from international markets. As far as the net earnings are concerned, there was a positive impact appearing from some of the non recurring items in Q1 like an after-tax gain of $106 million associated with the acquisition of Synthes in 2012. Hence, despite a drop in revenues, JNJ reported higher net earnings of $3.91 billion compared to $3.48 billion in Q1 2011. JNJ is a big pharma company and operates through three segments namely, consumer, pharmaceuticals, and diagnostics. It competes with Pfizer (NYSE:PFE), Merck (NYSE:MRK) and Abbott Labs (NYSE:ABT).
What Happened to the Top Line & Margins?
As anticipated, JNJ enjoyed solid growth in international markets, which increased by 4.1% whereas sales from the U.S. declined nearly 5%. Among its three segments, the pharmaceutical segment was slightly upbeat in Q1. Under pharmaceuticals, immunology drugs enjoyed nearly 20% growth whereas sales from infectious disease drugs dropped 19% because of Levaquin, which lost almost 93% in sales due to generic competition. The suspension of manufacturing at McNeil Consumer Healthcare significantly impacted OTC medicines sales in the U.S..
During the quarter, higher expenditure on cost of goods sold and lower expenditure on R&D resulted in a slight improvement in margin. If we exclude from the earnings the non-recurring items like litigation and currency related gain/loss appearing from acquisitions, it registered a net income of $3.80 billion in Q1 2012 compared to $3.75 billion same period last year, a 1.5% increase. Accordingly, the net income margin improved from 23.16% in Q1 2011to 23.57% in Q1 2012.
The company increased its guidance for 2012 full year. As evidenced by improved sales growth from international markets especially emerging markets in Q1, we expect higher revenues from these markets in future as well. Consumer segment revenues from international markets are still subdued and a planned strategy to capture key emerging markets can prove rewarding for JNJ. We expect, the Synthes acquisition, about to be completed during 2012, should drive growth for JNJ in future through diagnostics division.
We maintain a $72.45 price estimate for JNJ, which is nearly 10% above market price largely based on the its long term outlook.