Johnson & Johnson (NYSE:JNJ) Posts Q4 Sales In Line With Estimates
Multinational healthcare company Johnson & Johnson (NYSE:JNJ) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 5.3% year on year to $22.52 billion. Its non-GAAP profit of $2.04 per share was 1.3% above analysts’ consensus estimates.
Revenue: $22.52 billion vs analyst estimates of $22.5 billion (5.3% year-on-year growth, in line)
Adjusted EPS: $2.04 vs analyst estimates of $2.01 (1.3% beat)
Adjusted EBITDA: $6.84 billion vs analyst estimates of $6.22 billion (30.4% margin, 9.9% beat)
Operating Margin: 16.1%, down from 19.9% in the same quarter last year
Free Cash Flow Margin: 21.9%, down from 29.3% in the same quarter last year
Constant Currency Revenue rose 6.5% year on year (3.8% in the same quarter last year)
Market Capitalization: $368.1 billion
Company Overview
Founded in 1886 by Robert Wood Johnson in New Jersey, Johnson & Johnson (NYSE:JNJ) develops and sells pharmaceuticals, medical devices, and consumer health products.
Branded Pharmaceuticals
The branded pharmaceutical industry relies on a high-cost, high-reward business model, driven by substantial investments in research and development to create innovative, patent-protected drugs. Successful products can generate significant revenue streams over their patent life, and the larger a roster of drugs, the stronger a moat a company enjoys. However, the business model is inherently risky, with high failure rates during clinical trials, lengthy regulatory approval processes, and intense competition from generic and biosimilar manufacturers once patents expire. These challenges, combined with scrutiny over drug pricing, create a complex operating environment. Looking ahead, the industry is positioned for tailwinds from advancements in precision medicine, increasing adoption of AI to enhance drug development efficiency, and growing global demand for treatments addressing chronic and rare diseases. However, headwinds include heightened regulatory scrutiny, pricing pressures from governments and insurers, and the looming patent cliffs for key blockbuster drugs. Patent cliffs bring about competition from generics, forcing branded pharmaceutical companies back to the drawing board to find the next big thing.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Johnson & Johnson grew its sales at a mediocre 5.4% compounded annual growth rate. This fell short of our benchmark for the healthcare sector, but there are still things to like about Johnson & Johnson.
Johnson & Johnson Quarterly Revenue
Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Johnson & Johnson’s annualized revenue growth of 5.4% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.
Johnson & Johnson Year-On-Year Revenue Growth
Johnson & Johnson also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 4.9% year-on-year growth. Because this number aligns with its normal revenue growth, we can see Johnson & Johnson’s foreign exchange rates have been steady.
Johnson & Johnson Constant Currency Revenue Growth
This quarter, Johnson & Johnson grew its revenue by 5.3% year on year, and its $22.52 billion of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 1.2% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.
Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.
Johnson & Johnson has been a well-oiled machine over the last five years. It demonstrated elite profitability for a healthcare business, boasting an average adjusted operating margin of 31.9%.
Analyzing the trend in its profitability, Johnson & Johnson’s adjusted operating margin decreased by 3 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 2.8 percentage points. This performance was poor no matter how you look at it - it shows operating expenses were rising and it couldn’t pass those costs onto its customers.
Johnson & Johnson Trailing 12-Month Operating Margin (Non-GAAP)
In Q4, Johnson & Johnson generated an adjusted operating profit margin of 22.3%, down 4 percentage points year on year. This contraction shows it was recently less efficient because its expenses grew faster than its revenue.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Johnson & Johnson’s EPS grew at an unimpressive 2.8% compounded annual growth rate over the last five years, lower than its 5.4% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Johnson & Johnson Trailing 12-Month EPS (Non-GAAP)
We can take a deeper look into Johnson & Johnson’s earnings to better understand the drivers of its performance. As we mentioned earlier, Johnson & Johnson’s adjusted operating margin declined by 3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
In Q4, Johnson & Johnson reported EPS at $2.04, down from $2.29 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 1.3%. Over the next 12 months, Wall Street expects Johnson & Johnson’s full-year EPS of $9.99 to grow 4.3%.
Key Takeaways from Johnson & Johnson’s Q4 Results
It was good to see Johnson & Johnson narrowly top analysts’ constant currency revenue expectations this quarter. On the other hand, its EPS was in line. Overall, this quarter could have been better.
