Johnson & Johnson Q4 Report: huge loss to tax provision but strong sales growth

Johnson & Johnson products in a Chicagoan drugstore

By Yanchun (Roxanne) Liu

Johnson & Johnson (NYSE: JNJ), one of the world’s largest pharmaceutical makers, reported Tuesday a huge net loss occasioned by a tax charge on cash outside the United States, along with a healthy increase in adjusted quarterly earnings that slightly beat Wall Street expectations. The stock dropped 4.3 percent.

The New Jersey-based health care giant lost $10.7 billion in the fourth quarter, dragging earnings per share down to a loss of $3.99, compared with a gain of $3.81 billion and per-share earnings of $1.38 in the year-earlier quarter. The loss was caused mainly by a provisional charge of $13.6 billion for a liability under the new law that imposes a tax on previously unremitted foreign incomes.

The company holds $16 billion of cash overseas, with approximately $12 billion expected to be repatriated and allocated to fund domestic operations immediately, Chief Financial Officer Dominic Caruso said Tuesday in a conference call.

“In the U.S. we have a shortfall of cash needs versus cash generation, and that’s why we were borrowing in the past,” Caruso said. “So we’ll no longer need to borrow for U.S. purposes, and then the balance of that will immediately pay down debt.”

At the end of the fourth quarter, the drug manufacturer had $16.2 billion of net debt, Caruso said.

Excluding special items like the colossal tax payment, the company’s fourth-quarter earnings rose 9.5 percent to $ 4.78 billion, or $1.74 per diluted share, from $4.36 billion, or $1.58 per share, a year earlier, moderately exceeding the consensus estimate of $1.72 per share compiled by Bloomberg. Quarterly sales jumped 11.5 percent to $20.2 billion from $18.1 billion.

“We still see the company well positioned, driven by key Pharma products such as Darzalex, Xarelto and Imbruvica, even if the net revenues for the last product were a little lighter than expected given some added investment they are making behind that product in conjunction with their partner ABBV,” Vamil Divan and other Credit Suisse analysts stated Tuesday in a note to investors.

Sales in the pharmaceutical segment were $9.7 billion with a 15.5-percent operational growth, excluding the impact of currency translations, from the year-earlier quarter. Oncology drugs revenue soared 35.7 percent, highlighted by an 82-percent rise in worldwide sales of Darzalex and 46-percent of Imbruvica, said the company’s Vice President Joseph Wolk in the call with analysts.

Quarterly sales of cardiovascular metabolic drug Xarelto jumped roughly 19 percent, driven by increasing total prescription market share that rose nearly 2.5 points compared with a year earlier, Wolk said.

For the full year, the company’s earnings dropped 92 percent to $1.3 billion, or 47 cents per diluted share, from $16.5 billion, or $5.93 per share in the prior year. Adjusted earnings rose 6.8 percent to $20 billion, or $7.30 per diluted share, from $18.8 billion, or $6.73 per share. Sales rose 6.3 percent to $76.5 billion from $71.9 billion.

For 2018, the company forecasted sales between $80.6 billion and $81.4 billion with operational growth ranging from 3.5 percent to 4.5 percent. Adjusted diluted per-share earnings for the full year are estimated to be $8.00 to $8.20.

Johnson & Johnson’s shares closed at $141.83 on Tuesday, down $6.31.


Photo at top: Johnson & Johnson products in a Chicago drugstore. (Yanchun Liu/MEDILL)