Johnson & Johnson|Fundamental Analysis|Price action| MUST READ!In a nutshell, Johnson & Johnson's third-quarter results were generally good. The company reported a 10.7% year-over-year increase in revenue to $23.3 billion. Adjusted earnings per share rose 18.2% to $2.60, well above the consensus estimate of $2.35.
Given the large earnings outperformance, you'd probably think the health care company's stock should have rallied Tuesday after the quarterly report was released. And you'd be right. J&J stock opened up about 1% and gained even more momentum during the day. Perhaps the rise would have been greater had it not been for the company's third-quarter earnings, which came in below analysts' average forecast of $23.7 billion.
But there was more to this story for the health care giant than just the underlying numbers. Here are three things you might have missed about Johnson & Johnson's third-quarter results.
First and foremost, three products accounted for 63% of the growth.
Many investors love Johnson & Johnson largely because of its diversification. The company has three multi-billion dollar business segments targeting different areas of healthcare. Hundreds of products are sold in these segments. In 2020, J&J claimed 28 products or platforms with annual sales of more than $1 billion.
Although Johnson & Johnson's business is broadly diversified, the drivers of its growth in the third quarter were not. Just three products accounted for about 63% of the company's total revenue growth. These products accounted for nearly 90% of J&J's pharmaceutical sales growth.
Not surprisingly, the COVID-19 vaccine tops the list. It brought in $502 million in the third quarter, up from no revenue the previous year.
The multiple myeloma drug Darzalex took a respectable second place. Sales of the drug totaled $1.58 billion in the third quarter, up 43.7% from nearly $1.1 billion in the same quarter in 2020.
J&J's Stelara drug was the third-largest growth driver in the third quarter. Sales of the plaque psoriasis and psoriatic arthritis drug totaled $2.38 billion in the quarter. That's a 22.2% increase over sales of $1.95 billion in the previous quarter.
Second, it's important to keep in mind that the COVID-19 pandemic continues to have a major impact beyond just the vaccine.
Johnson & Johnson's COVID-19 vaccine certainly contributed significantly to the good third-quarter results. And it could make an even bigger furor in the future. J&J is likely to benefit significantly from booster sales (if, as expected, it gets approved for boosters). However, COVID-19 also continues to have a significant impact on J&J's fortunes beyond the vaccine.
Johnson & Johnson's consumer health business, for example, has been helped by increased sales of the drug Tylenol. The company noted that some of the increase in sales of the over-the-counter drug was due to its use to relieve vaccine-induced symptoms. J&J also reported that sales of ORSL HCP electrolyte drinks increased due to relief of COVID-19 symptoms.
It wasn't all good news, however. Sales bans in parts of the Asia-Pacific region had a negative impact on sales of baby care products. The company said growth in sales of its Imbruvica cancer drug was partially held back by COVID-19-related dynamics. In addition, sales of J&J's orthopedic medical products in the spine, sports, and other category fell mainly because of the impact of COVID-19 on the market.
Finally, the company is now on the cusp of an international tipping point.
Although based in the U.S., Johnson & Johnson has been a major competitor in global markets for most of its history. And now the health care giant is nearing a crucial international stage.
In the third quarter, J&J's U.S. sales rose 7.9 percent year over year to just under $12 billion. Its international sales jumped 13.8% to $11.4 billion. International markets now account for 48.7% of total revenue. At the current rate of growth, by next year more than half of Johnson & Johnson's revenue will come from outside the United States.
Investors should see this as a decidedly positive trend. Greater geographic diversification of revenues could make Johnson & Johnson even more stable than it is now.
