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Johnson & Johnson Earnings: 3 Important Takeaways

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The well-known pharmaceutical company Johnson & Johnson (NYSE: JNJ  ) was one of several components of the Dow Jones Industrial Average (INDEX: ^DJI  ) to report third-quarter earnings today.

The first two Dow components to report, Alcoa (NYSE: AA  ) and JPMorgan Chase (NYSE: JPM  ) , kicked things off last week, reporting results that arguably missed and pounded the consensus estimates, respectively. This week sees an additional 12 reports, making it one of the year's busiest weeks for the blue-chip index.

So far today, the Dow is up triple-digits with only 90 minutes left in the trading session.

How did Johnson & Johnson do?
As you can see below, J&J's unadjusted top- and bottom-line figures came in mixed, beating on the top but missing on the bottom. However, once one-time costs are excluded, the pharmaceutical company earned $1.25 per share -- well in excess of the consensus estimate.


Consensus Estimate



Revenue (billions)




Earnings per share




Source: The Wall Street Journal. Unadjusted for one-time gains/losses.

If the market's reaction is any indication -- shares in the company are currently up 1.08% -- it appears investors have grasped onto the latter number, rather than the former.

In no particular order, here are the three most important takeaways from J&J's earnings release.

1. Currency headwinds
According to J&J's press release, unfavorable currency headwinds reduced third-quarter sales by 4.3%. This was also noted earlier today by Coca-Cola (NYSE: KO  ) , which saw its sales fall by 5% as a result of currency conversion.

As I said regarding Coke:

Much of the uncertainty can be traced to the actions of central banks. Since the beginning of last month, virtually every country's monetary policymakers have opted to flood their respective economies with liquidity. The European Central Bank kicked things off at the beginning of September announcing an "unlimited" bond-buying program focused on the debt of troubled European countries. In its wake, central bankers in the United States, China, Japan, Australia, and Brazil all followed suit. The seemingly related moves have even led some to question whether we're in the midst of a currency war.

2. Acquisition paying off
Earlier in the year, J&J completed its largest acquisition to date, buying Swiss medical-device maker Synthes for $19.7 billion in June. The deal was characterized at the time as "an important step forward in a growing market" because it allows J&J to "move more aggressively into the orthopedic surgery market."

J&J had suffered from a number of disappointments leading up to the surprise acquisition announcement. The most notable was a massive recall of its Infant Tylenol line. Consequently, as you can see in the chart below, shares in the company had trailed those of competitors Pfizer (NYSE: PFE  ) , GlaxoSmithKline (NYSE: GSK  ) , and Merck (NYSE: MRK  ) over the last 12 months.

MRK Total Return Price data by YCharts.

News that the Synthes deal fueled a 6.5% rise in J&J's sales was a welcome relief.

3. Divergent segment results
The final takeaway concerns the divergence between J&J's two primary product lines. While its pharmaceutical unit increased sales by 7% on a year-over-year basis, its consumer unit saw revenue fall by 4.3% over the same period.

The catalyst for the latter's decline was a drop-off in demand for baby-care and women's health products. However, it should be noted that on a constant-currency basis, even the latter increased by an estimated 1%.

Foolish bottom line
All in all, it was a good quarter for the pharmaceutical giant. Despite seismic economic uncertainty, it grew on an operational basis on virtually every front. It's for this reason that many analysts consider it a strong defensive holding. The company pays a 3.6% dividend yield, and in the second quarter it raised its quarterly payout from $0.57 a share to $0.61 a share. For the year, shares in the company are up 5.4%.

For a list of more defensive dividend stocks, download our free report: "The 3 Dow Stocks Dividend Investors Need." To access this instantly, simply click here now.

John Maxfield has no positions in the stocks mentioned above. The Motley Fool owns shares of GlaxoSmithKline, Johnson & Johnson, and JPMorgan Chase & Co. Motley Fool newsletter services recommend GlaxoSmithKline and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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