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What Investors Liked About Johnson & Johnson's Q3 Results

By Keith Speights and Brian Orelli, PhD – Oct 28, 2021 at 8:01AM

Key Points

  • J&J's sales increased 10.7% year over year with solid growth for all three business segments.
  • Adjusted earnings jumped 18.2% year over year.
  • Three products generated most of J&J's growth.

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The healthcare giant delivered a solid performance in the third quarter.

Johnson & Johnson (JNJ -0.39%) recently reported its financial results for the third quarter of 2021. In this Motley Fool Live video recorded on Oct. 20, 2021, Motley Fool contributors Keith Speights and Brian Orelli talk about what investors especially liked about J&J's results.

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Keith Speights: Brian, it's earnings season once again. Three months go by so quickly. On Tuesday, yesterday, Johnson & Johnson announced its Q3 results. What do you think were the main takeaways for investors from this update?

Brian Orelli: It was a solid quarter for the healthcare conglomerate. Sales were up 10.7% year-over-year. Some of that was due to currency changes, but operational sales were still up 9.9%, so that's pretty solid.

Consumer health was the laggard. It was up 4.1% operationally.

Pharmaceuticals, which is the largest division, was up 13.2%. That drove most of the 9.9% operational sales growth. Stelara, which treats autoimmune diseases, was up 21.7%. Tremfya, which treats plaque psoriasis and psoriatic arthritis, was up 63.5%. Its multiple myeloma drug, Darzalex, was up 42.9%. All three of those were pretty huge gains there. That helped drive the 13.2% in the pharmaceutical division.

Then medical devices were up a solid 7.7% operationally.

On the bottom line, earnings were up just 3% on a GAAP basis, but adjusted earnings increased 18.2%. It looks like litigation expenses and in-process research and development due to acquisitions were the main difference between that 3% on a GAAP basis and the 18.2% adjusted, which I think is probably a more accurate representation of the company's overall health.

It seems like they're doing well. Johnson & Johnson has routinely been able to grow earnings faster than revenue by becoming more operationally efficient. And we've definitely seen that this quarter.

Speights: I was looking at the results yesterday, Brian, and one thing that really jumped out at me: 63% of J&J's year-over-year revenue growth was driven by just three products. That's really surprising. Johnson & Johnson markets hundreds of products across its three major business segments.

But obviously, the COVID-19 vaccine was a big factor there. It pulled in a little over $500 million versus nothing last year. That was a big growth driver.

You'd already mentioned the myeloma drug, Darzalex. It was another big growth driver. Then the plaque psoriasis and psoriatic arthritis drug was still another big guard. But those three products drove well over 60% of the company's total revenue growth and around 90% of its pharmaceutical sales growth. That's surprising.

Orelli: Yeah. Obviously, when you go from zero to something, that will help it. Of course, that's not really actually driving the bottom-line growth because Johnson & Johnson isn't really trying to profit from its vaccine. While that helped the top line, it didn't really actually help the bottom line at all.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

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