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Here's What Investors Need to Know About Johnson & Johnson's Q3 Earnings

By Rachel Warren – Updated Nov 3, 2021 at 5:55PM

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The healthcare company reported financial results on Oct. 19.

Johnson & Johnson (JNJ -0.37%) is a healthcare company known for its household-name consumer health products. The company has had a strong year of financial performance in 2021 coming off of some adverse headwinds in 2020, and it reported its third-quarter earnings on Oct. 19. In this segment of Backstage Pass, recorded on Oct. 19, Fool contributor Rachel Warren reviews the company's third-quarter report and highlights some points investors need to be aware of. Fool contributor Brian Withers is also in the clip.

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Brian Withers:  I think Rachel is up next for a company that needs no introduction.

Rachel Warren: This is true. Today I'm going to be talking about Johnson and Johnson. I think this is a name that everyone knows. Everyone probably has a product from this company in their home. Johnson and Johnson reported its earning the for third quarter of fiscal 2021 today.

This is a company I talk about a lot. I talked about a couple of shows last week, I was really looking forward to seeing what it was going to report of its earnings, I'm a shareholder myself. It's not the kind of company that's been known or is generally known for super fast growth, either from a balance sheet perspective or even in terms of share price.

But I think the reason that investors often buy a company like Johnson and Johnson is for the stability it affords and the safety of its dividend, which it has steadily raised every year for nearly 60 years now. And particularly, in the environment companies are operating and now where, especially in the earlier days of the pandemic, so many companies having to pause their dividends. I think that's a really notable point for this company.

Just a brief background here before we dive into earnings. For anyone who might not know, the company divides its business into three primary segments: so, consumer health, pharmaceutical, and medical devices. 

I think consumer health, its products are the most well-known, everything from Listerine to Aveeno, to Tylenol. Its pharmaceutical products span all different areas of healthcare from cardiovascular medications, genealogy. Then there's the company's medical devices segment, those are used in all types of different surgeries, from a trauma surgeries, to spinal surgery, to sports medicine.

Coming off of 2020, the company reported only about 1% operational sales growth last year. It's medical devices segment was particularly hard hit with so many surgeries being deferred at the height of the pandemic. Then in the first couple of quarters of this year it's reported really great consistent growth.

I think that was something investors were really curious about whether that was going to continue going into the third quarter. I'm just going to share my screen here real quick. One moment while it loads. There we go.

Overall, I think it was a really great quarter. Johnson & Johnson does not provide quarter to quarter guidance. They only release guidance on an annual basis. In terms of how the company did this quarter, it beat analysts adjusted earnings per share projections.

As you can see here, analysts were projecting about $2.35 in adjusted earnings per share, and the company actually came in with adjusted earnings per share of $2.60, which was 18% higher than the year-ago period.

Where it did fall a little bit below expectations, it was in its sales results. Analysts were projecting sales to the tune of about $23.7 billion. The company came in just slightly under that at $23.3 billion. Still about 11% increase in sales year over year. There were some other really good things to mention from this report.

The company continued its streak of profitability in the most recent quarter, so it reported net earnings of just a little under $4 billion, which represented growth of about 3% from the year-ago period. Then earnings per share were also up 3% year over year.

Again, breaking down growth by each of its segments. Its pharmaceutical segment has historically been the area where the company has reported its strongest rates of growth. Again, seeing that was up 14% from the year-ago quarter.

Consumer health sales, consumers are continuing to buy those basic products that they use on a daily basis at a steady rate. That was up about 6% from the year-ago period.

I personally was really happy to see this rate of growth in its medical devices segment. As I had mentioned a little bit ago, this was a portion of Johnson & Johnson's business that really faced some significant headwinds in the earlier days in the pandemic, with so many procedures being deferred.

That segment has continued to really gain significant ground in 2021 this is recovered. another thing of note was management actually elevated the company's full-year sales guidance again. They had done so, I believe, in the previous report.

Not a huge jump, but previously they had been estimating between 13.5% and 14.5% sales growth for 2021. As you can see, they raised that just slightly, they are now projecting between 13.9% and 14.5% percent sales growth for the full year.

As well, the management also increased adjusted EPS guidance. They raised that from a previous projection that the company would raise that metric by as high as 21%.

Now, they're estimating the company can actually, on the high end, raise adjusted earnings per share for 2021 by 22.3%. I think all in all, it was a positive quarter of growth for the company. 

Rachel Warren owns shares of Johnson & Johnson. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

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