In earnings season, it's easy to focus on just whether a company beat or missed analyst expectations. But to get a true picture of how it did, it's important to dig down a bit into the financials to see just what drove results. Oftentimes, there are some key numbers that can help answer that question.
Healthcare giant Johnson & Johnson (JNJ +0.45%) released its fourth-quarter earnings last week. And while the headline will be that the company's sales rose 10% and earnings soared 173%, here are three key numbers investors need to look at to better understand the company's performance.
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1. Its consumer health business grew by just 1.1%
Johnson & Johnson's consumer health business has been in the spotlight of late as the company is spinning it off. And while that will mean a loss in revenue for the core company, it won't be a huge loss; for the final three months of 2021, that segment of its business generated sales of $3.7 billion and grew marginally at a rate of 1.1% from the prior-year period.
While the growth may be disappointing, it shows that separating consumer health into a separate entity could be a good move for the overall company. Focusing exclusively on that segment through another business may help yield better results.
In fact, consumer health was the slowest-growing area of Johnson & Johnson's operations in Q4 with medical device revenue rising by 4.1% and pharmaceutical sales jumping 16.5% -- although that number is a bit inflated, as you'll see in the next section.
2. COVID-19 vaccine sales totaled $1.6 billion
In Q4, Johnson & Johnson's top line got a boost from COVID-19 vaccine revenue. Although its pharmaceutical business rose from $12.3 billion a year ago to $14.3 billion in the most recent quarter, a big reason for the difference was vaccine sales. Without the $1.6 billion that the COVID-19 vaccine contributed to the business unit, revenue for the pharmaceutical division would have totaled $12.7 billion. That would still be up from the previous year, but that would equate to a growth rate of just 3.3%.
The company did generate some strong results within the segment as its oncology revenue rose 10% and neuroscience drug sales increased by 5.5%. However, the overall 16.5% growth rate for pharmaceuticals is certainly misleading and can give investors a deceptively rosy picture of how the business unit did.
3. Other expenses declined by $2.3 billion
Net earnings for Q4 were $4.7 billion, more than double the prior-year tally of $1.7 billion. It's an impressive performance, but again it requires some context. During the quarter, the company incurred other expenses of just $9 million. However, a year earlier, that line totaled more than $2.3 billion.
Included in that line are acquisition, restructuring, and litigation expenses. And in 2020, Johnson & Johnson incurred $5.1 billion in litigation expenses -- with $4 billion set aside just for its talc lawsuits. Prior to that, in 2019, it also had to set aside $4 billion, but that time it was to settle opioid-related litigation.
Without a large expense weighing this line-item down, the company was able to net a much more significant profit. If you ignore the other expenses from Q4 2020, then that quarter's net earnings number would improve to $4.1 billion and the year-over-year growth for this past period shrinks to a more modest rate of 15.7%.
Is Johnson and Johnson a better buy on these results?
Overall, it was a solid quarter for Johnson & Johnson with revenue growth in all areas of its business. Even though the numbers are skewed due to COVID-19 vaccine sales and comparable-year numbers that contain higher non-operating expenses, the net result is still positive.
The business continues to see strong growth with and without COVID-19. It expects operational sales to rise by as much as 8.5% in 2022 when including revenue from the vaccine and up to 7.5% growth without it.
While I wouldn't say the stock is a whole lot better due to this performance, Johnson & Johnson could prove to be a safe investment to hold in 2022. It is growing at a decent rate and also pays an attractive 2.5% dividend yield, which is better than the S&P 500's 1.3%. For both conservative and long-term investors, Johnson & Johnson could be a healthcare stock worth adding to your portfolio today.
